international business exam 4 practice

A country's trade balance is in surplus when its exports are more than its imports. its exports equal the imports. the prices of commodities are low in the country. it experiences negative inflation.

a

The World Bank was established at the at Bretton Woods conference to a promote general economic development. b fund the initiatives of the United Nations. c establish the gold standard across the world. d establish an international monetary system.

a

The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value. pegged gold value. gold standard. golden rule.

a

The international monetary system refers to the institutional arrangements that govern exchange rates. foreign direct investment. microeconomic parameters. gross domestic produce.

a

The monetary autonomy argument is supported by the advocates of a floating exchange rates. b a dirty-float system. c pegged exchange rates. d fixed exchange rates.

a

An American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment? does dollar appreciate or depreciate

appreciates

A currency crisis occurs due to a the loss of confidence in a country's banking system. b a speculative attack on the exchange value. c heavy foreign debt obligations. d high levels of trade deficit.

b

Which of the following statements is true of the Bretton Woods agreement? a Two multinational institutions, the World Economic Forum and WTO, were formed under the agreement. b The system accepted the British pound as the official reference currency against gold. c All countries agreed to fix the value of their currency in terms of gold under the agreement. d The agreement established a floating system of monetary exchange

c

Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high?

carry trade

A country is said to be in balance-of-trade equilibrium when a it has the potential to produce all goods that its residents want without engaging in foreign trade. b the country imports all goods that its residents want by engaging in foreign trade. c it has the potential to balance the production and procurement of the basic amenities that it needs. d the income its residents earn from exports is equal to the money its residents pay for imports.

d

International Monetary Fund members were ________ in the Jamaica agreement. permitted to sell their own gold reserves, but only at the price set by IMF required to hold their gold reserves in escrow not permitted to sell their own gold reserves permitted to sell their own gold reserves at the market price

d

The ________ refers to the institutional arrangements that govern exchange rates. a currency exchange b World Bank c gold standard d international monetary system

d

The world's four major trading currencies, the Japanese yen, the U.S. dollar, the British pound, and the European Union's euro, are all free to float against each other. What is this an example of? a fixed exchange rate regime b pegged exchange rate regime c managed-float system d floating exchange rate regime

d

Under a ________ exchange rate regime, a country will attach the value of its currency to that of a major currency. a currency board b free-float c managed-float d pegged

d

Which of the following arguments is against the use of fixed exchange rates? Governments are likely to expand the monetary supply far too rapidly due to political pressures. Monetary discipline is the most important determinant of a strong economy. Market speculation can cause fluctuations in exchange rates. Each country has the freedom to choose its own inflation rate.

d

Which of the following is a common criticism against the powerful International Monetary Fund? IMF has not intervened to resolve the Asian crisis. It did not try to resolve the Mexican currency crisis. It is hesitant to help banks when they are in crisis. IMF lacks any real mechanism for accountability.

d

Which of the following statements is true of pegged exchange rates? a A pegged exchange rate allows a country's currency to be determined by market forces. b Adopting a pegged exchange rate regime increases inflationary pressures in a country. c A pegged exchange rate weakens the monetary discipline of a country. d Pegged exchange rates are popular among many of the world's smaller nations.

d

The ________ helps consumers compare the relative prices of goods and services in different countries.

exchange rate

The rate at which one currency is converted into another is known as the

exchange rate

Which term refers to the rate at which one currency is converted into another?

exchange rate

Carry trade is nonspeculative in nature.

false

Fixed exchange rates lead to speculation and uncertainty in the value of currencies.

false

Gold was declared as the formal reserve asset in the Jamaica agreement of 1976.

false

Governments allow convertibility to preserve their foreign exchange reserves.

false

If $1 bought more yen with a spot exchange than with a 30-day forward exchange, it indicates the dollar is expected to depreciate against the yen in the next 30 days. When this occurs, we say the dollar is selling at a premium on the 30-day forward market.

false

If the spot rate is $1 = 120, and the 30-day forward rate is $1 = ×130, the dollar is selling at a discount in the forward market.

false

Implementing a fixed exchange rate regime increases the price inflation in countries.

false

Market forces have produced a stable dollar exchange rate under a floating exchange rate regime.

false

The IMF does not expect governments to meet any obligations except to pay back the money it borrows.

false

The gold standard called for fixed exchange rates against the U.S. dollar.

false

The impact of currency exchange rates on the reported financial statements of a company is called economic exposure.

false

There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

false

________ arises from volatile changes in exchange rates.

foreign exchange risk

________ are exchange rates governing some specific future date foreign exchange transactions.

forward exchange rates

International businesses use foreign exchange markets for many reasons. Which of the following is one of these reasons?

idk

Assuming the 30-day forward exchange rate was $1 = 130 and the spot exchange rate was $1 = ×120, the dollar is selling at a ________ on the 30-day forward market.

premium

When two parties agree to exchange currency and execute the deal immediately, the transaction is a

spot exchange

When a tourist goes to a bank in a foreign country to convert money into the local currency, the exchange rate used is the

spot rate

The ________ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day

spot rate exchange

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.

true

A currency swap deal enables companies to insure themselves against foreign exchange risk.

true

After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold.

true

An effective business strategy to reduce economic exposure is to contract out high-value-added manufacturing.

true

Arbitrage opportunities in foreign exchange markets tend to be small and disappear quickly.

true

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

true

If the law of one price were true for all goods and services, the purchasing power parity (PPP) exchange rate could be found from any individual set of prices.

true

Interest rates adjust automatically under a strict currency board system.

true

Parla liked to gamble, so she sometimes moved her funds from dollars to euros in the hope that she would make money based on the exchange rates. This demonstrates a carry trade.

true

The International Fisher Effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

true

The International Monetary Fund's original function was to provide a pool of money from which members could borrow in the short term.

true

The agreement reached at Bretton Woods established the International Monetary Fund (IMF) and the World Bank.

true

The current system of foreign exchange is a mixed system of government intervention and speculative activity.

true

The efficient market school argues that investing in exchange rate forecasting services would be a waste of money.

true

The fixed exchange rate system established at Bretton Woods failed due to speculative pressures on the U.S. dollar.

true

The international monetary system refers to the institutional arrangements that govern exchange rates.

true

To minimize the risk of an unanticipated change in exchange rates, a company can protect itself by entering into a forward exchange contract.

true

Transaction exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

true

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Does US offer a better deal?

yes

An exchange rate of €1 = $1.30 indicates that

1 euro equals 1.30 dollars