Chapter 9 Quiz
commercial banks
Financing business activity, exchanging foreign currencies, and facilitating adjustments in national money supplies are the most important functions of ________.
national pension and healthcare programs
The largest proportion of government debt results from ________.
Investment banks
__________ underwrite (guarantee the sale of) stock and bond issues and advise on mergers.
The value of the currency will weaken as residents and foreign investors exchange their holdings for hard currency.
A developing country has experienced rapid changes in the value of its currency and the military is rumored to be planning a coup. How is this instability likely to affect the value of the nation's currency?
Pegging its currency to the value of a hard currency or basket of currencies
A developing country wants to stabilize the value of its currency. Which strategy is most likely to achieve that goal?
Norway
According to the 2015 World Economic Outlook Database, the country with the lowest level of debt is ________.
very large flows of capital have been invested into stock markets around the world
China and the former Soviet Union opened to global business following the globalization of finance in the 1990s. Today, it is true that ______.
Etwas will have a steady stream of revenue from its international sales.
Etwas is a Germany-based appliance company that is preparing to begin international operations, wherein it plans to open several production facilities and sales centers abroad. The company needs a substantial amount of capital to start its international operations and needs to decide whether to pursue financing by selling bonds in the global market. Which of the following would strengthen the case for Etwas's seeking to acquire capital by selling bonds?
currency risk
For firms engaged in international business, fluctuations in the exchange rate are likely to create ________, which is the potential harm that can arise from changes in the price of once currency relative to another.
balance of payments
Governments must manage their ________, the annual accounting of all economic transactions of a nation with all other nations.
Buy their currency in the foreign exchange market.
If a nation's central bank wants to support the value of its currency, which strategy would best achieve that goal?
capital flight
Investors withdrew a significant amount of rubles from Russia in 2014 when global investors became far less confident in the Russian economy. This is an example of ________.
International Monetary Fund
The institution that attempts to stabilize currencies by monitoring the foreign exchange systems of member countries is the ________.
institutional investors
The most significant participants in national stock and bond markets are _____.
foreign exchange
The term ________ represents all the forms of money that are traded internationally, including bank deposits, checks, and electronic transfers.
undervalue its currency
To keep the value of its currency artificially high, a government would most likely ________.
Single-currency systems have taken on an increasingly important role.
What is a cause of the growing integration of global financial and monetary systems?
supply and demand
When the value of a nation's currency is allowed to fluctuate, the most important factor determining its exchange rate is ________.
Global financial system
Which of the following consists of the collective financial institutions that facilitate and regulate flows of investment and capital funds worldwide?
A currency that can be easily exchanged for other currencies
Which of the following describes a convertible currency?
Another name for the fixed exchange rate system is the pegged exchange rate system.
Which of the following describes the fixed exchange rate system?
In an attempt to stabilize foreign exchange, the World Bank provides nations with short-term loans.
Which of the following does NOT describe the World Bank?
New product ideas have been brought to Africa by foreign banks.
Which of the following indicates a solution to the banking problems in Africa?
If a nation faces a trade deficit, the fixed exchange rate system allows for a more natural correction. (TRUE ANSWERS: Governments achieve the flexibility to adjust monetary policy because of the floating system. Supply and demand set daily exchange rates. World exchange markets allow global currencies like the dollar to float on exchange markets. Market forces establish currency values.)
Which statement about a floating exchange rate system is FALSE?
Excessive government spending has led to increased debt.
Why has debt substantially increased in major advanced economies?