MGMT1101 CH 4

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The bill of lading is issued to the exporter by the carrier transporting the merchandise. It serves three purposes: A. it is a receipt, a contract and a document of title B. it is a sight draft, a time draft and a banker's acceptance C. it is a cover note, insurance document and security title D. it is a bank statement, sender statement and discharge notice

A. it is a receipt, a contract and a document of title

The _____ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price, when their price is expressed in terms of the same currency. A. law of one price B. principle of consistent pricing C. model of fair pricing D. principle of equitable pricing

A. law of one price

Investor psychology is influenced by _____________ in the main. A. political factors B. cultural factors C. micro-economic effects D. bandwagon effects

A. political factors

The value of a currency is determined by A. the interaction between the demand and supply of that currency relative to the demand and supply of other currencies B. a consortium of international currency traders C. the World Trade Organization D. negotiations between the central banks of the leading five industrial powers of the world

A. the interaction between the demand and supply of that currency relative to the demand and supply of other currencies

A country's nominal interest rate (i) is the sum of the required real rate of interest ® and the expected rate of inflation (I) over the period for which the funds are to be lent is referred to as: A. the purchasing power parity puzzle B. the purchasing power parity conundrum C. the Fisher Effect puzzle D. the Fisher Effect conundrum

A. the purchasing power parity puzzle

Due to its central role in so many foreign exchange deals, the US dollar is regarded as a __________ currency. A. vehicle B. potent C. important D. widespread

A. vehicle

The most important trading centre in the foreign exchange market is: __________. A. Hong Kong B. London C. San Paulo D. Paris

B. London

The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates is called a: A. spot exchange B. currency swap C. forward exchange D. reverse exchange

B. currency swap

Under a floating exchange rate system, the currency would __________, thus cushioning the effect on the domestic economy. A. appreciate B. depreciate C. contract D. detract

B. depreciate

The floating exchange rate regimes of Australia and New Zealand have been supported by all of the following influences except: A. an open financial system B. foreign exchange controls C. no controls over the cross-border of funds D. no controls over financial market prices other than the case rate.

B. foreign exchange controls

Central banks need to hold reserves or _________ to finance external balances, at least in the short term. The European Free Trade Association's emphasis has been on free trade in A. bank drafts B. liquidity C. bills of lading D. cash

B. liquidity

If the Australian dollar is in short supply, and the British pound is in plentiful supply, the _______________ exchange rate is likely to change. A. fixed B. spot C. relative D. market

B. spot

When an Indonesian tourist in Brisbane, Australia, goes to the bank to convert their rupiah into Australian dollars to buy mangoes, the exchange rate is regarded as the _______________ for that day. A. real time rate B. spot rate C. sanctioned rate D. statutory rate

B. spot rate

Which of the following is NOT a moderately good predictor of long-run changes in exchange rates? A. Relative money growth B. Relative inflation rates C. Bandwagon effects D. Nominal interest rate differentials

C. Bandwagon effects

Which of the following correctly matches a country with its currency? A. South Korea, the pound B. France, the yuan C. Japan, the yen D. Great Britain, the rupiah

C. Japan, the yen

The Fisher effect states that a country's nominal interest rate (i) is the sum of the required real rate of interest (r) and the expected rate of inflation (I) over the period for which the funds are to be lent.

True

When traders follow the actions of others to force down the value of their holdings, this is called the bandwagon effect.

True

Australia adopted a freely floating exchange rate regime in: A. 1983 B. 1985 C. 1993 D. 1995

A. 1983

Which unit of exchange is closest in value to the U.S. dollar? A. Euro B. British pound C. Canadian dollar D. Japanese yen

A. Euro

The ______________ is not a good predictor of short-run changes in spot exchange rates. A. Fisher effect B. Inflation effect C. Bandwagon effect D. Nominal interest rate differentials effect

A. Fisher effect

The most important trading centres for the foreign exchange market are in: A. London, New York, and Tokyo. B. San Paulo, New York, and Paris. C. San Francisco, Tokyo, and Singapore. D. New York, Hong Kong, and Paris.

A. London, New York, and Tokyo.

An interesting feature of the foreign exchange market is that: A. The market never sleeps B. The market has not yet created a global link C. There are not yet significant differences in the exchange rates D. High-speed computer linkages between trading centres have yet to be created

A. The market never sleeps

If the demand for dollars outstrips the supply of them, and if the supply of Japanese yen is greater than the demand for them, the dollar will: A. appreciate against the yen B. depreciate against the yen C. not change D. not be reflected in currency changes

A. appreciate against the yen

One key assumption concerning the principles of currency convertibility is that: A. currencies are freely convertible B. a country allows anybody to purchase any amount of a foreign currency C. free convertibility is universal D. currencies are freely convertible, and free convertibility is universal

A. currencies are freely convertible

A lead strategy is an attempt to collect foreign currency receivables __________when a foreign currency is expected to depreciate and paying foreign currency payables __________ they are due when a currency is expected to appreciate. A. early; before B. late: after C. prematurely; later D. preemptively; timely

A. early; before

The foreign exchange market provides some insurance arising from changes in: A. exchange rates B. convertible bank drafts C. the Spot rate D. Henge fund transfers

A. exchange rates

Ford Australia uses the _________________ market to convert the dollars it earns in the United States into Australian dollars. A. foreign exchange B. spot C. inefficient D. countertrade

A. foreign exchange

Without the _____ market, international trade and international investment on the scale that we see today would be impossible. A. foreign exchange B. financial barter C. foreign resale D. monetary replacement

A. foreign exchange

The ____ is a market for converting the currency of one country into that of another. A. foreign exchange market B. cross-cultural interchange C. financial barter market D. monetary replacement market

A. foreign exchange market

Tourists generally are minor participants in A. foreign exchange market B. capital venturing C. foreign travelling D. FDI

A. foreign exchange market

Rates for currency exchange quoted for 30, 90, or 180 days into the future are referred to as _____. A. forward exchange rates B. foreign exchange quotes C. united trade rates D. generic exchange quotes

A. forward exchange rates

A(n) ______ is an investment fund that not only buys financial assets (stocks, bonds, currencies), but also sells them short. A. hedge fund B. merchant bank C. economic fund D. reserve bank

A. hedge fund

The foreign exchange market: A. is not located in any one place. B. is located in New York City. C. has offices in the Australia, Japan, France, Germany, The USA and UK. D. is located in Rome.

A. is not located in any one place.

Fundamental analysis is about examining what a company does to make money, assess how successful it has been and then make a judgement about likely future success.

True

The agreement reached at Bretton Woods established two multinational institutions: A. Inter-American Development Bank (IDB. and African Development Bank (AfDB) B. Asian Development Bank (ADB. and European Bank for Reconstruction and Development (EBRD) C. Multilateral Investment Guarantee Agency (MIGA. and South East Asia Development Bank (SAsiaDB) D. International Monetary Fund (IMF) and World Bank (IBRD)

C. Multilateral Investment Guarantee Agency (MIGA. and South East Asia Development Bank (SAsiaDB)

The second most important trading centre in the world is: A. Tokyo B. Zurich C. New York D. Paris

C. New York

The _____ theory tells us that a country with a high inflation rate will see deprecation in its currency exchange rate. A. law of one price B. monetary system C. PPP D. price inflation

C. PPP

An exchange rate can be quoted in two ways: as the price of the foreign currency in terms of dollars, and : A. as the PPP of a foreign currency. B. as the price of a basket of goods in foreign currency. C. as the price of dollars in terms of the foreign currency. D. as the price of an adjacent countries currency.

C. as the price of dollars in terms of the foreign currency.

When investors are free to transfer capital between countries, according to the Fisher Effect, real interest rates will: A. fall in both countries B. be highest in the richest country C. be the same in every country D. depreciate in both countries

C. be the same in every country

Two main functions of the foreign exchange market are ___________ and ____________ against foreign exchange risk. A. currency speculation; hedging B. currency investing; managing C. currency conversion and insuring D. currency controls and communicating

C. currency conversion and insuring

When the Australian dollar buys more euros on the spot market than the 30-day forward market, we say the dollar is selling at a ______. Conversely, when the dollar buys fewer euros on the spot market than the 30-day forward market, we say the dollar is selling at a ______. A. premium; discount B. handicap; bonus C. discount; premium D. subsidy; handicap

C. discount; premium

In essence, PPP theory predicts that changes in relative prices will result in a change in: A. interest rates. B. banking fees. C. exchange rates. D. tax rates.

C. exchange rates.

The term 'mission creep' describes the situation where an organisation: A. limits its activities overseas B. attempts a 'one-size fits-all' approach to achieving its objectives C. expands its activities beyond its original mandate D. looks to third world countries to profit

C. expands its activities beyond its original mandate

Under the Bretton Woods agreement, all countries were to fix the value of their currency in terms of _______, but were not required to exchange their currencies for ______. A. silver, silver B. copper, copper C. gold, gold D. zinc, zinc

C. gold, gold

The argument that it is not possible to have simultaneously a fixed exchange rate, a free flow of capital and an independent monetary system is referred to as ________________________. A. the adjustment mechanism B. the special role of the dollar C. impossible trinity argument D. distensible monetary system

C. impossible trinity argument

The three factors that have the most important impact on future exchange rate movement include the country's price inflation, its market philosophy, and its ______. A. rate of economic growth B. unemployment rate C. interest rate D. participation in the World Trade Organization

C. interest rate

_____________ exposure is the impact of currency exchange rate changes on the reported statements of a company. A. economic B. lead strategy C. lag strategy D. translation

C. lag strategy

When a country's government prohibits or restricts residents or non-residents from converting its currency into a foreign currency, it is referred to as: A. open-convertibility B. truly convertible C. non-convertibility D. freely convertible

C. non-convertibility

When two parties agree to exchange currency and execute the transaction on any particular day, the transaction is referred to as a ______. A. point-in-time exchange B. temporal exchange C. spot exchange D. forward exchange

C. spot exchange

The Economist publishes its own version of the PPP theorem, which is referred to as the: A. Burger King Whopper B. Krispy Kreme Donut C. Taco Bell Taco D. Big Mac Index

D. Big Mac Index

After the US dollar, the most important vehicle currencies are: A. Yaun, Rupees and Rupiah B. Rubles, Peso, Rand C. Ringgit, Kroner, Drachmae D. Euro, Yen, Pound

D. Euro, Yen, Pound

The ____________ states that a country's nominal interest rate is the sum of the required 'real' rate of interest and the expected rate of inflation over the period for which the funds are to be lent. A. PPP theory B. efficient market theory C. Sora Effect D. Fisher Effect

D. Fisher Effect

Today, the central position of ______________ between Tokyo and Singapore to the east, and New York to the west, has made it the critical link between the East Asian and New York markets. A. Moscow B. Israel C. Madrid D. London

D. London

_____ occurs when an investor places a speculative bet that the value of a financial asset will decline and then profits from that decline. A. Hedge fund B. Foreign direct investment C. Foreign exchange risk D. Short selling

D. Short selling

The process of buying a currency low and selling it high is called: A. forward exchange B. skimming C. profiteering D. arbitrage

D. arbitrage

When traders move like a herd, all in the same direction and at the same time, it is referred to as: A. market inefficiency B. price equity C. currency spiking D. bandwagon effect

D. bandwagon effect

A ___________________ is the instrument normally used in international commerce to effect payment. A. sight draft B. time draft C. bill of lading D. bill of exchange

D. bill of exchange

Technical analysis revolves around analysing the historical price movements of a stock or currency to attempt to predict future price patterns.

True

The foreign exchange market serves two main functions. These are A. collect duties on imported products and convert the currency of one country into the currency of another B. insure companies against foreign exchange risk and set interest rates charged to foreign investors C. collect duties on imported products and set interest rates charged to foreign investors D. convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk

D. convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk

Where restrictions limit domestic companies' ability to invest abroad, non-convertibility of currency can also be a problem. When this occurs, one solution is: A. barter arrangements B. negotiation agreements C. agiotage (speculative dealing) D. countertrade

D. countertrade

The extent to which a firm's future international earning power is affected by changes in exchange rates is called: A. vested interest B. economic conversion C. non- repudiation D. economic exposure

D. economic exposure

Although the foreign exchange market offers some insurance against __________, it cannot provide complete insurance. A. foreign exchange flight B. capital flight C. speculation D. foreign exchange risk

D. foreign exchange risk

A ______ exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. A. reverse B. spot C. hedge D. forward

D. forward

The law of one price and PPP theory help explain how ______________ are related to exchange rate movements. A. interest rates B. migration rates C. costs D. prices

D. prices

If the law of one price were true for all goods and services, the _____ exchange rate could be found from any individual set of prices. A. stability power similarity (SPS) B. purchasing ability adeptness (PAA) C. buying prowess equality (BPE) D. purchasing power parity (PPP)

D. purchasing power parity (PPP)

Megahertz Communications (UK) subsidiary AZCAR, set up the network television technical operations for SKY Network Television Ltd, New Zealand's leading Pay Television operator in 2004. Confronted with not being able to assure sufficient finance to perform its operations in this international setting, a key problem is to check that buyers are reliable and creditworthy. Another key principle to consider when dealing with strangers is lack of: A. knowledge B. skills C. contacts D. trust

D. trust

In its Malaysian companies, Dell pays its workers in Malaysian currency. This demonstrates that international businesses use foreign exchange markets: A. to pay for exports B. when they wish to undergo currency speculation C. when they have spare cash that they wish to invest for short terms in money markets D. when they must pay a foreign company for its products and services in its country's currency

D. when they must pay a foreign company for its products and services in its country's currency

Fluctuating exchange rates expose an international business to four types of foreign exchange risk: transaction, translation, transfer and economic risk.

False

A concern with floating exchange rates is volatility.

True


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