Question

1. If an American real estate contracting firm is bidding on a project overseas and might need foreign currency if they win the bid, but is not sure. They should buy a _________ contract.

1. Forward
2. Put option
3. Futures
4. Call option

2. The exchange rate system where rates are determined by market forces without government intervention is a ___________ system?

1. Fixed
2. Managed float
3. Freely floating
4. Pegged

3. Mexico’s exchange rate crisis where they had to devalue the peso by 50% in 1994 was caused by which exchange rate system?

1. Fixed
2. Managed float
3. Freely floating
4. Pegged

4. Which of the following is a TRUE statement with respect to the impact of the euro?

1. European firms’ product prices are more difficult to determine w.r.t. foreign currency costs
2. Interest rates across European countries differ more now than before there was a euro
3. Investing across European countries provides less diversification now than before the euro
4. Contagion is less likely now that the euro has been instituted

5. When a U.S. government intervenes in foreign currency markets while adjusting the money supply via buying or selling treasuries, they are conducting ___________.

1. Non-sterilized intervention
2. Sterilized intervention
3. Contagion
4. None of the above

Answer 1

If an American real estate contracting firm is bidding on a project overseas and might need foreign currency if they win the bid, but is not sure. They should buy a call option contract. (since the company might need to buy foreign currency.)

The exchange rate system where rates are determined by market forces without government intervention is a freely floating system.

I can only answer 1 question at a time but I am solving 2 questions here. Please do rate me and mention doubts in the comments section.