Investments Chapter 6 Review Questions

A company imports goods and pays for them in a foreign currency. Which of the following exchange rate systems would eliminate currency risk for the company? A) Fixed B) Pure floating C) Managed floating

A) Fixed

A currency dealer makes more money when the: A) bid-offer spread is wide. B) bid-offer spread is narrow. C) bid rate is equal to the offer rate

A) bid-offer spread is wide.

Payments from a computer company in the United Kingdom to a company in India that operates a call centre to answer questions from the computer company's customers are most likely included in the United Kingdom's: A) current account. B) capital account. C) financial account.

A) current account.

If a country has a current account surplus, it most likely has a capital and financial account: A) deficit. B) surplus. C) in balance

A) deficit.

The country of Australia classifies products departing from the port of Melbourne to other countries as: A) exports. B) imports. C) net exports.

A) exports.

International trade most likely: A) helps keep prices down. B) reduces competition. C) reduces demand for domestic products and services

A) helps keep prices down.

The most likely objective of an exporter using the forward market in currencies is to: A) reduce risk. B) increase profit. C) increase currency exposure.

A) reduce risk.

Country A can produce 1 electric turbine using 10 units of labour and 4 refrigerators using 10 units of labour. Country B can produce 1 electric turbine using 7 units of labour and 4 refrigerators using 12 units of labour. According to the theory of comparative advantage, Country A should produce: A) refrigerators and trade with Country B for electric turbines. B) electric turbines and trade with Country B for refrigerators. C) electric turbines and refrigerators and not trade with Country B.

A) refrigerators and trade with Country B for electric turbines.

Which of the following would most likely be reduced if India imposed a tariff on goods from Japan? A) India's exports B) India's imports C) Japan's imports

B) India's imports

A country's currency will most likely depreciate when the country experiences high: A) interest rates. B) government debt. C) economic growth

B) government debt.

Countries with exports greater than imports most likely have a current account: A) deficit. B) surplus. C) in balance.

B) surplus.

Which of the following is a foreign exchange transaction involving the forward market? A) A company writes a cheque in foreign currency. B) A tourist converts US$1,000 into euros at an airport. C) A company agrees to buy US$100,000 for ¥7,500,000 in 60 days

C) A company agrees to buy US$100,000 for ¥7,500,000 in 60 days

Which of the following is most likely to cause a country's currency to appreciate? A) High inflation B) Political instability C) A current account surplus

C) A current account surplus

Which of the following would most likely promote international trade? A) Increased tariffs B) Higher transportation costs C) Faster transport of products and services

C) Faster transport of products and services

A central bank's intervention aimed at stabilising the value of its currency within a certain range best describes a: A) fixed exchange rate system. B) pure floating exchange rate system. C) managed floating exchange rate system.

C) managed floating exchange rate system.