International Business 3450 Chapter 10 Quiz

An American company sold construction equipment to the government of Singapore. Instead of receiving payment in U.S. dollars, the company agreed to take payment in the form of goods. This is an example of

countertrade.

n terms of the approaches to exchange rate forecasting, __________ draws on economic theory to construct sophisticated econometric models that are used to predict exchange rate movements.

fundamental analysis

Shreya is the chief financial officer for Home Safe Security Inc. Her company is interested in investing in a facility in Indonesia, but she is worried about unpredictable fluctuations in future exchange rates, which could cost her company millions of dollars. One way to ensure against this exchange risk is for Shreya to use

hedging

The extent to which a firm's future international earning power is affected by changes in exchange rates is known as

economic exposure.

Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. Jenna is an American tourist in Italy buying a leather wallet whose price is €60. How much in U.S. dollars will Jenna have to pay to buy the product?

$90

__________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

A forward exchange

According to the __________, there is a strong relationship between inflation rates and interest rates.

Fisher effect

Translation exposure refers to the

Impact of currency exchange rate changes on the reported financial statements of a company.

Alayna feels it is best for her company to pay their foreign supplier in Argentina this month even though they will not receive products they ordered from the supplier for another six months. She recently learned that the currency in Argentina is expected to appreciate and, by paying the supplier now, her company will save money. This is an example of

a lead strategy.

Assume the euro/dollar exchange rate quoted in Tokyo at 6 a.m. is €1 = $1.00. If the New York euro/dollar exchange rate at the same time (5 p.m. New York time) is €1 = $1.35, a dealer could make a profit through

arbitrage.

Freeman Fabricators International purchased securities on the London Stock Exchange and then immediately resold them on the New York Stock Exchange at a higher price. The profits from this transaction were used to buy new equipment for the company. This company engaged in

arbitrage.

Assume that the interest rate on borrowings in Chile is 4 percent, but the interest rate on deposits in British banks is 8 percent. A trader borrows 1 million Chilean pesos, then converts the money into British pounds and deposits it in a British bank. What is the trader involved in?

carry trade

A(n) __________ refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

currency swap

Alejandro is the manager of Polar Plastics, an American company. He expects the value of the British pound to appreciate in the near future and so delays the collection of payments from British customers until the next month. Which tactic is Alejandro using to minimize the company's foreign exchange exposure?

lag strategy

Assume that the exchange rate between the U.S. dollar and the Japanese yen is $1 = ¥150. A pair of shoes that retail for $100 in New York should sell for ¥15,000 in Tokyo, if there are no trade barriers and transportation costs, according to the

law of one price.

Hudson Oil and Gas Inc., based in Houston, has a plant in Norway that builds cargo ships used to transport the company's products around the world. Each year this plant has been profitable, but Hudson Inc. is not able to convert the profits into U.S. dollars and take them out of the country. What type of convertibility does this represent?

nonconvertible

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

spot exchange rate

The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions, is called

the bandwagon effect.

A(n) __________ market is one in which prices reflect all available public information.

efficient

A currency is considered freely convertible when

the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.