ch 8

t

A government can limit the amount of its currency that can be exchanged for another currency in a particular transaction. Controls differ greatly from country to country developed countries have few/no currency exchange controls. mexico has limited this in order to incrase foreign investment

d

A vehicle currency is a currency: A. used to trade in the transportation sector and is usually the dollar, euro, or yen. B. whose value lies in its function in transfer pricing. C. specifically used in arbitrage deals as a trading medium only. D. used for international trade or investment.

t

As a result of Bretton Woods and the dollar's use as a proxy for gold, the United States ran up a balanceof- payments deficit of around $56 billion, which led to the United States going off the gold exchange standard in 1971.

t

B Woods fixed rate system: IMF and WB created it in 1944 countries fixed the value of their currency in gold, but were not required to exchange currencies in gold only US $ was convertible to gold imposed monetary discipline /flexibility collapsed when the US money supply grew less uncertainty cuz its fixed

t

Balance of trade is not the same of the balance of payment, it's a component of the balance of payment

c

Balance-of-payments data: A. reveal a country's assets. B. suggest areas of concern in monetary and fiscal policy. C. reveal demand for a country's currency. D. show how the country's currency arrangement (fixed, pegged, floating) is valued.

t

Bank for International Settlements (BIS) organization of central banks that exists to build cooperation among them to foster monetary and financial stability super lowkey

c

Bretton Woods led to an exchange rate agreement known as the Bretton Woods System or: A. the floating-rate system. B. the India Accord system. C. the gold exchange standard. D. the French rate system.

t

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

c

Countries put limitations on the convertibility of their currency when they are concerned that: A. there is too much domestic spending. B. foreigners will hold control of their monetary policy. C. their foreign reserves could be depleted. D. there is not enough domestic spending

t

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

a

Currency exchange controls are found most frequently in: A. developing countries. B. developed countries. C. countries with pegged exchange rates. D. nondemocratic countries.

short selling

Currency speculation _______: betting that the value of an asset will decline and then profiting from that decline. Your hoping the price will go down and at a future date u can buy it back. (shares)

hedging

Currency speculation __________- trying to protect urself. If you have an agreement on exports or imports of 90 days, you might wish to lock in currencies. So go to the futures market and sign acontract that says you will buy certain curreny at a certain date Small cost. price are all over the place. not speculators (risk takers) plan ahead

t

Dealers will quote an above-spot 'ask' price when selling to you and a below-spot 'bid' price when buying from you "

a

Exchange rate forecasting is: A. important because exchange rates influence all aspects of business. B. important because markets depend on solid information. C. unimportant because exchange rate forecasting does not have a theoretical model. D. unimportant because exchange rate movements do not impact international transactions

c

Foreign reserves are used to: A. help foreigners who need additional funds. B. provide military support to foreign operations, for example, the French legion and UN peacekeepers. C. cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter. D. support foreign operations that are branches but not subsidiaries.

a

Historically, gold has been used as a way for people to store value because of its: A. purity and scarcity. B. high transportation and security costs. C. lack of interest-earning ability. D. all of the above.

t

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

c

In 1717, Sir Isaac Newton took Britain from the silver standard (pounds sterling) to: A. floating exchange rates. B. fixed exchange rates, using silver. C. the gold standard, with fixed rates. D. pegged rates

a

In general, with regard to exchange controls, developed countries: A. rarely use them. B. use them only to discourage foreign investment. C. use them when needed to implement monetary policy. D. use them secretly.

d

Most significantly for the international manager, the balance of payments reveals: A. demand for a firm's products. B. a firm's financial position. C. a country's export patterns. D. demand for a country's currency and potential changes in its economic environment.

t

Prices are given for buying (bid) and selling (ask or offer). how much of the foreign currency you can purchase per U.S. dollar or its reciprocal, how many U.S. dollars a unit of the other currency would buy The forward rate is the cost today for a commitment to buy or sell an agreed amount of a currency at a fixed, future date, bid price Highest priced buy order that is currently in the market ask price Lowest priced sell order that is currently in the market

t

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

c

Sir Isaac Newton put England on the gold standard when he: A. declared, as master of the English mint, that he would sell gold for 1 pound, 1 shilling, 1 pence, under the law of one price. B. set a market price for gold, the British pound and the U.S. dollar. C. established a fixed equivalency between gold and the British currency. D. brought the matter to Queen Anne, who declared Britain would follow the gold standard.

t

TERM o Types of money: ♣ Commodity money- Has intrinsic worth. Value comes from its material. (gold, silver, tobacco) ♣ Fiat money - No intrinsic worth. Value comes from governments declaring it legal tender (paper currency) ♣ Digital currency - No intrinsic worth. Value determined by software (bitcoin)

d

The U.S. current account deficit can be explained by: A. citizens of other nations wanting to hold dollars because the dollar is a stable currency. B. foreigners wanting to invest in the United States. C. U.S. citizens importing more than they are exporting. D. B and C.

f

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.

b

The balance-of-payments account is a record of: A. the total tangible trade flows of a country over a five-year period. B. a country's transactions with the rest of the world. C. a country's total debt service payments during a one-year period. D. the outstanding balance of a country's debt payments for the fiscal year.

d

The balance-of-payments account is divided into the following three major subaccounts: A. trade, capital, and debt. B. cash flow, assets, and reserves. C. services, cash flow, and debt. D. current, capital, and reserves

d

The current account on the BOP has three subaccounts: A. export, import, and capital. B. tangible exports, tariff revenues, and capital. C. fixed assets, current liabilities, and long-term debt. D. merchandise, services, and unilateral transfers.

a

The forward currency market: A. allows purchasers to lock in purchases of currencies at known rates. B. provides governments a way to manage their currency's value. C. makes trading in several currencies more efficient. D. helps managers manage domestic debt.

c

The present floating exchange rate system is not a totally free float because: A. there is an exchange fee of 1.5 to 1.75 percent. B. some governments refuse to allow foreign traders to trade their currency. C. some central banks from time to time intervene in the market to buy or sell large amounts of currency to affect the supply and demand of a particular currency. D. A and B.

t

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

a

The three main approaches to exchange rate forecasting are: A. the efficient market approach, the fundamental approach, and the technical approach. B. the efficient market approach, the random walk hypothesis, and the pragmatic approach. C. the random walk hypothesis, the pragmatic approach, and the fundamental approach. D. none of the above

t

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.

nominal

______Exchange rates: the price of one currency in terms of another , set by markets or gov

real

______Exchange rates: what one currency can buy in terms of another (goods and services can buy in another country) local prices vary. london vs liverpool

forward

________ exchange rate (price) future- ppl who wish to lock in a rate, same with counter parties from opposite pov. make an agreement.

t

balance of payment accounts: 1. current account: Net changes in exports and imports of goods and services—tangibles and intangibles. A. Goods or merchandise account—tangibles; net balance known as the trade balance. B. Services account—intangibles. C. Unilateral transfers—transfers with no reciprocity (gifts, aid, migrant worker earnings), to satisfy the needs of double-entry recording, entry made that treats the aid or gift as purchase of goodwill. Remittances- when ppl from another country work in your country they may be sending money back home. Sending US money to family members in their home country

t

balance of payment accounts: 2: capital account: net changes in assets and liabilities portfolio investment, which is the purchase of stocks and bonds solely for the purpose of obtaining a return on the funds invested, and direct investment,Surplus in capital account and deficit in current account- aka balance of payments short term capital flow like currency exchange rates- ur dollar going up .

t

balance of payment accounts: 3. official reserves account- net increase or decrease in gold, foreign currencies, or liabilities to foreign control banks

t

balance of payment accounts: 4. net statistical discrepancy- if theyre in balance. Really hard to get everything to match up. There is a lot of money flowing in and out of countries that is not accounted for. Hard to make everything balance out

t

bretton woods system: gold exchange standard / fixed rate system: big deal. it was the internat. monetary system from 1945-1971 fixed exchange rates among member nations $ par value based on gold / US dollar US dollar was the only currency to be redeemable for gold. It established the U.S. dollar as the global currency, taking the world off of the gold standard. created WB and IMF

t

efficient market approach: current market prices reflect all info random walk- predict tomorros prices by todays fundamental approach: exchange rate prediciton based on economic models tehchnical approach- analyze data and trends

t

floating exchange rate system: markets set currency values, yet the gov does intervene clear trade balance adjustments flexible exchange rate system. unlike fixed

t

free convertible is a hard currency. currencies can be exchanged for other currencies w out constriction- Yen, Dollar, Pound. There are some cases when currencies (externally convertable) only allow non residents to use it. There are times where the gov wants to keep its citizens from buying foreign currency. They may allow non residents, but the residents themselves are prohibited from doing this . Non convertible- currencies are not allowed to be traded ever.

foreign exchange

functions of the _____________ market: convert currencies. need to convert money if your doing international bus. for speculation, exports ,investments, payments very liquid, operates 24/7, so many sellers and buyers of currency

t

global remittances- sometimes its ppl working in poor countries sending to rich countries, rich to poor, rich to rich. balance of payments

t

gold standard was 1860-1914 banned by everyone.. 1930 -currencies are pegged to gold and are convertable -gov cant created money unless its backed by gold -good balance of trade -stable prices -gold producing countries benefit -cant ease recession -no long term growth -not sustainble

t

if currency is going down, its sold at a discount. if therews a huge global market, currency will go up and be sold at a premium.

t

isaac newton established a price of gold in terms of british currency, called the gold standard. (use of gold at an establish number of units per currency) how much gold you have is represented with how many dollars you have. gov can only create money that is backed by gold. not flexible at all.

spot

the ____ exchange rate is the rate at any given time. it fluctuates when u buy or sell a metal, the seller will reference a spot price and add or subtract from it. like the market price

US

the ____is the most important vehicle currency ppl will trade currencys with them then use that currency to trade with another country, bc this countrys money is more liquid FOLLOWED by yen and pound

t

the balance of payments is a record of a countrys transactions with the rest of the world.

t

the efficient market school uses forward exchange rates- the best way to tell future market is to look at places like tokyo, NY.

t

the inefficient market school- uses fundamental/technical analysis. "maybe we can beat the market"

t

what determines exchange rates? (economic factors) If economic growth is strong, that will tend to keep the countries currencies up. balanced budget- inflation has negative impacts sometimes trade surplus- if in flow vs out flow....trade deficit interest rates high- attract investors . if they go up, investemnts go up