IB Final Exam
The international capital market consists of the ________, ________, and ________. A. international bond, international equity, Eurocurrency markets B. stock market, bond market, currency market C. vehicle currency, currency futures contract, liquidity D. liquidity, Eurobond, over-the-counter (OTC) market E. countertrade, interbank market, securities exchange
A
The _________ is the collection of agreements and institutions that govern exchange rates. A. international monetary system B. gold standard C. fundamental disequilibrium D. Fisher effect E. fixed exchange-rate system
A
The principle that the nominal interest rate is the sum of the real interest rate and the expected rate of inflation over a specific period is called the ________. A. real interest rate B. Fisher effect C. exchange rate D. nominal interest rate E. spot exchange rate
B
Criteria that determine whether a good meets NAFTA rules of origin include which one of the following? Criteria that determine whether a good meets NAFTA rules of origin include which one of the following? A. Goods wholly produced or obtained in the NAFTA region B. Unassembled goods containing sub-assemblies from Nicaragua, Panama, or Honduras C. Goods produced in the NAFTA region from natural materials from the western hemisphere D. Goods using materials sourced in China E. Goods containing non-originating inputs but carry a certificate of origin from an EU country
A
In late 1971, the United States and other countries reached the ________ to restructure and strengthen the international monetary system. A. Smithsonian Agreement B. Free float system C. Bretton Woods Agreement D. Fischer effect E. Managed float system
A
One simple form of countertrade is ________, in which goods are exchanged for others of equal value. A. barter B. spot rates C. liquidity D. hard currency E. multiple exchange rates
A
The currency of the EU is the ________. A. euro B. pound C. dollar D. yen E. peso
A
The forces of ________ determine currency prices, and transactions are conducted through a process of bid and ask quotes. A. supply and demand B. foreign bonds C. interbank interest rates D. interest arbitrage E. currency speculation
A
Which government policy restricts currency convertibility? A. Preventing export to certain countries B. Approval by a country's central bank C. Requirement of export licenses D. Implementing a single exchange rate E. Countertrade
B
Which of the following is a criterion for member nations to use the euro as outlined in the Maastricht Treaty? A. A level of inflation no greater than 3.2% B. A level of debt no greater than 40% of GDP C. A lack of price transparency D. Interest rates on long-term government debt of no more than 2% E. A level of government deficit no greater than 1.5% of GDP
A
Which of the following is a part of the Bretton Woods Agreement? A. Fixed exchange rates B. Establishment of the World Trade Organization C. Built-in flexibility to correct temporary misalignments D. No enforcement mechanism E. A new international monetary system based on the British pound sterling
A
Which of the following is an effect of NAFTA? A. The United States exports more to Mexico. B. Trade among Canada, the United States, and the European Union has increased. C. The United States has developed a trade deficit with Great Britain and Germany. D. Mexico's exports to the United States have declined. E. NAFTA has created jobs in the United States.
A
Which one of the following involves using taxes and government spending to influence the money supply indirectly? A. Fiscal policy B. Sales tax C. Interest rates D. Tariffs E. Exchange rates
A
Which one of the following is a reason that some European countries did not join the EU? A. They feared destructive rivalries and loss of national sovereignty. B. They wanted to use the euro. C. They wanted all European countries to have the same culture. D. They didn't want increased trade. E. They don't want to increase tourism.
A
Which one of the following is a trade bloc in the Americas? A. CAFTA-DR B. CER C. GCC D. AU E. EU
A
Which one of the following statements about the gold standard is TRUE? A. It tied the value of a nation's currency to an ounce of gold. B. It increased the risk in exchange rates. C. It could not help correct a nation's trade imbalance. D. It began a round of devaluations among countries. E. It created a fluctuating exchange rate.
A
Which one of the following statements about the theory of purchasing power parity (PPP) is TRUE? A. The PPP concept is useful in determining at what level an exchange rate should be. B. High interest rates encourage spending. C. The theory of purchasing power parity (PPP) is the exchange rate among five nations' currencies that equals the ratio of their price levels. D. Low interest rates discourage spending and decreases debt. E. Inflation does not affect exchange rates among currencies.
A
Which one of the following statements pertains to the law of one price? A. An exchange rate shows how much of one currency is paid to receive a certain amount of another. B. Fundamental analysis uses statistical models based on fundamental economic indicators to forecast exchange rates. C. The Whopper index uses the law of one price. D. For the law of one price to apply, products need only be similar in each country and be entirely produced using similar materials regardless of their source. E. The law of one price states that an identical product must cost the same in all countries in terms of a consumer's home currency.
A
Which of the following is a main regional trading bloc? A. Atlantic Free Trade Agreement B. European Union C. Asian Common Market D. Association of Pacific Nations E. United Nations
B
The practice of insuring against potential losses that result from adverse changes in exchange rates is called ________. A. interest arbitrage B. currency hedging C. currency conversion D. currency speculation E. currency arbitrage
B
As many countries abandoned central planning and socialist-style economics, the pace of privatization ________ worldwide. A. declined B. accelerated C. plummeted D. increased only slightly E. fell
B
Equity normally takes the form of ________, or shares of ownership in a company's assets. A. derivative B. stock C. bonds D. debt E. liquidity
B
Which of the following is a reason that nations try to maintain the confidence of investors, businesspeople, and consumers in their economies? A. Lost confidence causes consumers to decrease their savings and increase their debts B. Lost confidence causes companies to delay the hiring of additional employees C. Lost confidence causes companies to hire additional employees. D. Lost confidence causes consumers to panic. E. Lost confidence causes companies to accelerate investing in new technologies.
B
Which of the following statements about ASEAN is TRUE? A. ASEAN consists of five countries. B. ASEAN seeks to counter China's rising strength, resources of cheap labor, and abundant raw materials. C. ASEAN serves as a forum to address human rights violations. D. ASEAN was formed in 1957. E. ASEAN seeks to promote democracy in Southeast Asia.
B
Which one of the following is a problem facing Economic Community of West African States (ECOWAS)? A. Strong national economies B. Political instability C. Adequate infrastructure D. Independent governments E. Good economic policies
B
Which one of the following is a purpose of the international capital market? A. Maximizing dividends to stockholders B. Expanding the money supply C. Increasing the cost of consumer loans D. Offering loans to borrowers in developing nations E. Reducing return on investment
B
Which one of the following is an appeal of the Eurocurrency market? A. Lower taxes for banks and investors B. Complete absence of regulation C. Lower risk of default D. Access to foreign stock markets E. Greater risk
B
Which one of the following statements describes the African Union (AU)? A. The AU aims to attract more foreign direct investment to each member nation. B. The aim of the AU is to remove vestiges of colonialism and apartheid. C. On the African continent, 35 nations created the African Union (AU). D. The AU aims to continue the policies of colonialism. E. The AU envisions continent of separate and independent states but allowing for the redrawing of borders to accommodate tribal movements.
B
Which organization of Asian countries also includes the United States? A. The Australian and New Zealand Closer Economic Relations Agreement B. The organization for Asia Pacific Economic Cooperation C. The Free Trade Area of the Americas D. The Association of Southeast Asian Nations E. The Southern Common Market
B
Today, the EU has ________ members. A. 35 B. 28 C. 6 D. 15 E. 20
B
A ________ is the lowest extent of national integration. A. regional trading bloc B. customs union C. free trade area D. trade diversion E. political union
C
If certain countries want to maintain more-stable exchange rates, which one of the following should they do? A. Return to the gold standard. B. Allow exchange rates to float according to the economic conditions. C. Peg currencies to the U.S dollar, the EU euro, or the special drawing right. D. Return to a fixed exchange rate. E. Adopt the efficient market view.
C
Recurring crises in the international monetary system are raising calls for a new system. Which one of the following is a reason for the new system? A. World leaders are pressing for a single global currency. B. The United States has dominated the world economy. C. Leaders of many developing countries complain about the effect of global capital on their economies. D. Some calls are for the expansion of the IMF. E. The Chinese economy is growing at a pace that threatens the world balance economically.
C
The World Bank has done which one of the following? A. Financed economic development projects in Australia, India, and the Scandinavian countries B. Focused on the general financial needs of Japan C. Financed European reconstruction following the Second World War D. It has never undertaken projects to develop transportation networks and power facilities. E. Guaranteed loans to countries that are unable to obtain capital from commercial sources
C
What is the main difference between a free trade area and a customs union? A. A political union requires member nations to accept a common stance on economic and political matters regarding nonmember nations. B. Countries in a customs union cannot negotiate as a single entity with other supranational organizations. C. Members of a customs union agree to treat trade with all nonmember nations in a similar manner. D. An economic union goes beyond the demands of a common market. E. A common market integrates the elements of free trade areas and customs unions.
C
Which of the following is a positive effect of regional trade agreements? A. increased consumer savings B. Trade diversion C. Trade creation D. Shifts in employment E. Political remapping
C
Which one of the following describes Asia Pacific Economic Cooperation (APEC)? A. APEC does not want to have free trade and investment throughout the region. B. APEC has 12 members. C. APEC wants to simplify and harmonize customs procedures. D. The stated aim of APEC is to build a trading bloc. E. APEC wants to dominate world trade.
C
Which one of the following fulfills the purpose of a national capital market? A. To minimize the risk of financial losses to lenders due to poor management decisions B. To provide services across national borders C. To provide a mechanism to invest money efficiently D. To enable lenders to take advantage of bankruptcy laws E. To allow lenders to write off bad debts on their tax returns
C
Which one of the following is a characteristic of microfinance? A. Microfinance lends money to low-income entrepreneurs at high interest rates. B. Microloans require collateral equal to the amount of the loan. C. Most borrowers are women. D. Loans must be at least $50,000. E. Microloans are illegal in developed countries.
C
Which one of the following is a goal for government imposing currency restrictions? A. Permitting convertibility of currency B. To control domestic inflation C. Preserving a country's hard currencies D. Protecting a currency from depreciation E. Preserving hard currencies to pay for infrastructure improvements
C
Which one of the following is an area of progress for The Economic Community of West African States (ECOWAS)? Which one of the following is an area of progress for The Economic Community of West African States (ECOWAS)? A. Construction of national roads B. Freedom of travel within each members' borders C. Development of international telecommunication links D. Market integration E. Goal-setting
C
Which one of the following statements about forecasting techniques is TRUE? A. Statistical models avoid human error in forecasting. B. Technical analysis uses charts of past trends of inflation and tax revenues to forecast exchange rates. C. Forecasting can be improved by uncovering information not reflected in forward exchange rates. D. Fundamental analysis uses simple models to forecast exchange rates. E. Forecasts using a combination of methods are completely accurate.
C
Which one of the following statements about the Jamaica Agreement of 1976 is TRUE? A. The IMF created a special drawing right (SDR). B. The mission of the IMF was diminished. C. Gold was no longer the primary reserve asset of the IMF. D. It ended the managed float system of exchange rates. E. It is an accord among members of the IMF to replace the existing system of floating exchange rates.
C
Which one of the following statements with regard to the efficient market view is TRUE? A. Prices of financial instruments do not reflect all publicly available information. B. Forward exchange rates are not accurate forecasts of future exchange rates. C. Prices of financial instruments reflect all relevant publicly available information at any given time. D. No deviation occurs between forward and actual exchange rates. E. The cost of searching for additional information is irrelevant to the forecast model.
C
Which of the following statements about forward rates is TRUE? A. Forward rates show the expectations of investors and borrowers regarding a currency's future spot rate. B. The foreign currency exchange handles transactions at forward rates. C. The forward rate shows a nation's present and future debt ratings. D. It is an exchange rate at which two parties agree to exchange currencies on a future date. E. Forward rates reflect a country's gross domestic product.
D
Candidates for EU membership become members after they meet certain demands. Which one of the following is one of those demands? A. Adherence to the aims of economic, monetary, and political union B. Adopting an EU culture C. Stable institutions that guarantee democracy, rule of law, and human rights D. A functioning command economy E. Adoption of independent rules and regulations
D
Managers prefer that movements in exchange rates be ________. A. changing B. unpredictable. C. fluctuating D. predictable E. increasing
D
The exchange rate depends on which one of the following? A. The securities exchange B. Prevailing interest rates C. Stock market prices D. The size of the transaction E. Trade agreements between the two countries involved
D
To exchange currency in international transactions, companies rely on the ________, where currencies are bought and sold. A. over-the-counter (OTC) market B. interbank market C. Eurocurrency market D. foreign exchange market E. forward market
D
Which of the following statements describes exchange rates? A. A country with a weak currency will experience price increases in its exports and decreases in its import prices. B. A company profits by generating revenue in a weak currency and paying bills in a strong currency. C. Revaluation lowers the price of a country's exports on world markets. D. Exchange rates influence demand for a company's products in the international marketplace. E. Exchange rates increase the amount of taxes a company pays from its international subsidiaries.
D
Which one of the following currency instruments is used in the forward market? A. Spot contracts B. Marginal options C. Corporate bonds D. Currency swaps E. Clearing
D
Which one of the following describes the Closer Economic Relations (CER) Agreement? A. Professionals cannot practice their occupation in the other country. B. The CER maintains tariffs and quotas between Australia and New Zealand. C. Goods cannot be sold within the other country's borders. D. Australia and New Zealand created a free trade agreement in 1966. E. The CER limits free trade and separates the two economies.
D
Which one of the following is a fact about ASEAN that warrants consideration? A. Political stability B. Economic cooperation C. Common tariffs and standards D. Corruption and shadow markets E. Homogeneous cultures and politics
D
Which one of the following is a function of the spot market? A. Converting funds into the currency of a country with a lower tax rate B. Exchanging currencies at a local bank for travel C. Converting income figures shown on an income statement into the currency of the investors' country D. Converting funds into the currency of an international supplier E. Providing currency for the microfinance markets
D
Which one of the following is a system that allocates financial resources in the form of debt and equity according to their most efficient uses? A. A stock B. A bond C. Liquidity D. A capital market E. An equity
D
Which one of the following is responsible for growth in the international equity market? A. Activity in commodity markets B. Economic growth in developed countries C. Activity of commercial banks D. Spread of privatization E. Interest rates
D
A(n) ________ is a country or territory whose financial sector features very few regulations and few, if any, taxes. A. securitization B. booking center C. deregulation D. offshore financial center E. operational center
D
A strong and rising currency makes exports more expensive. Companies can export successfully despite a strong currency by ________. A. freezing prices of goods in domestic marketslong dash—this might boost overall profits if sales improve. B. winning customer business and loyalty engaging in foreign direct investment C. exploiting the price advantage they get from their country's weak currency by expanding abroad D. sourcing domestically for raw materials and other inputs to the production process. E. cutting costs and boosting efficiency by downsizing staff and reworking factories at home
E
A ________ is a monetary regime that is based on an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate. A. free float system B. fixed exchange-rate system C. managed float system D. special drawing right (SDR) E. currency board
E
Companies can be better skilled at managing foreign exchange by doing which one of the following? A. Using more futures options B. Increasing deposits to interest-bearing savings accounts C. Using telephones, e-mails, or faxes D. Matching cash inflows with expenses E. Working with major banks
E
If an exchange rate quotes the number of Japanese yen needed to buy one U.S. dollar (¥/$), the yen is the ________ and the dollar is the ________. A. supply, demand B. exchange-rate risk, cross rate C. spot rate, spot market D. denominator, numerator E. quoted currency, base currency
E
Lowering of a currency's value is called _______. A. the inefficient market view B. the efficient market view C. fundamental analysis D. revaluation E. devaluation
E
Reasons for the failure of PPP to predict exchange rates accurately include the impact of ________. A. the international Fisher effect B. domestic inflation C. foreign taxes D. added costs E. the Big Mac index
E
The U.S. dollar is a(n) ________, a currency used to convert funds between two other currencies. A. speculation B. over-the-counter market C. securities exchange D. spot market E. vehicle currency
E
The structure of the EU includes which one of the following? A. European Advisoru Board B. European Free Trade Association (EFTA) C. European Congress D. European Supreme Court E. Council of the EU
E
Which of the following is a negative effect of regional trade agreements? A. Political cooperation B. Trade creation C. Employment opportunities D. Cultural homogenization E. Loss of national sovereignty
E
Which of the following is a provision of NAFTA? A. Common accounting rules B. Adoption of the dollar as a common currency C. Adding new countries to the European Union D. Membership in the World Trade Organization E. Elimination of tariffs on goods originating within North America
E
Which of the following was a factor in the collapse of the Bretton Woods Agreement? A. Governments used a free float system. B. Nations held onto dollars. C. The dollar strengthened. D. Government gold reserves exceeded the quantity necessary to support the paper currency in circulation. E. The United States experienced a trade deficit.
E
Which one of the following U.S. agencies monitors business activity? A. U.S. Federal Communications Commission (FCC) B. U.S. Postal Service (USPS) C. World Trade Organization (WTO) D. U.S. Federal Aviation Administration (FAA) E. U.S. Patent and Trademark Office (USPTO)
E
Which one of the following is a financial crisis experienced in recent years? A. The Smithsonian Agreement B. South Africa's currency crisis C. Brazil's peso crisis D. Japan's yen crisis E. Developing nations' debt crisis
E
Which one of the following is a function of the foreign exchange market? A. Equity financing B. Making microloans C. Interbank interest rates D. Savings at interest E. Currency conversion
E
Which one of the following is a source of deposits for the Eurocurrency market? A. Governments that need to borrow funds B. Small companies, banks, and governments C. Commercial banks on behalf of exporters and importers D. Extremely wealthy countries E. International companies with excess cash
E
Which one of the following is the process whereby countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products, people, or capital? A. Free trade area B. Customs union C. Political union D. Economic union E. Regional economic integration (regionalism)
E
Which one of the following statements about inflation is TRUE? A. Inflation is not affected by the supply and demand for a currency. B. Purchasing power increases because of inflation. C. Interest rates have no effect on inflation. D. A country's monetary policies have little effect on inflation. E. Governments manage their currencies because of the damaging effects of inflation.
E
Which one of the following statements about the Gulf Cooperation Council (GCC) is TRUE? A. Yemen, Iran, and Iraq are members. B. Citizens of the EU can travel freely in the GCC without visas. C. The goals of the GCC are purely economic. D. GCC was formed in 2014. E. The primary purpose was to cooperate with the EU and EFTA.
E
