International Business - Chapter 11

A French company that sells goods to a foreign customer whose currency is depreciating against the euro will most likely experience which of the following when completing the sale? A) The company will receive fewer euros if the sales price was expressed in the buyer's currency. B) The company will receive more euros if the sales price was expressed in the buyer's currency. C) The company will receive fewer euros if the sales price was expressed in euros originally. D) The company will receive more euros if the sales price was expressed in euros originally.

A

A banking crisis often occurs under which of the following situations? A) when investors withdraw funds from financial institutions B) when exchange rates fluctuate dramatically C) when governments borrow excessively D) when a nation's currency rapidly depreciates

A

A dirty float is defined by which of the following? A) exchange rates fluctuate with occasional central bank intervention B) beneficial exchange rates are offered in trades with certain nations C) fixed exchange rates are set and maintained by the World Bank D) currency values rise and fall according to the U.S. dollar

A

A government reduction of the currency value is known by which of the following terms? A) devaluation B) hyperinflation C) depreciation D) fluctuation

A

All of the following characterize stock exchanges except ________. A) all shares are held by MNEs B) stock rules vary by nation C) good source of funds for firms D) traders must be members

A

Currency complications which occur in international business transactions are resolved by which of the following? A) foreign exchange B) exchange rate C) capital flight D) hard currency

A

Global Finance Meeting (Scenario) International finance experts are meeting in Tokyo for a weeklong conference to discuss the current state of global finance. At the conference are representatives from a variety of monetary and financial organizations. Expert A often works with international firms arranging capital in the form of shares. Expert B works for the Bank of Nova Scotia in the British Virgin Islands. Expert C advises international firms on corporate mergers. Expert C most likely works for which of the following? A) Merrill Lynch B) Banco General in Panama C) Federal Reserve Bank D) International Monetary Fund

A

High Inflation (Scenario) Country X primarily exports coffee beans, and in the last two years the demand for coffee beans has caused economic growth in Country X. To accommodate the economic growth, the central bank of Country X increased the nation's money supply. Country X is now experiencing inflation of over 200 percent. A group of economic experts, government representatives, and business owners have gathered for a conference in Country X to discuss the situation. Which of the following is most likely an additional problem faced by Country X due to its inflation? A) high interest rates B) herding behavior C) balance of trade D) country risk

A

Information technology has altered the way stock markets function primarily by ________. A) speeding up transactions B) providing stock information C) facilitating wire transfers D) monitoring rate fluctuations

A

Plas-Tex Exporting (Scenario) Plas-Tex Plastic Company manufactures plastic storage containers of all different sizes. Plas-Tex has been exporting more storage containers to Europe recently because of the depreciation of the U.S. dollar relative to the euro. Plas-Tex CEO, Wayne Chisholm, has prepared a report for the annual shareholders meeting in which he outlines his manufacturing and sales recommendations for the upcoming year. Which of the following supports maintaining the current production status instead of increasing production? A) The euro-dollar exchange rate is unpredictable due to its constant fluctuation. B) Exporters and importers typically profit from currency speculation. C) The euro/dollar exchange rate usually remains steady for long periods of time. D) The cost of living in the U.S. has risen dramatically in the last year.

A

Which of the following is an example of a country that has experienced dollarization? A) Ecuador B) Japan C) France D) Brazil

A

Which of the following is an example of a currency risk? A) purchasing products from a nation with appreciating currency B) purchasing products from a country with depreciating currency C) selling products to a country with appreciating currency D) selling products to a nation with a constant currency rate

A

Which of the following was most likely the underlying reason for the demise of the Bretton Woods system? A) U.S. trade deficits B) creation of the EU C) gold depreciation D) WTO restrictions

A

A U.S. company that buys from a supplier whose currency is increasing against the dollar will most likely have to do which of the following if the price is expressed in the supplier's currency? A) pay less in dollars than originally expected B) pay more in dollars than originally expected C) pay the same amount of dollars as originally expected D) pay part of the transaction in the supplier's currency

B

All of the following are part of the global financial system except the ________. A) New York Stock Exchange B) World Trade Organization C) International Monetary Fund D) Bank for International Settlements

B

Capital flight has which of the following effects on a nation? A) increases need for investment holdings B) decreases ability to service debt and pay for imports C) reduces harmful currency restrictions D) preserves supply of hard currencies

B

Currency risk can best be defined as the risk that occurs when ________. A) two currencies remain at the same constant rate B) one currency changes in relation to another currency C) buyers and sellers disagree over which currency to use D) fluctuations in the stock market affect exchange rates

B

Each of the following significantly affects the level of the balance of trade except ________. A) exchange rate B) currency risk C) prices of goods D) trade barriers

B

Institutional investors are responsible for managing ________ and mutual funds. A) stocks B) pensions C) assets D) currency

B

On which of the following levels of the international monetary and financial systems pyramid are commercial banks categorized? A) national government level B) national infrastructure level C) international organization level D) firm level

B

Plas-Tex Exporting (Scenario) Plas-Tex Plastic Company manufactures plastic storage containers of all different sizes. Plas-Tex has been exporting more storage containers to Europe recently because of the depreciation of the U.S. dollar relative to the euro. Plas-Tex CEO, Wayne Chisholm, has prepared a report for the annual shareholders meeting in which he outlines his manufacturing and sales recommendations for the upcoming year. 53) Which of the following questions would be more important for Chisholm to evaluate before presenting his manufacturing recommendations to shareholders? A) What was the impact of the exchange rate on European exports last year? B) What is the currency risk of exporting additional Plas-Tex products to Europe? C) How effective has the Plas-Tex marketing campaign been in Europe? D) What was the impact on Plas-Tex sales when the euro depreciated last year?

B

The U.S. dollar is an example of which of the following? A) central currency B) convertible currency C) nonconvertible currency D) common market currency

B

What does the central bank do in order to accommodate a nation's economic growth? A) regulate foreign direct investment B) increase the nation's money supply C) decrease the nation's money supply D) establish national currency rates

B

Which of the following best characterizes the functions of the World Bank? A) monitor interest rates in emerging economies B) provide loans and technical assistance to developing countries C) offer financial assistance to small businesses D) initiate trading for impoverished nations

B

Approximately how many currencies are used in business transactions around the world? A) 25 B) 75 C) 150 D) 175

C

Bonds can best be described as which of the following? A) a short-term loan from a commercial bank B) capital raised by selling corporate shares C) a debt security used to raise capital D) a money market used for financing

C

Each of the following characterizes the floating exchange rate system except ________. A) utilized by most advanced economies B) rates based on supply and demand forces C) governments refrain from systematic intervention D) allows for monetary policy flexibility

C

Global Finance Meeting (Scenario) International finance experts are meeting in Tokyo for a weeklong conference to discuss the current state of global finance. At the conference are representatives from a variety of monetary and financial organizations. Expert A often works with international firms arranging capital in the form of shares. Expert B works for the Bank of Nova Scotia in the British Virgin Islands. Expert C advises international firms on corporate mergers. 59) Expert A most likely works for which of the following? A) Union Bank in Switzerland B) Bank of America C) Arab-Malaysian Merchant Bank D) Goldman Sachs

C

High Inflation (Scenario) Country X primarily exports coffee beans, and in the last two years the demand for coffee beans has caused economic growth in Country X. To accommodate the economic growth, the central bank of Country X increased the nation's money supply. Country X is now experiencing inflation of over 200 percent. A group of economic experts, government representatives, and business owners have gathered for a conference in Country X to discuss the situation. 56) Which of the following questions would be more important to evaluate in determining the reason behind the inflation in Country X? A) Has momentum trading of agricultural commodities been occurring in Country X? B) What is the exchange rate between Country X currency and the euro? C) How quickly was the money supply increased by the central bank of Country X? D) How many pounds of coffee beans are being imported annually to Country X?

C

High Inflation (Scenario) Country X primarily exports coffee beans, and in the last two years the demand for coffee beans has caused economic growth in Country X. To accommodate the economic growth, the central bank of Country X increased the nation's money supply. Country X is now experiencing inflation of over 200 percent. A group of economic experts, government representatives, and business owners have gathered for a conference in Country X to discuss the situation. Which of the following should be considered before the government takes any action to correct the high rate of inflation? A) What have been the historical consequences of trade barriers in Country X? B) What is the current price of coffee in the United States and Europe? C) What will be the long-term effects of currency depreciation to Country X? D) What other industries in Country X could replace agriculture?

C

If the supply of a currency rises, which of the following is most likely to be true regarding the currency's price? A) The price of the currency fluctuates randomly. B) The price of the currency stays the same. C) The price of the currency lowers. D) The price of the currency increases.

C

Momentum trading is characterized by which of the following? A) Investors buy stocks as prices fall. B) Investors sell stocks when others sell. C) Investors buy stocks as prices rise. D) Investors buy and sell stocks quickly.

C

Plas-Tex Exporting (Scenario) Plas-Tex Plastic Company manufactures plastic storage containers of all different sizes. Plas-Tex has been exporting more storage containers to Europe recently because of the depreciation of the U.S. dollar relative to the euro. Plas-Tex CEO, Wayne Chisholm, has prepared a report for the annual shareholders meeting in which he outlines his manufacturing and sales recommendations for the upcoming year. Which of the following should be considered closely before Chisholm recommends increasing production to take advantage of the current exchange rate? A) What is the expected outcome of Plas-Tex negotiations with an Asian manufacturer? B) How much revenue did Plas-Tex generate from European sales last year? C) What will be the effect on Plas-Tex if the euro depreciates more than the U.S. dollar? D) What has been the historic impact of capital flight on Plas-Tex revenues?

C

The Bretton Woods Agreement most likely influenced the current trend towards international free trade when member countries agreed to ________ A) no longer impose trading tariffs within economic blocs B) provide low interest loans to poor countries C) not impose restrictions on currency trading D) implement a multilateral trade and investment system

C

The type of currency used only for domestic business transactions is known by which of the following terms? A) hard B) convertible C) nonconvertible D) local

C

Which of the following is a new driver of the global financial system? A) MNEs and SMEs B) FDI-related funds C) portfolio investments D) real estate transactions

C

Which of the following is true regarding the value of national currencies? A) They cannot be quantified. B) They remain highly stable. C) They fluctuate constantly. D) They change occasionally.

C

A firm that is considering a corporate merger would most likely seek advice from which of the following? A) private bank B) offshore bank C) commercial bank D) investment bank

D

A trade surplus occurs as a result of which of the following? A) a steep national currency depreciation B) an imbalance in currency exchange rates C) a nation's imports exceed its exports D) a nation's exports exceed its imports

D

Global Finance Meeting (Scenario) International finance experts are meeting in Tokyo for a weeklong conference to discuss the current state of global finance. At the conference are representatives from a variety of monetary and financial organizations. Expert A often works with international firms arranging capital in the form of shares. Expert B works for the Bank of Nova Scotia in the British Virgin Islands. Expert C advises international firms on corporate mergers. The employer of Expert B can most likely be categorized as which of the following? A) investment bank B) private bank C) commercial bank D) offshore bank

D

If demand for the dollar is reduced, the price of the dollar is most likely to ________. A) rise B) remain stable C) fall, then rise D) fall

D

If last year one dollar equaled one euro, and then the exchange rate shifted so that today one dollar equals two euros, which of the following would most likely not occur? A) European firms pay more for raw materials imported from the United States. B) European consumers purchase fewer U.S. products and services. C) Fewer Europeans travel to the U.S. or study at U.S. universities. D) European firms lower their prices on goods made with U.S. parts.

D

The difference between the total amount of money flowing into and out of a nation is known by which of the following terms? A) balance of trade B) trade surplus C) exchange-rate system D) balance of payments

D

The levels of supply and demand for a currency vary ________ with its price. A) rarely B) occasionally C) directly D) inversely

D

The price of one currency expressed in terms of another is known as which of the following? A) dollarization B) monetization C) common factor D) exchange rate

D

The purpose of the Bretton Woods Agreement was to ________. A) enable the U.S. Government to monetarily recover after WWII B) control the fluctuating price of gold used for global trading C) oversee the importing and exporting of international traders D) govern the exchange rates of major international currencies

D

Which of the following best describes the role that the international monetary system plays with foreign firms? A) sets international currency exchange rates B) establishes regulations for FDI financing C) oversees finance and trade in developing nations D) guides monetary and foreign exchange activities worldwide

D

Which of the following characterizes hard currencies? A) flexible and safe B) regulated and steady C) sound and variable D) strong and stable

D

The Bretton Woods Agreement was enacted in the late 1960s when the U.S. needed to finance government programs and the Vietnam War.

False

The foreign-exchange market has locations in Switzerland, Japan, and the United States.

False

The global financial system establishes the rules and procedures for exchanging national currencies in international business transactions.

False

The greater the demand for a currency, the lower its price; the lower the demand for a currency, the higher its price.

False

The most universally accepted currencies for international business transactions are the euro, dollar, yen, and peso, which are all considered hard currencies.

False

The official price of gold is used to determine the value of all major currencies in the exchange rate system used for international trade today.

False

An increase in a nation's rate of inflation leads to an oversupply of money and eventually to a decrease in the value of the nation's currency.

True

Central banks are the only participants on the national government level of the global monetary and financial system.

True

Companies have a tendency to prefer handling international business transactions with their own currency rather than with the currency of another country.

True

In most high-inflation nations, interest rates are increasing while the purchasing power of the national currency is plummeting.

True

The International Monetary Fund was created through the Bretton Woods Agreement as a way to monitor the foreign exchange systems and lend money to developing economies.

True

The integration of international financial and monetary activity creates more opportunities for contagions.

True

Wire transfers are commonly used by individuals in advanced economies to transfer money to family members in emerging markets such as India and Mexico.

True