C211 Chapter 7 Quiz (Peng)

Why do managers, at some of the largest global corporations, fail to engage in currency hedging? a. They believe that the protection against fluctuations in exchange rates is not worth the potentially high cost of currency hedging. b. Since strategic hedging is the same as currency hedging, only with more protection, they believe that strategic hedging is the better choice. c. They believe that fluctuations in exchange rates are so minimal that currency hedging is not necessary. d. All of these reasons

a. They believe that the protection against fluctuations in exchange rates is not worth the potentially high cost of currency hedging.

Which of the following is an advantage of a strong dollar? a. US consumers benefit from low prices on imported products. b. Foreign tourists find it more expensive when visiting the United States. c. US exporters have an easy time competing on price abroad. d. US firms in import-competing industries have an easy time competing with low-cost imports.

a. US consumers benefit from low prices on imported products.

Which of the following is NOT true about a weak dollar? a. US consumers benefit from low prices on imports. b. US firms face less competitive pressure to keep prices low. c. Foreign tourists benefit from low prices when visiting the US. d. US exporters find it easier to compete on price abroad.

a. US consumers benefit from low prices on imports.

Foreign exchange rates are influenced by: a. all of these b. interest rates and money supply. c. relative price differences and purchasing power parity. d. supply and demand of the currencies.

a. all of these

The exchange rate policy in which governments selectively intervene to influence exchange rates is called: a. dirty float. b. fixed rate. c. floating rate. d. clean float.

a. dirty float.

A savvy global business manger must understand the following concepts to be considered literate about foreign exchange: a. Understand the factors that influence exchange rates b. All of these c. Understand the ways to hedge currency risks d. Understand the foreign exchange market

b. All of these

Which of the following statements regarding the role of the U.S. dollar outside the U.S. is NOT true? a. Most central banks buy and sell US dollars in their respective foreign exchange markets to influence their exchange rates. Many countries peg their currencies to the dollar. b. There is never an active market for dollars in any country. c. Most central banks hold U.S. dollars as official reserves to intervene in their respective markets. d. Most international statistics reported by national governments and international organizations are expressed in U.S. dollars.

b. There is never an active market for dollars in any country.

Risk analysis of any country must include an analysis of the country's: a. foreign exchange rate policies. b. currency risks. c. IMF status. d. history of economic recessions.

b. currency risks.

If an IMF member country were to find itself in a severe balance of payments crisis that threatened its financial stability, the IMF would most likely: a. all of these answers b. give the country a loan but require the country to make long-term policy reforms. c. reduce the country's quota. d. give the country an emergency grant.

b. give the country a loan but require the country to make long-term policy reforms.

Brazil lets supply-and-demand conditions determine its exchange rates, although the government does intervene to some degree. Brazil practices a: a. free floating exchange rate policy. b. managed floating exchange rate policy. c. fixed floating exchange rate policy. d. targeted exchange rate policy.

b. managed floating exchange rate policy.

A home appliance manufacturer located in The Netherlands decides to open two new manufacturing plants, one in Poland and the other in Thailand. Its purpose is to offset currency losses through: a. forward transactions. b. strategic hedging. c. dissemination risk. d. currency swaps.

b. strategic hedging.

The International Monetary Fund (IMF) does the following EXCEPT: a. Lender of last resort to member countries b. Provide temporary financial assistance to member countries c. Determine exchange rates d. Promote international monetary cooperation

c. Determine exchange rates

Among the five factors determining the supply and demand of foreign exchange are: a. FDI, FPI, and PPP. b. Relative price differences, investor psychology, and the 2008-2009 economic recession. c. Interest rates, money supply, and exchange rate policies. d. Balance of payments, balance of trade, and trade deficits.

c. Interest rates, money supply, and exchange rate policies.

Which of the following are the primary types of foreign exchange transactions made by financial companies? a. Forward transactions, swaps, exchange rate adjustments b. Swaps and spot transactions c. Swaps, spot transactions, forward transactions d. Spot transactions, forward transactions, vertical transactions

c. Swaps, spot transactions, forward transactions

Due to political and economic reasons, some countries match the exchange rate of their currencies relative to other currencies, which is known as a: a. managed floating exchange rate policy. b. targeted exchange rate policy. c. fixed floating exchange rate policy. d. free floating exchange rate policy.

c. fixed floating exchange rate policy.

A foreign exchange transaction in which participants buy and sell currencies now for future delivery is called a: a. swap. b. backward transaction. c. forward transaction. d. spot transaction.

c. forward transaction.

If one country's interest rate is high relative to other countries: a. this will attract foreign funds. b. this will cause the home country's exchange to appreciate. c. this will attract foreign funds and this will cause the home country's exchange to appreciate. d. this will have no effect exchange rates.

c. this will attract foreign funds and this will cause the home country's exchange to appreciate.

Which of the following statements about the Bretton Woods system are true? a. All currencies were pegged at a fixed rate. b. All currencies were pegged to the US dollar. c. Only the US dollar was convertible into gold at $35 per ounce. d. All of these.

d. All of these.

A statement that documents all of Bolivia's international transactions, including merchandise trade, service trade, and capital movement, is called its: a. trade deficit. b. governmental accounting. c. balance of trade. d. balance of payments.

d. balance of payments.

Purchasing power parity (PPP) is a theory that: a. recognizes that price for identical products sold in different countries are all the same. b. argues that exchange rates should not change. c. suggests that in the absence of trade barriers (such as tariffs), the price for identical products sold in different countries must be different. d. suggests that in the absence of trade barriers (such as tariffs), the price for identical products sold in different countries must be the same.

d. suggests that in the absence of trade barriers (such as tariffs), the price for identical products sold in different countries must be the same.

Although the Bretton Woods system is no longer with us, one of its most enduring legacies is: a. the fixed exchange rate. b. the Post-Bretton Woods system. c. the Gold Standard. d. the International Monetary Fund.

d. the International Monetary Fund.