Chapter 11 Quiz - International Business (Exam 2)

What was the Jamaica Agreement?

Floating exchange rate declared acceptable and revised International Monetary Fund's Articles of Agreement

Why did China start buying up its currency in 2015?

to try to stop the decline of the yuan when capital started to leave the country

The four major currencies of the world that are free to float against each other are the U.S. dollar, the European Union's euro, and the currencies from

Japan and the United Kingdom

What was the Smithsonian Agreement?

Ongoing U.S. trade deficits led to fixed rate collapse and renegotiation

Since the firm is producing textiles, it can build strategic flexibility and reduce economic exposure by

contracting out manufacturing operations in order to shift production as economic conditions change

In the foreign exchange market the relative value of any two currencies is determined by their

demand and supply

What is one argument against managed-float exchange rates?

difficult to get it right

If Air-Omnibus was in China, it would not face the problem it did because China allows its currency to vary in value against the dollar, yen, and euro within certain limits. This is known as a

dirty float

Maintaining strategic flexibility can take the form of ____________________ as a hedge against currency fluctuations

dispersing production to different locations around the globe

What is one argument against fixed exchange rates?

economic fundamentals unclear

Which of the following would be true if the exchange rate between the yuan and the dollar was $1 = 6.75 yuan in 2015 and $1 = 8.1 yuan in 2005?

China's exports would be less price competitive in 2015

What was Bretton Woods?

Established the International Monetary Fund with fixed exchange rates and relied on a strong U.S. dollar

What was the Gold Loss (1930s)?

European nations transferred their gold to the United States

What are the Gold Standard (1880)?

Powerful mechanism for achieving balance-of-trade equilibrium

Which is true of China's current exchange rate system?

The exchange rate for the yuan is set with reference to a basket of currencies

Until 2005, China maintained a fixed exchange rate system. Which is a benefit of this approach?

adopting a pegged exchange rate regime imposes monetary discipline on a country

What is one argument against pegged exchange rates?

continual government intervention

What is one argument for Target Zones?

fluctuation with limits

When international trade was limited in the past, payments for goods purchased from another country were made in

gold or silver

What is one argument for managed-float exchange rates?

government adjusts; market-determined

Companies engaged in significant foreign exchange activities need to be aware that the current system is a mixed system combining speculation and

government intervention

For China's exporters, the value of the yuan over the last 10 years has made it ______ to export

harder

What is one argument for fixed exchange rates?

no uncertainty about currency value

What is one argument against Target Zones?

limited options

The exchange rate system in place in China today can best be described as a ___________ exchange rate system

managed float

What is one argument for floating exchange rates?

market-based

Prior to 2005, China had a ___________ exchange rate system

pegged

What is one argument for pegged exchange rates?

reduces uncertainty

Many industries, including textiles, are affected by government actions, so the firm should

take an active role in working with governments to produce favorable conditions

The business should use the forward exchange market knowing

the forward exchange market is far from perfect as a predictor of future exchange rates

From 2005 to 2015, the value of Chinese yuan relative to the U.S. dollar changed from 8.27 yuan per dollar to 6.0875 yuan per dollar. Which of the following is consistent with this change?

the yuan appreciated relative to the dollar

Which of the following best characterizes the value of the Chinese yuan relative to the U.S dollar over the last decade?

the yuan has been steadily appreciating relative to the U.S. dollar

What is one argument against floating exchange rates?

uncertainty about future exchange rates

If the exchange rate between the yuan and the dollar was $1 = 6.75 yuan in 2015 and $1 = 8.1 yuan in 2005, the _________ since 2005

yuan has appreciated relative to the dollar