FIN 558 Exam 1
Foreign direct investment occurs when a firm buys a minimum of ____ of a firm in another country
10%
Exchange rates between 2 counties that do not involve the dollar are______
Cross rates
A lower nominal interest rate in one country indicates the fact that the country's currency was expected to ________.
Appreciate
Which account should NOT be included in the asset section of a central bank balance sheet?
Currency in circulation
The ______ is/are a record of all of a country's transactions with the rest of the world.
Balance of Payments
Spain imports USD50 million in automobiles in a given year. This would result in a _______ in Spain's ________ account.
Debit, current
If Mexico has a current account surplus, then it will have a capital account ____.
Deficit
Ford builds a factory in Mexico. This is best described as a _____ in the U.S. ______ account.
Deficit, capital
A higher nominal interest rate in one country indicates the fact that the country's currency was expected to ________.
Depreciate
The name for the bank market for deposits and loans that is denominated in a currency different than the country of the market
External currency market
Name of the exchange rate system in which countries allow the value of their currency to be determined freely in the foreign exchange markets around the world without any government restrictions is ______
Floating currencies
The exchange rate system in which a country allows the value of the currency to be determined by the market forces of supply and demand is known as a
Floating exchange rate
What is the name of the contract where corporations, institutional investors, and individuals are required to pay or to receive a specific amount of foreign currency at a specific exchange rate at a particular date in the future?
Forward currency contract
Which of the following forecasting techniques is typically based on formal economic models of exchange determination, which link exchange rates to money supply, inflation rates, productivity growth rates, and the current account?
Fundamental Analysis
What best describes the type of investment that occurs when a firm builds a new factory overseas?
Greenfield
The U.S. is a net _______ of goods and a net ________ of services.
Importer, exporter
Which account should be included in the asset section of a central bank balance sheet?
International Reserves, Domestic Credit, Government Bonds
Interbank interest rates in various cities around the world are often the basis for interest rates in contractual loan agreements. What is the most important of these rates?
London Interbank Offer Rate (LIBOR)
When the external purchasing power or a currency is greater than the internal purchasing power, the currency is said to be ________.
Overvalued
All of the following options are reasons why the prices of goods and services deviate from the law of one price EXCEPT -price index -tariffs and quotas. -sticky prices -speculation
Price Index
What is the name of the ratio of a price level at one point in time to the price level in a designated base year?
Price Index
What is the name of the computer network in which member banks globally send and receive messages pertaining to foreign exchange transactions?
SWIFT
In the ________ exchange rate system, the currency has limited flexibility and the rate is kept within a fixed band.
Target zone
Which of the following forecasting techniques is usually used for short-term forecasts using only past exchange rate data, and some other data such as the volume of currency trade, to predict future exchange rates?
Technical Analysis
Which organization promotes international monetary cooperation by hosting regular meetings of central banks from around the world?
The Bank for International Settlements
Which international organization develops and analyzes potential policies and treaties that are intended to promote economic growth?
The Organization for Economic Cooperation and Development
Which organization seeks to reduce the amount of poverty in the world by providing grants, loans, and technical assistance to low-income countries?
The World Bank
Which organization has a dispute settlement mechanism to help member countries resolve disagreements of international agreements?
The World Trade Organization
Bid ask spreads are larger in the forward market than spot because
The forward market is less liquid than the spot market
Keeps cross-rates in line with exchange rates quoted relative to the USD
Triangular Arbitrage
When the forward rate is equal to the expected future spot rate, the forward rate is said to be __________ the future spot rate
an unbiased predictor
When someone in the currency market can buy a currency at a low price and sell it for a higher price, it is known as
arbitrage
Suppose a central bank conducts a policy to appreciate its own currency. This action will lead to a _______ its foreign currency reserves
decrease
When a real appreciation occurs in the domestic currency, who tends to be more profitable?
domestic importers
"Covered" in "covered interest parity" implies that transaction foreign exchange risk is _________ from an investment in a foreign currency.
eliminated
The Fisher Effect decomposes nominal interest rates into the ________ and the expected rate of inflation.
expected real interest rate
What are the three major components of the official reserves account?
foreign exchange reserves, gold, and IMF-related reserve assets
What is the most likely outcome if a central bank suddenly prints a large amount of new money?
higher inflation
A real depreciation of the domestic currency ________ importers and ________ exporters.
hurts, helps
When a central bank buys foreign currency, its international reserves _______
increase
The primary concern with a growing negative net international investment position is that the future _______ may reduce consumption by the debtor country.
interest payments paid
Within the United States, what is the name for the power of a dollar when it is used to purchase an amount of goods and services?
internal purchasing power
One of the major reasons for the existence of the forward market is to _______
manage currency risk especially risk associated with a transaction
One of the major reasons for the existence of the forward market is to ________.
manage currency risk especially risk associated with a transaction
The goal of a multinational firm is to
maximize the firm's value
When the central bank attempts to influence the supply of money in a country by the sale or purchase of government bonds, the practice is known as ________.
open market operations
The fourth decimal place in a dealer's quote in the trade jargon is known as the
pip
It is 1998. The spot and 30-day forward rates for the Dutch guilder are $.3075 and $.3120, respectively. The guilder is said to be selling at a forward
premium
In the absence of pure competition, firms who segment markets may be able to charge different prices in different countries for the same good. This practice is known as ________.
pricing to market
When a producer charges different prices for the same good in different markets, the practice is known as ________.
pricing-to-market
A bond that promises to pay a single payment at maturity is known as a ________ bond.
pure discount
An exchange rate pass-through describes the way managers of the firm choose to respond with their relative prices to changes in the ________
real exchange rate
When the firm's nominal profits are divided by the price level, the result is known as ________.
real profitability
What is the name of the unit of account created by the IMF which is sometimes used to denominate contracts?
special drawing right
The _____ includes no cash flows between the deposit date and the maturity date.
spot interest rate
Which one of the following reasons for violations of the Law of One Price is the most obvious?
tariffs and restrictions on imports
What is meant by the conditional future spot rate?
the conditional mean of the probability distribution of future spot rates
If there is no systematic difference between the forward rate and the expected future spot rate, then the expected forward market return should be ________.
zero