INT MKT/MGT Chapter 8
Monetary and fiscal policies have A. nothing to do with exchange rate movement. B. influence interest rates and taxation, and so may influence exchange rates. C. no predictable influence on inflation. D. no influence on trade patterns.
B
One attribute of the U.S. tariff schedule is A. that it is printed in both Arabic and Hebrew. B. how specific it is. C. that its categories are quite general and easy to apply. D. that its harmonized version can be accessed via cellphone and Ipad.
B
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.
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.
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.
C
Foreign reserves are used to A. help foreigners who need additional funds. B. provide military support to foreign operations, eg., the French legion, 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.
C
If the Japanese yen is strengthening against the U.S. dollar, and the Japanese government wanted to boost exports, the Central Bank of Japan might well A. sell U.S. dollars in large amounts in the currency markets. B. buy massive amounts of Japanese yen in the FX markets. C. sell massive amounts of Japanese yen in the FX markets. D. buy massive amounts of other hard currencies such as the British pounds sterling and the euro, to deflect the focus on dollars.
C
A vehicle currency is a currency A. used to trade in the transportation sector, usually 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.
D
In an inflationary economy the following conditions may be present: A. demand exceeds supply. B. money supply is increasing. C. prices are rising. D. all of the above.
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.
D
The U.S. current account deficit can be explained by A. citizens of other nations wanting to hold dollars because it is a stable currency. B. foreigners wanting to invest in the U.S. C. U.S. citizens importing more than they are exporting. D. B and C
D
The balance of payments account is divided into the following three major subaccounts: A. trade, capital and debt. B. cashflow, assets and reserves. C. services, cashflow and debt. D. current, capital and reserves.
D
The present floating exchange rate system was A. designed by the IMF and implemented flawlessly in 1973. B. established by the major trading nations in 1972 after Nixon closed the gold window. C. implemented in tandem with a reintroduction of the gold standard. D. established after several trials in which central bankers set rates incorrectly and speculators corrected them in the markets, and formalized after the fact in the IMF's Jamaica Agreement.
D
The price of gold since about 1200 AD has been A. trending downward. B. flat, keeping its value. C. wildly fluctuating. D. trending upward.
D
When a government requires a permit to purchase foreign currency, the exchange rates A. are market-driven. B. can be negotiated by the firm. C. are unpredictable. D. are set by the government, often above the free market rate.
D
When the law of one price is applied to interest rates, it suggests that A. interest rates do not differ much across national borders. B. inflation is not affected by interest rates. C. inflation and interest rates do not follow the law of one price. D. varying interest rates take into account anticipated differences in inflation rates.
D
The Bretton Woods system led to minimal growth in international trade but helped to reduce inflation levels. true or false
False
The complexity of the gold standard was a part of its appeal. true or false
False
Sir Isaac Newton established the price of gold in 1717 and de facto put England on the gold standard. true or false
True
Currency exchange controls are found most frequently in A. developing countries. B. developed countries. C. countries with pegged exchange rates. D. non-democratic countries.
A
Fixed rate relationships among currencies could not stay fixed, according to Obstfeld and Rogoff, because A. the volume of global transactions started to exceed most countries' foreign exchange reserves, so governments couldn't intervene to sustain the value of their currency. B. the complexity of international trade demanded return of the gold standard. C. WalMart and other leading firms argued successfully at the Federal Reserve that fixed rates were too costly to maintain. D. the EU had decided to float the euro.
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.
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.
A
Purchasing Power Parity is a way to compare A. the purchasing power of several currencies. B. tastes in several different cultures. C. the impact of financial aid in several economies. D. meals in the quick service restaurant sector--via the Big Mac Index.
A
Taxation is a financial force in that A. if the firm can achieve a lower tax burden than its competitors, it can generate higher revenues, and then lower its prices or pay higher wages and dividends. B. governments, who enact taxes, are formal institutions that enforce tax law via force. C. businesses are compelled by foreign governments to pay taxes. D. it is not controlled by the firm.
A
The International Fischer effect says that interest rate differentials A. predict exchange rate movement. B. can be used to determine purchasing power parity. C. are an example of the law of one price. D. illustrate Pareto optimality.
A
The balance part of the BOP is explained by A. the accounts being double-entry, so they are always balanced. B. imbalances showing immediately. C. actions governments take to achieve the balance. D. none of the above.
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.
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.
A
The three major taxes governments use to generate revenue are A. VAT, income tax and withholding tax. B. sales tax, VAT and income tax. C. property tax, VAT and sales tax. D. income tax, property tax and sales tax.
A
With increasing inflation, borrowing becomes A. more attractive because repayment can be made with cheaper money. B. less attractive because repayment is made with dearer money. C. impossible because money has lost its value. D. a mute issue because of liquidity issues.
A
A purchase of foreign goods within the U.S. will be recorded in the BOP as A. an asset in the current account. B. a debit in the current account. C. because the purchase is made in the U.S., it will have no record in the BOP. D. a liability in the foreign transfer account.
B
A value-added tax is actually a sales tax that is A. paid by the firm rather than the consumer. B. paid in stages along the process from raw materials to consumer, and then credited after final sale. C. called a value-added to create a positive spin on taxation. D. voluntarily paid on exports.
B
Arbitrage functions to A. provide French markets access to other EU markets. B. exploit price differences between markets, so as to profit with no risk. C. create wealth through interest rate swaps. D. create increased trading in commodity markets.
B
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.
B
Financial forces such as inflation and taxation are considered uncontrollable because A. there is nothing a manager can do to adjust to them, so the recommended approach is to ignore them. B. they are external forces beyond the influence of the firm, around which a manager can manage. C. they are external to the firm and their influence is to be avoided. D. they are unpredictable.
B
In order to strengthen the U.S. dollar, the Federal Reserve might sell yen and buy dollars, in which case the yen functions as A. a stronger currency than the dollar. B. an intervention currency. C. an arbitrage currency. D. none of the above.
B
The Eonomist's Big Mac Index (May 2010) suggests that against the dollar, the Chinese yuan is A. trading fairly, since the Big Mac prices are similar. B. quite undervalued, since the Chinese Big Mac is almost 50% less expensive than the U.S. $ Big Mac. C. is overvalued, since the Big Mac sells for almost 50% less in Chinese currency than in U.S. dollars. D. trading at a historical premium.
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.
B
The inflation rate determines A. a currency's strengthening. B. the real price of borrowing in capital markets. C. locations for outsourcing. D. import substitution regimes.
B
What is appealing about the gold standard is A. everyone loves gold. B. its simplicity. C. its transportability. D. its carrying costs.
B
World interest rates tend to vary across a small range because A. the IMF has been successful at promoting responsibility in the monetary sector. B. world financial markets are integrated, so we see the law of one price at work. C. bankers have low market appeal, given the financial crisis. D. the BIS has coordinated monetary policy.
B
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.
C
Market forces that set the relative prices of currencies are A. not influenced by government policies. B. not influenced by world events. C. influenced by many forces including forces external to business such as world events. D. A and B.
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 lb., 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.
C
The Fisher effect states that the real interest rate A. is the nominal rate plus the recorded inflation rate. B. is the only measure to use in calculating PPP. C. is the nominal rate minus the expected inflation rate. D. is the difference between the nominal rate and the inflation rate.
C
The inflation rate determines A. the capital structure of the firm. B. the growth rate of sales. C. the real cost of borrowing in capital markets. D. the equilibrium point.
C
The law of one price is that A. only one price can be charged for an item in a contract deal. B. in an efficient market, one price only is the permissible price. C. in an efficient market, like goods will have like prices. D. even in international markets, bait and switch is illegal.
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%. 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.
C
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.
D
The international Fisher effect says that the interest rate differentials in any two currencies reflect A. the ratio of their inflation rates minus COL. B. arbitrary differences in the two economies. C. PPP differences in the two economies. D. the expected change in their exchange rates.
D
The lowest corporate tax rates are found in A. the U.S., Brazil, India and France. B. Brazil, China, Australia and Japan. C. Peru, Australia, Italy and Luxembourg. D. Switzerland, Ireland, Singapore and Russia.
D
Withholding tax is A. an indirect tax paid by employers before employees receive salaries. B. a direct tax levied on earned income. C. a 30% tax levied on foreign residents. D. an indirect tax levied on passive income.
D
As a result of Bretton Woods and the dollar's use as a proxy for gold, the U.S. ran up a Balance of Payments deficit of around $56 billion, which led to the U.S. going off the gold exchange standard in 1971. true or false
True
A central reserve asset is a holding that has value that is held by private banks in case of a liquidity crisis. true or false
false
Allied and Axis governments met in Bretton Woods in the final days of WWII. true or false
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. true or false
false
DeGaulle pushed Nixon to close the gold window at Treasury, and this one action moved the IMF toward a floating exchange rate system. true or false
false
Exchange rate forecasting is an advanced science; with the correct data, we can predict with accuracy exchange rate movements. true or false
false
Monetary policies control the collecting and spending of money by governments. true or false
false
One possible current currency arrangement is a fixed peg, where the exchange rate of a currency is allowed to move (within a narrow band) with another currency. One example is the Canadian dollar to the U.S. dollar. true or false
false
Tariffs are not a financial force; they are a political force. true or false
false
The Big Mac Index is an example of purchasing power parity, an international measure of junk food consumption. true or false
false
The Bretton Woods meeting in 1944 established a fix rate exchange system among Allied governments that was imposed on the Axis governments. true or false
false
The U.S. in recent years has had a significant deficit in its current account. This means that the U.S. citizens are exporting more than they are importing. true or false
false
The balance of payments is a record of a country's transactions with its major trading partners. true or false
false
The controlling mechanism for a gold-based exchange system and a floating rate system are the same. true or false
false
The exchange rate for today for delivery within two days is known as the current rate. true or false
false
The law of one price states that in an efficient market, like products will never have like prices. true or false
false
As global financial markets become more integrated, we can expect countries' inflation rates to vary over a small range. true or false
true
BOP accounts are recorded in a double-entry bookkeeping method, with each transaction having a debit and credit side. true or false
true
Brazil, India and the U.S. are among the highest corporate tax locations. true or false
true
China would like greater participation of worldwide institutions such as the World Bank and IMF in the management of the international financial environment. true or false
true
Countries put limitations on the convertibility of their currencies when they are concerned that their foreign reserves could be depleted. true or false
true
Currencies float because they are allowed to make their own adjustments in the marketplace. true or false
true
Global foreign currency exchanges transactions total over $3.2 trillion daily. true or false
true
If freely floating currencies are allowed to fluctuate against one another, at times the fluctuations might be quite large. true or false
true
In POB accounting, a deficit in the current account is always accompanied by a surplus in the capital account. true or false
true
Inflated currencies tend to weaken. true or false
true
One exchange arrangement is to have no separate legal tender. true or false
true
The Bank for International Settlements is like a central bank for central bankers. true or false
true
The Bank for International Settlements operates as the banker for central banks. true or false
true
The Bretton Woods system worked until the late 1960ies. true or false
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 or false
true
The Value-Added Tax (VAT) can be rebated to exporters, according to WTO rules. true or false
true
The international Fisher effect states that the interest rate differentials for any two currencies reflect the expected change in their exchange rates. true or false
true
The random walk hypothesis suggests that the best predictor of tomorrow's currency prices are today's prices. true or false
true
The spot rate is the rate for exchange within two days in the currency market. true or false
true
When a business pays in dollars for an import from Turkey, the dollars that leave the U.S. will eventually show up as a credit on the U.S. capital account. true or false
true
When a country imports more than it exports, the currency might be expected to weaken. true or false
true
