Chapter 8 MC

Bretton Woods led to an exchange rate agreement known as the Bretton Woods System or:

C. the gold exchange standard.

In 1717, Sir Isaac Newton took Britain from the silver standard (pounds sterling) to:

C. the gold standard, with fixed rates.

The balance-of-payments account is a record of:

B. a country's transactions with the rest of the world.

Sir Isaac Newton put England on the gold standard when he:

C. established a fixed equivalency between gold and the British currency.

The law of one price is that:

C. in an efficient market, like goods will have like prices.

A vehicle currency is a currency:

D. used for international trade or investment.

Currency exchange controls are found most frequently in:

A. developing countries.

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.

Exchange rate forecasting is:

A. important because exchange rates influence all aspects of business.

With increasing inflation, borrowing becomes:

A. more attractive because repayment can be made with cheaper money.

Purchasing power parity is a way to compare:

A. the purchasing power of several currencies.

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.

In order to strengthen the U.S. dollar, the Federal Reserve might sell yen and buy dollars, in which case the yen functions as:

B. an intervention currency.

A purchase of foreign goods from the United States (requiring importing) will:

B. be recorded in the BOP as a debit in the current account.

The Triffin paradox suggests that:

B. eventually, reserve currencies will run deficits, which will lead to lack of confidence in the currency.

Arbitrage functions to:

B. exploit price differences between markets, so as to profit with no risk.

One attribute of the U.S. tariff schedule is:

B. how specific it is.

Monetary and fiscal policies:

B. influence interest rates and taxation, and so may influence exchange rates.

What is appealing about the gold standard is:

B. its simplicity.

A value-added tax is actually a sales tax that is:

B. paid in stages along the process from raw materials to consumer and then credited after final sale.

The SDR is:

B. special drawing rights, an international reserve asset.

The inflation rate determines:

B. the real price of borrowing in capital markets.

Financial forces such as inflation and taxation are considered uncontrollable because:

B. they are external forces beyond the influence of the firm, around which a manager can manage.

Foreign reserves are used to:

C. cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter.

Market forces that set the relative prices of currencies are:

C. influenced by many forces including forces external to business, such as world events.

The Fisher effect states that the real interest rate:

C. is the nominal rate minus the expected inflation rate.

Balance-of-payments data:

C. reveal demand for a country's currency.

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:

C. sell massive amounts of Japanese yen in the FX markets.

The present floating exchange rate system is not a totally free float because:

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.

The inflation rate determines:

C. the real cost of borrowing in capital markets.

Countries put limitations on the convertibility of their currency when they are concerned that:

C. their foreign reserves could be depleted.

The U.S. current account deficit can be explained by:

D. B and C.

Who took the United States off the gold system?

D. President Nixon

The lowest corporate tax rates are found in:

D. Switzerland, Ireland, Singapore, and Russia.

Withholding tax is:

D. an indirect tax levied on passive income.

When a government requires a permit to purchase foreign currency, the exchange rates:

D. are set by the government, often above the free market rate.

The balance-of-payments account is divided into the following three major subaccounts:

D. current, capital, and reserves.

Most significantly for the international manager, the balance of payments reveals:

D. demand for a country's currency and potential changes in its economic environment.

The current account on the BOP has three subaccounts:

D. merchandise, services, and unilateral transfers.

When the law of one price is applied to interest rates, it suggests that:

D. varying interest rates take into account anticipated differences in inflation rates.

Historically, gold has been used as a way for people to store value because of its:

Historically, gold has been used as a way for people to store value because of its: