CBA 396 Chapter 8 T/F Questions

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A central reserve asset is a holding that has value that is held by private banks in case of a liquidity crisis.

False

Allied and Axis governments met in Bretton Woods in the final days of World War II. T/F

False

Currency exchange rate movements are well understood by economists and can be accurately forecast, which eliminates risk for the international seller operating with exposure outside the home currency. T/F

False

Exchange rate forecasting is an advanced science; with the correct data, we can predict with accuracy exchange rate movements.

False

Monetary policies control the collecting and spending of money by governments.

False

One possible current currency arrangement is a fixed peg, whereby the exchange rate of a currency is allowed to move (within a narrow band) with another currency. One example is the pegging of the Canadian dollar to the U.S. dollar.

False

Tariffs are not a financial force; they are a political force.

False

The Big Mac index is an example of purchasing power parity, an international measure of junk-food consumption.

False

The Bretton Woods meeting in 1944 established a fixed-rate exchange system among Allied governments that was imposed on the Axis governments. T/F

False

The Bretton Woods system led to minimal growth in international trade but helped to reduce inflation levels. T/F

False

The United States in recent years has had a significant deficit in its current account. This means that U.S. citizens are exporting more than they are importing. T/F

False

The balance of payments is a record of a country's transactions with its major trading partners.

False

The balance of payments is a record of a country's transactions with its major trading partners. T/F

False

The complexity of the gold standard was a part of its appeal.

False

The controlling mechanism for a gold-based exchange system and a floating-rate system are the same.

False

The exchange rate for today for delivery within two days is known as the current rate. T/F

False

The law of one price states that in an efficient market, like products will never have like prices

False

As a result of Bretton Woods and the dollar's use as a proxy for gold, the United States ran up a balance-of-payments deficit of around $56 billion, which led to the United States going off the gold exchange standard in 1971. T/F

True

BOP accounts are recorded in a double-entry bookkeeping method, with each transaction having debit and credit sides. T/F

True

Brazil, India, and the United States are among the highest corporate tax locations.

True

China participates in the management of the international financial environment by managing its currency.

True

Countries put limitations on the convertibility of their currencies when they are concerned that their foreign reserves could be depleted. T/F

True

Currencies float because they are allowed to make their own adjustments in the marketplace.

True

Global foreign currency exchange transactions total in the area of $4 trillion daily.

True

If freely floating currencies are allowed to fluctuate against one another, at times the fluctuations might be quite large.

True

In POB accounting, a deficit in the current account is always accompanied by a surplus in the capital account. T/F

True

Inflated currencies tend to weaken.

True

One exchange arrangement is to have no separate legal tender.

True

Sir Isaac Newton established the price of gold in 1717 and de facto put England on the gold standard.

True

The Bank for International Settlements is like a central bank for central bankers.

True

The Bank for International Settlements operates as the banker for central banks.

True

The Bretton Woods system worked until the late 1960s. T/F

True

The Fisher effect describes interest rate parity; it's the law of one price applied to interest rates. Interest rates vary to take into account anticipated differences in inflation levels.

True

The international Fisher effect states that the interest rate differentials for any two currencies reflect the expected change in their exchange rates.

True

The random walk hypothesis suggests that the best predictor of tomorrow's currency prices are today's prices.

True

The spot rate is the rate for exchange within two days in the currency market.

True

The value-added tax (VAT) can be rebated to exporters, according to WTO rules.

True

When a business pays in dollars for an import from Turkey, the dollars that leave the United States will eventually show up as a credit on the U.S. capital account. T/F

True

When a country imports more than it exports, the currency might be expected to weaken.

True

When a country imports more than it exports, the currency might be expected to weaken. T/F

True


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