FIN4604 Exam 1 Practice Questions

The foreign exchange market is the world's largest financial market. The size of daily global transaction is about___________ in 2013. a. $200 billion. b. $400 billion c. $1.5 trillion d. $5.3 trillion. e. $9.25 trillion

$5.3 trillion

Assume that Bank America's bid price for the Danish kroner is $/k = 0.1875 and it's ask rate is $/k = 0.1895. If you convert $1000 to Danish kroner (k) and you immediately turn around and convert the Danish kroner back to dollars, how many dollars will you have ? a. $500 b. $1000 c. $998.37 d. $989.45 e. None of the above

$989.45

If the dollar appreciates by 300% against the Turkish Lira, obtain the Lira's depreciation against the dollar.

-75%

Assume the British pound is worth $1.60, and the Canadian dollar is worth $.80. Compute the value of the Canadian dollar in terms of the pound (the pound price of one Canadian dollar or £/C$)? a. 2.00. b. 2.40. c. 0.80. d. 0.50. e. None of the above.

0.50

A commercial bank quotes a bid rate of $.784 for the Swiss France, and an ask rate of $.80. What is the bid/ask percentage spread that reflects the "markup established" [compare with b/a based on "discount obtained"] by the dealer. a. 0.2% b. 2% c. 2.04% d. 0.016% e. None of the above

2.04%

Suppose that the Brazilian real depreciates by 40% against the U.S. dollar. By how much will the dollar appreciate against the real?

67%

Given that C$/U$ = 1.5938 (1.2525) and Y/U$ = 133.30 (119.14), then the yen price of one Canadian dollar is given by: a. 83.64 b. 0.011956 c. 212.45 d. 0.4707 e. None of the above

83.64

Suppose the annual interest rate on government securities in the U.S. equals 8 percent while the annual inflation rate equals 4 percent. For France, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause net investment funds to flow from: a. The United States to France, causing the dollar to depreciate b. The United States to France, causing the dollar to appreciate c. France to the United States, causing the euro to depreciate d. France to the United States, causing the euro to appreciate e. There are no basis between the two countries for flow of funds in any direction

?

Long-run exchange rate movements are governed by all of the following except: a. National productivity levels b. Consumer tastes and preferences c. Rates of inflation d. Interest rate levels e. Changes in the nation's demographic structure

? B and E

Assume that the IMF allocates 50 million SDR to the Banana Republic. That allocation represents a _________ and the acquisition (acceptance) represents a _________ on the BOP of Banana Republic. a. FDI; Portfolio Investment b. Portfolio Investment; FDI c. Credit; Debit d. Debit; Credit e. Inflow; Outflow

? c and e

The following are factors that positively (negatively) influence the BOP except: a. Relative inflation rates b. Relative income growths c. Domestic (strong/weak) currency value d. Domestic real interest rates e. Tariffs, quotas, and other government restrictions on trade

? relative income growths

Also known as the "Central Banks' Central Bank," the ___________ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis. a. World Bank b. International Financial Corporation (IFC) c. World Trade Organization d. International Development Association (IDA) e. Bank for International Settlements (BIS)

Bank for International Settlements (BIS)

Which of the following is not a major global currency trading center? a. London b. New York c. Tokyo d. Singapore e. Chicago

Chicago

Given that the DM price of the ECU was 2.0583 and the DG price of the ECU was 2.3194. Then the DG price of the DM by cross rates is given by: a. DM = about 4.73 DG. b. DM = about .26 DG. c. DM = about 1.13 DG. d. DM = about .89 DG.

DM = about 1.13 DG

The demand curve for a currency is______, while the supply curve for a currency is _____, a. Upward sloping; downward sloping b. Upward sloping; upward sloping c. Downward sloping; downward sloping d. Downward sloping; upward sloping e. Concave; convex

Downward sloping; upward sloping

A German investment in the U.S. represents a foreign factor of production located in the U.S. and the income from such investment adds to: a. GNP of the U.S. b. GDP of Germany. c. GNP of Germany. d. Trade balance of the U.S. e. Both (a) and (b).

GNP of Germany

A MNC's long-term financing needs are most likely to be satisfied in the _____ market and the ______ market. a. International money; international credit b. International money; international bond c. International bond; international stock d. International bond; international credit e. International credit; international money

International bond; international stock

A MNC's short-term financing needs are most likely to be satisfied in the _____ market while medium-term needs are most likely to be satisfied in the ______ market. a. International money; international credit b. International money; international bond c. International money; international stock d. International credit; international money e. International bond; international credit

International money; international credit

The following agencies help to facilitate international flow of funds except: a. World Bank b. International Finance Corporation (IFC) c. World Trade Organization d. International Development Association (IDA) e. Bank For International Settlements (BIS) f. International Monetary Fund (IMF) g. Regional Development Banks h. No exception

No exception

The following are factors contributing to a strong domestic currency except: a. Relatively higher interest rate (real) in home country than abroad b. A domestic trade surplus c. Relatively lower rates of inflation e. Strong /vibrant domestic financial market f. Relatively strong domestic economy g. Sound domestic monetary policy focused on price stability h. No record of default on government debt i.

No exception

The following are factors contributing to a weak domestic currency except: a. Relatively lower interest rate (real) in home country than abroad b. A domestic trade deficit c. Relatively higher rates of inflation e. Weak/collapsing domestic financial market f. Relatively weak domestic economy g. Unpredictable domestic monetary policy h. Record of default on government debt i. No exception

No exception

To weaken the dollar using sterilized intervention, the Fed would __________ dollars and simultaneously ____________ Treasury Securities. a. Buy; sell b. Sell; buy c. Buy; buy d. Sell; sell

Sell; sell

The foreign currency value (price) of the U.S. dollar is determined by: a. The rate of inflation in the United States b. The number of dollars printed by the U.S. government c. The international demand and supply for U.S. dollars d. The monetary value of gold held at Fort Knox, Kentucky e. The population of the United States

The international demand and supply for U.S. dollars

Which of the following is not (now) a major factor affecting exchange rates? a. Relative interest rates. b. Relative inflation rates. c. Government controls. d. Expectations. e. A country's stock of gold.

a country's stock of gold

Which of the following are examples of currency control measures? a. Import restrictions. b. Prohibition of remittance of funds. c. Ceilings on granting credit to foreign firms. d. Dual or multiple exchange rates e. All of the above

all of the above

Assume that British corporations begin to purchase more supplies from the U.S. as a result of several labor strikes by British suppliers. This action reflects: a. An increased demand for British pounds. b. A decrease in the demand for British pounds c. An increase in the supply of British pounds for sale. d. A decrease in the supply of British pounds for sale.

an increase in the supply of British pounds for sale

If U.S. inflation suddenly increased while European inflation stayed the same, there would be: a. An increased U.S. demand for euros and an increased supply of euros for sale. b. A decreased U.S. demand for euros and an increased supply of euros for sale. c. A decreased U.S. demand for euros and a decreased supply of euros for sale. d. An increased U.S. demand for euros and a decreased supply of euros for sale.

an increased U.S. demand for euros and a decreased supply of euros for sale

A Eurocurrency is: a. Any currency traded in Europe b. Regulated by the central bank of the country where it is located c. Any currency deposited outside its country of origin d. Stronger than it is in its home country e. The new common currency of the EU

any currency deposited outside its country of origin

A relatively low home inflation, other things being equal, would tend to cause the home currency to: a. Appreciate. b. Depreciate. c. Remain constant. d. Fluctuate within narrow bands.

appreciate

The law of one price is enforced primarily by: a. Arbitragers. b. Speculators. c. Hedgers. d. Dealers e. Central Banks f. Bank for International Settlements (BIS)

arbitragers

The components of the current account balance are: a. Balance on merchandise trade and balance on transfers. b. Balance on merchandise trade and on money market flows. c. Balance of capital market flows and money market flows d. Balance on goods, services, factors and transfer payments.

balance on goods, services, factors and transfer payments

A U.S. investment in Germany represents a foreign factor of production located in Germany and the income from such investment adds to: a. GNP of the U.S. b. GDP of Germany. c. GNP of Germany. d. The GDP of U.S. e. Both (a) and (b).

both a and b

The asset market view of exchange rate determination says that the spot rate: a. Should follow a random walk. b. Is affected primarily by a nation's long-run economic prospects. c. Both a and b. d. Should be strongly affected by a nation's balance of trade. e. Should be strongly affected by current relative income, relative prices, and relative interest rates.

both a and b

Which of the following is (are) true concerning the Eurocurrency market. a. It is a central mechanism to channel flow of international funds among banks and corporations. b. Exhibits low costs per transaction because of relatively large size of transactions c. It is a market for trading in European currencies d. It is regulated by the European Central Bank e. Membership is limited to Banks from EU member states f. Both a and b

both a and b

The following are some of the arguments against globalization put forth by opponents except: a. Loss of sovereignty by weaker countries b. Narrowing of income gap c Promotion of socialism d. Environmental degradation e. Poor working conditions in developing countries f. Both b and c

both b and c

The current international flow model of exchange rate determination says that the spot rate should: a. Follow a random walk. b. Be affected primarily by a nation's long-run economic prospects. c. Be strongly affected by a nation's balance of trade. d. Be strongly affected by current relative incomes, relative prices, and relative interest rates. e. Both c and d.

both c and d

The following products are designed for short term investment or financing needs of clients in the Eurocurrency market except. a. Euro-commercial paper b. Euronotes c. Eurobonds d. Eurocredits e. Euro CDs f. Both c and d

both c and d eurobonds and eurocredits

The following statement is not true concerning technical forecasting of exchange rates: a. It is based on bar charts, computer extrapolations or mathematical models. b. The analyst must discover price patterns that are forecastable. c. The exchange rate must follow a random walk d. Duration and extent of price patterns must be ascertained to permit investors to recognize and profit form them. e. The underlying assumption is that the past provides a good indication of the future

both d and e

To strengthen the dollar using sterilized intervention, the Fed would ____________ dollars and simultaneously _______________ Treasury Securities. a. Buy; sell b. Sell; buy c. Buy; buy d. Sell; sell

buy; buy

Under a fixed exchange rate system: a. A foreign exchange market does not exist. b. Central bank intervention in the foreign exchange market is not necessary. c. Central bank intervention in the foreign exchange market is very necessary. d. Central bank intervention in the foreign exchange market is not allowed. e. Central bank intervention in the foreign exchange market is not effective

central bank intervention in the foreign exchange market is very necessary

_____ is not a factor that causes currency supply and demand schedules to change. a. Relative inflation rates b. Change in exchange rates. c. Relative interest rates d. Relative income levels e. Expectations

change in exchange rates

Any event that increase the supply of British pounds to be exchanged for U.S. dollars should result in a (an) __________ in the value of the British pound with respect to ________, other things begin equal. a. Increase; U.S. dollar b. Increase; non-dollar currencies c. Decrease; non-dollar currencies d. Decrease; U.S. dollar

decrease; U.S. dollar

Any event that reduces the U.S. demand for Japanese yen should result in a (an) __________ in the value of the Japanese yen with respect to _______, other things being equal. a. Increase; U.S dollar b. Increase; non-dollar currencies c. Decrease; non-dollar currencies d. Decrease; U.S. dollar

decrease; U.S. dollar

Assume that the U.S. places a strict quota on goods imported from China and that China does not retaliate. Holding other factors constant, this event should immediately cause the U.S. demand for Chinese Yuan to _____and the value of the Yuan to_____ a. Increase; appreciate b. Increase; depreciate c. Decrease; depreciate d. Decrease; appreciate

decrease; depreciate

Assume that Canada places a strict quota on goods imported from the U.S. and that the U.S. does not retaliate. Holding other factors constant, this event should immediately cause the supply of Canadian dollars to be exchanged for U.S. dollars to __________ and the value of the Canadian dollar to ___________. a. Increase; increase b. Increase; decrease c. Decrease; decrease d. Decrease; increase

decrease; increase

If a country experiences high inflation relative to the U.S., its exports to the U.S. should __________, its imports should ___________, and there should be a____________ pressure on its currency value. a. Decrease; increase; upward b. Decrease; decrease; upward c. Increase; decrease; downward d. Decrease; increase; downward e. Increase; decrease; upward

decrease; increase; decrease

A relatively high domestic inflation, other things being equal, would tend to cause the home currency to: a. Appreciate. b. Depreciation. c. Remain constant. d. Fluctuate within narrow bands.

depreciation

If inflation increases substantially in Australia while U.S. inflation remains unchanged, this is expected to place ___________ pressure on the value of the Australian dollar with respect to the U.S. dollar. a. Upward b. Downward c. Either upward or downward depending on the timing of the increase. d. None of the above (there will be no impact)

downward

A strong dollar places ______ pressure on U.S. inflation, which in turn places _____ pressure on U.S. interest rate, which places ______ pressure on U.S. bond prices. a. Upward; downward; upward b. Upward; downward; downward c. Upward; upward; downward d. Downward; downward; upward e. Downward; upward; upward

downward; downward; upward

A strong dollar places__________ pressure on inflation, which in turn places __________ pressure on the dollar. a. Upward; upward b. Downward; upward c. Upward; downward d. Downward; downward

downward; upward

Governments intervene in the foreign exchange markets for all of the following reasons except to: a. Earn foreign exchange. b. Reduce economic uncertainty. c. Improve the nation's export competitiveness. d. Reduce inflation. e. Boost or lower the value of domestic currency.

earn foreign exchange

__________ typically has (have) maturities of less than one year. a. Eurobonds b. Euro-commercial paper c. Euronotes d. ADRs. e. GDRs

euro-commercial paper

If the Fed desires to weaken the dollar without affecting the dollar money supply, it should: a. Exchange (sell) dollars for foreign currencies, and sell equivalent value of its existing Treasury Security holdings for dollars. b. Exchange (sell) foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. c. Exchange (sell) dollars for foreign currencies, and buy existing Treasury securities with dollars. d. Exchange (sell) foreign currencies for dollars, and buy existing Treasury securities with dollars.

exchange (sell) dollars for foreign currencies, and sell equivalent value of its existing Treasury Security holdings for dollars

Which of the following is an example of direct intervention in foreign exchange markets? a. Lowering interest rates. b. Increasing the discount rate. c. Exchanging (selling) dollars for foreign currency. d. Imposing barriers on international trade.

exchanging (selling) dollars for foreign currency

______________ is (are) income received by investors on previous investments in foreign financial assets (securities). a. Portfolio income b. Foreign direct investment income c. Unilateral transfers d. Factor income e. All of the above

factor income

________ are most commonly classified as a Foreign Direct Investment (FDI). a. Foreign acquisitions b. Purchases of international stocks c. Licensing agreements d. Exporting or importing transactions e. Strategic alliances

foreign acquisitions

The term "privatization" is typically used to describe: a. Firms that are purchased by their managers. b. Firms that are purchased by the government. c. Firms that are bought out by other firms. d. Government enterprises that are purchased by corporations and other investors.

government enterprises that are purchased by corporations and other investors

A strong dollar is normally expected to cause: a. High unemployment and high inflation in the U.S. b. High unemployment and low inflation in the U.S. c. Low unemployment and low inflation in the U.S. d. Low unemployment and high inflation in the U.S

high unemployment and low inflation in the U.S.

Which of the following theories identifies the non-transferability of resources as an explanation for international business? a. Theory of comparative advantage. b. Imperfect markets theory. c. Product cycle theory. d. None of the above.

imperfect markets theory

Any event that increases the U.S. demand for euros should result in a (an) _________ in the value of the euro with respect to ___________, other things being equal. a. Increase; U.S. dollar b. Increase; non-dollar currencies c. Decrease; non-dollar currencies d. Decrease; U.S. dollar

increase; U.S. dollar

Any event that reduces the supply of Swiss francs to be exchanged for U.S. dollars should result in a (an) ___________ in the value of the Swiss franc with respect to ________, other things being equal. a. Increase; U.S. dollar b. Increase; non-dollar currencies c. Decrease; non-dollar currencies d. Decrease; U.S. dollar

increase; U.S. dollar

A large increase in the income level in Mexico along with no growth in the U.S. income level, ceteris paribus, is expected to cause a/an _________ in Mexican demand for U.S. goods, and the Mexican peso should ____________ a. Increase; appreciate b. Increase; depreciate c. Decrease; depreciate d. Decrease; appreciate

increase; depreciate

The real interest rate adjusts the nominal interest rate for: a. Exchange rate movements. b. Income growth. c. Inflation. d. Government controls. e. None of the above

inflation

Most trading activity in the foreign exchange market is dominated by: a. Currency trade among central banks b. Trading by financial institutions c. Interbank trading d. Currency trading currency between importers and exporters e. Both a and c.

interbank trading

39. The LIBOR is the: a. Interest rate commonly charged for loans between international banks. b. Average inflation rate in European countries. c. Maximum loan rate ceiling on loans in the international money market. d. Maximum deposit rate ceiling on deposits in the international money market. e. Maximum interest rate offered on bonds that are issued in London.

interest rate commonly charged for loans between international banks

Which of the following is not an additional risk resulting from international business? a. Exchange rate fluctuations. b. Political risk c. Interest rate risk. d. Exposure to foreign economies.

interest rate risk

Which of the following theories identifies the propensity of firms to seek protection of their proprietary technologies and their desire to engage in global exploitation of such technologies as a motivation for international business? a. Theory of comparative advantage. b. Imperfect markets theory. c. Product cycle theory. d. Internalization theory e. None of the above.

internaliztion theory

A weak dollar is normally expected to cause: a. High unemployment and high inflation in the U.S. b. High unemployment and low inflation in the U.S. c. Low unemployment and low inflation in the U.S. d. Low unemployment and high inflation in the U.S.

low unemployment and high inflation in the U.S.

A weak home currency may result in the following except: a. Increased exports. b. Decreased imports. c. Lower domestic inflation. d. Reduced unemployment.

lower domestic inflation

Which of the following is (are) consistent with a strong domestic currency a. Increased exports. b. Decreased imports. c. Lower domestic inflation. d. Reduced unemployment

lower domestic inflation

The concept of narrow spread in the Eurocurrency market means. a. Dealers in the market buy at the bid rate and sell at the ask rate. b. Lower transaction costs permit higher yields to depositors and lower costs to borrowers. c. Eurocurrencies are thinly traded. d. Very few currencies are traded so that Eurocurrencies are a select few. e. Required reserves and FDIC premiums are comparatively low in the market

lower transaction costs permit higher yields to depositors and lower costs to borrowers

Which of the following forecasting techniques would best represent use of today's forward exchange rate to forecast the future exchange rate? a. Fundamental forecasting b. Market-based forecasting c. Technical forecasting d. Mixed forecasting e. None of the above.

market-based forecasting

Which of the following theories identifies specialization as a motivation for international business? a. Theory of comparative advantage. b. Imperfect markets theory. c. Product cycle theory. d. Theory of absolute advantage e. Both (a) and (d).

market-based forecasting

The following statement are true concerning a strong domestic currency except: a. Encourages more imports. b. Discourages more exports. c. Increases domestic competition. d. May induce lower unemployment.

may induce lower unemployment

Which of the following statement is true concerning a weak domestic currency? a. Encourages more imports. b. Discourages more exports. c. Increases domestic competition. d. May induce lower unemployment.

may induce lower unemployment

The International Credit Market primarily concentrates on: a. Short-term lending (one year or less). b. Medium-term lending (2 to 5 years) c. Long-term lending. d. Providing an exchange of foreign currencies for firms who need them. e. Placing newly issued stock in foreign markets.

medium-term lending (2 to 5 years)

The development and expansion of the Eurocurrency market were fostered by the following except: a. Inward-looking regulations in national financial markets b. US-Soviet cold war era strategies c. Monetary cooperation between European countries d. OPEC's petrodollar recycling activities e. Persistent US BOP deficits resulting in more foreign holding of US dollars

monetary cooperation between European countries

In general, products and services are generally becoming ________ standardized across countries, which tends to _________ the globalization of business. a. More; encourage b. More; discourage c. Less; discourage d. Less; encourage

more; encourage

Assume a central bank exchanges (sells) its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of: a. Pegged intervention. b. Indirect intervention. c. Non-sterilized intervention. d. Sterilized intervention. e. A and D

non-sterilized intervention

When the Fed intervenes in the foreign exchange markets without taking action to maintain the dollar money supply, it is said to use: a. Non-sterilized intervention. b. Sterilized intervention. c. Active intervention. d. Reactive intervention. e. Open market intervention

non-sterilized intervention

Which of the following theories identifies risk diversification as a motivation for international business? a. Theory of comparative advantage. b. Imperfect markets theory. c. Product cycle theory. d. Theory of absolute advantage e. Portfolio theory

portfolio theory

The spot and 30-day forward rates ($/SF) for the Swiss franc are $.3075 (1.0695) and $.3120(1.0885), respectively. The franc is said to be selling at a forward: a. Premium of 16.88%. b. Premium of 17.56%. c. Discount of 6.39%. d. Discount of 15.10%. e. Discount of 17.31

premium of 17.56%

Which of the following theories points to international business engagement as a natural stage in the evolution of new products from introduction to growth, maturity, and possible decline? a. Theory of comparative advantage. b. Imperfect markets theory. c. Product cycle theory. d. Internalization theory e. None of the above.

product cycle theory

The following are some of the arguments for globalization put forth by proponents except: a. Increased standard of living b. Promotion of political stability c Greater innovation d. Diversity of product selection e. Cheaper prices due to competition f. None of the above

promotion of political stability

An increase in U.S. interest (real) rates relative to German interest rates would likely ___________ the U.S. demand for euros and ____________ the supply of euros for sale. a. Reduce; increase b. Increase; reduce c. Reduce; reduce d. Increase; increase

reduce; increase

A Syndicated Euro Credit loan: a. Represents a loan by a single bank to a syndicate of corporations. b. Represents a loan by a single bank to a syndicate of country governments. c. Represents a direct loan by a syndicate of oil-producing exporters to a developing country. d. Represents a loan by a group of banks to borrower.

represents a loan by a group of banks to borrower

In order to boost the value of the euro relative to the dollar the FED should: a. Sell dollars for euros and the European CB should buy euros with dollars. b. Sell dollars for euros and the European CB should buy dollars with euros. c. Sell euros for dollars and the European CB should sell dollars for euros. d. Sell euros for dollars and the European CB should buy euros with dollars. e. Sell euros for dollars and the European CB should buy dollars with euros

sell dollars for euros and the European CB should buy euros with dollars

In order to boost the value of the dollar relative to the euro the FED should: a. Sell dollars for euros and the European CB should buy euros with dollars. b. Sell dollars for euros and the European CB should buy dollars with euros. c. Sell euros for dollars and the European CB should sell dollars for euros. d. Sell euros for dollars and the European CB should buy euros with dollars. e. Sell euros for dollars and the European CB should buy dollars with euros.

sell euros for dollars and the European CB should buy dollars with euros

If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 pounds in 90 days, it could: a. Purchase pounds forward for 90-days. b. Sell pounds forward for 90-days. c. Purchase pounds 90 days from now at the spot rate. d. Sell pounds 90 days from now at the spot rate.

sell pounds forward for 90 days

The International Money Market primarily concentrates on: a. Short-term lending (one year or less). b. Medium-term lending (2 to 5 years). c. Long-term lending. d. Placing bonds with investors. e. Placing newly issued stock in foreign markets.

short-term lending (one year or less)

The term "target zone arrangement" refers to a: a. Situation where countries adjust their national economic policies to maintain exchange rates within some pre-determined limits. b. System where several central banks act in a coordinated intervention to keep the price of one country's currency within reasonable trading ranges. c. System where currencies are pegged to gold or to hard currency. d. System where local currencies are replaced by dollars.

situation where countries adjust their national economic policies to maintain exchange rates within some pre-determined limits

When the Fed intervenes in the foreign exchange markets while taking action to maintain the dollar money supply, it is said to use: a. Non-sterilized intervention. b. Sterilized intervention. c. Active intervention. d. Reactive intervention.

sterilized intervention

Which of the following would likely have the least direct influence on a country's current account? a. Inflation. b. Economic growth. c. Exchange rates. d. Tariffs. e. Tax on income earned on foreign stocks. f. Competitiveness relative to ROW g. Capital flows

tax on income earned on foreign stocks

If it was determined that current movement of exchange rates was not related to previous exchange rate values, this implies that a ________ will not be valuable for speculating on expected exchange rate movements. a. Technical forecasting b. Fundamental forecasting c. Market-based forecasting d. Purchasing power parity forecasting e. None of the above

technical forecasting

If the Central Bank sets a fixed exchange rate that overvalues domestic currency, then: a. The Central Bank will gain reserves. b. There will be an excess demand for domestic currency. c. The country will run a BOP deficit. d. The country will run a BOP surplus. e. Both (a) and (d).

the country will run a BOP deficit

35. The demand for U.S. exports tends to increase when: a. Economic growth in foreign countries decreases. b. The currencies of foreign countries strengthen against the dollar. c. U.S. inflation rises. d. U.S. income rises.

the currencies of foreign countries strengthen against the dollar

The "twin deficits" phenomena in the USA mean: a. The U.S. deficits in both trade and capital accounts b. The deficits of the federal and state governments c. The deficits of the federal government and big business d. The deficits of the federal government and the U.S. current account deficits

the deficits of the federal government and the U.S. current account deficits

News of a potential surge in U.S. inflation and zero Chilean inflation places ______ pressure on the value of the Chilean peso. The pressure will occur _______. a. Upward; only after the U.S. inflation surges b. Downward; only after the U.S. inflation surges c. Upward; immediately d. Downward; immediately

upward; immediantly

A weak dollar places ______ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rate, which places ______ pressure on U.S. bond prices. a. Upward; downward; upward b. Upward; downward; downward c. Upward; upward; downward d. Downward; upward; upward e. Downward; downward; upward

upward; upward; downward

The interest rate of a country with a currency board: a. Is less stable than it would be without a currency board. b. Is typically below the interest rate of the currency to which it is tied. c. Will move in tandem with the interest rate of the currency to which it is tied. d. Is completely independent of the interest rate of the currency to which it is tied.

will move in tandem with the interest rate of the currency to which it is tied