BUS5 187: Chp 10/12 Quiz

1. A government can increase the supply of money, which makes it easier for individuals and businesses to get credit. This, in turn, can increase the demand for goods and services, which should grow at the same rate to avoid inflation. 2. Evidence reveals that various psychological factors play an important role in determining the expectations of market traders. 3. If the growth in a country's money supply is faster than the growth in its output, price inflation is fueled. 4. Expectations of market traders tend to become self-fulfilling prophecies. 5. Nominal interest rate is the sum of the required "real" rate of interest and the expected rate of inflation during the loan period. A strong relationship exists between nominal interest rates and inflation rates. 6. Market traders tend to follow the actions of other traders, but the individual effects can be hard to predict.

1. long-range predictor 2. short-range predictor 3. short-range predictor 4. long-range predictor 5. short-range predictor 6. long-range predictor

1. Using lead and lag strategies can help accelerate payments from weak currency to strong currency countries and vice versa. 2. Concerned with the long-term effect of changes in exchange rates on future prices, sales, and costs 3. Concerned with the present measurement of past events 4. Income from the individual obligations for the immediate purchase or sale of goods and services at agreed prices; the borrowing or lending of funds in foreign currencies is affected by fluctuations in foreign exchange values. 5. Distribute the firm's productive assets to various locations so the firm's long-term financial well-being is not severely affected by adverse changes in exchange rates. 6. Entering into forward exchange contracts and buying swaps can be used.

1. translation exposure 2. economic exposure 3. translation exposure 4. transaction exposure 5. economic exposure 6. transaction exposure

Part 1 of 4: In 2014, the value of the U.S. dollar relative to the euro was about 30 percent weaker than its value in 2001. How is a weak currency an advantage in trade?

a weak currency boosts export sales for the country

Part 2 of 3: The U.S. government is just one player in global capital markets. What is driving the growth of global capital markets?

advances in information technology and deregulation by governments

Part 5 of 5: Based on the information in the case, which of the following would be most beneficial for Vietnam's coffee growers?

an appreciation of the vietnamese dong

Part 4 of 4: The relationship between the U.S. dollar and the European Union's euro has been up and down. In 2018, for example, a strong U.S. economy together with persistent economic weakness in Europe resulted in American exports to the euro zone being 17 percent more expensive when priced in euros. Which type of exchange rate exposure are managers dealing with in this longer-term scenario?

economic exposure

True or false: There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

false

Part 3 of 3: Together, Japan and China have lent the United States more than $2 trillion. What are the benefits to these countries of investing in global capital markets?

global capital markets provide a wider range of investment opportunities than purely domestic markets

Part 1 of 5: What type of exchange rate regime is present in Vietnam?

pegged

Part 2 of 5: Which of the following has contributed to the problems Vietnam is facing with its coffee revenues?

spot prices for coffee have not kept pace with inflation in vietnam

Part 3 of 4: What is the impact of a strong dollar relative to the euro for a U.S. consumer buying a Porsche produced in Germany with parts from Slovakia?

the car should be less expensive for the US consumer

Part 1 of 3: In mid-2018, the U.S. government owed $6 trillion to foreign governments. Why does the U.S. government borrow money to finance its budget from foreign countries rather than from domestic sources?

the cost of capital is lower in the global market

Part 3 of 5: Brazilian coffee farmers have benefited from

the drop in the value of the Brazilian real

Part 2 of 4: If the United States has a weak dollar relative to the euro, what is the impact for a European importer buying products from the United States that are priced in dollars?

the european company will benefit from its relatively strong euro

True or false: A capital market brings together those who want to invest money and those who want to borrow money.

true

True or false: When Lana traveled from the United States to Italy, she had to change her money from dollars into euros. Lana was participating in the currency exchange market.

true

True or false: Currency fluctuations can make seemingly profitable trade and investment deals unprofitable, and vice versa, due to currency volatility and fluctuations.

true

Part 4 of 5: Using the information in the case, which of the following statements is true of how the strong U.S. dollar has affected the global coffee market?

vietnamese coffee farmers are reducing coffee production and investing in alternative crops