International Business Practice Final Exam
________ limits the ability of the government to print money and, thereby, create inflationary pressures.
A currency board system
Which of the following statements is true of the Bretton Woods agreement?
All countries agreed to fix the value of their currency in terms of gold under the agreement.
________ is made when a corporation sells stock to investors.
An equity loan
A ________ brings together those who want to invest money and those who want to borrow money.
Capital Market
Assume that the interest rate on borrowing inJapan is 1%, while the interest rate on deposits in Australian Banks is 5%. A trader borrows in yen and then converts the money into Australian dollars and deposits it in an Australian bank to make a 4% margin. Which type of trade is this an example of?
Carry trade
Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high?
Carry trade
The short term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rate is known as
Currency speculation
Which of the following statements is true of debt loans?
Debt loans should be repaid at regular intervals.
The ___ helps consumers compare the relative prices of goods and services in different countries.
Exchange rate
The international monetary system refers to the institutional arrangements that govern
Exchange rates
An effective business strategy to reduce economic exposure is to contract out high-value- added manufacturing.
False
Carry trade is nonspeculative in nature.
False
Fixed exchange rates lead to speculation and uncertainty in the value of currencies.
False
Gold was declared as the formal reserve asset in the Jamaica agreement of 1976.
False
Government allow convertibility to preserve their foreign exchange reserves.
False
If the spot exchange rate is £1= $1.50 when the market opens, and £1 = $1.48 at the end of the day, the pound has appreciated, and the dollar has depreciated.
False
Implementing a fixed exchange rate regime increases the price inflation in countries.
False
Market forces have produced a stable dollar exchange rate under a floating exchange rate regime.
False
The cost of capital is the difference between cost of inputs and outputs.
False
The cost of recording, transmitting, and processing information has doubled with advancements in technology since 1964.
False
The globalization of capital has been universally seen as a positive development.
False
The gold standard called for fixed exchange rates against the U.S. dollar.
False
The impact of currency exchange rates on the report of financial statements of a company is called economic exposure.
False
The spread between the Eurocurrency deposit rate and the Eurocurrency lending rate is more than the spread between the domestic deposit and lending rates.
False
There are many impediments to the free flow of goods and services in an efficient market.
False
Using floating exchange rates will help countries reduce the risk of investing in foreign assets.
False
Using floating exchange rates will help countries reduce the risk of investing in foreign assets.
False
After World War II, the world's major industrial nations arranged their currencies against each other at a mutually agreed on exchange rate. This is an example of a ________ system.
Fixed exchange rate
The element of risk into investing in foreign assets is greater with ________ exchange rates.
Floating
____ arises from volatile changes in exchange rates.
Foreign exchange risk
Market makers are the financial service companies that connect investors and borrowers. Those who want to borrow money typically include
Governments
Which of the following changes were made to the International Monetary Fund's Articles of Agreement in the Jamaica agreement?
IMF members were permitted to sell their gold reserves at the market price.
___ perform a direct connection function capital markets
Investment banks
The systematic risk of the stock market is the
Level of nondiversifiable risk in an economy
The liquidity of the market is ________ in a purely domestic capital market.
Limited
Which of the following is the exchange rate policy where the government intervenes in the exchange rate system only in a limited way?
Managed-float
Which of the following statements is true of market makers?
Market makers connect investors and borrowers in a capital market.
Assuming the 30-day forward exchange rate was $1 = 130 and the spot exchange rate was $1 = ×120, the dollar is selling at a ________ on the 30-day forward market.
Premium
___ are reported on a real-time basis on many financial websites and are continually changing their value being determined by supply and demand for that currency relative to others.
Spot exchange rate
A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?
The United States offers a better deal.
An American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment?
The dollar appreciates against the Hungarian forint.
Which of the following is an advantage of using the gold standard?
The standard contains a powerful mechanism for achieving balance of trade equilibrium by all countries
International Business use foreign exchange markets for many reasons. Which of the following is one of these reasons?
To invest for short term in money markets when they have spare cash
A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.
True
A currency swap deal enables companies to insure themselves against foreign exchange risk.
True
After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold.
True
Arbitrage opportunity employer and exchange markets tend to be small and disappear quickly.
True
Depositors are not protected against bank failures in the Eurocurrency market.
True
Financial services is an information-intensive industry.
True
Governments give banks less freedom when they deal in foreign currencies.
True
If the law of one price were true for all goods and services, the purchasing power parity (PPP) exchange rate could be found from any individual set of prices.
True
Interest rates adjust automatically under a strict currency board system.
True
Interest rates adjust automatically under strict currency board system.
True
Parla liked to gamble, so she sometimes moved her funds from dollars to euros in the hope that she would make money based on the exchange rates. This demonstrates a carry trade.
True
The International Fisher Effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.
True
The International Monetary Fund's original function was to provide a pool of money from which members could borrow in the short term.
True
The cost of capital tends to be higher than it is in a global market.
True
The current system of foreign exchange is a mixed system of government intervention and speculative activity.
True
The global capital market often lacks information about the fundamental quality of foreign investments.
True
The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.
True
Transaction exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.
True
World Bank offers low-interest loans to risky customers whose credit rating is often poor.
True
An equity loan is made when
a corporation sells stock to investors.
A country wanted to hold its currency against an important reference currency without a formal pegged rate. This is known as
a dirty float
Systematic risk refers to movements in a stock portfolio's value that are
attributable to macroeconomic forces affecting an economy.
As investors increase the number of stocks in their portfolio, the portfolio's risk
declines rapidly in the beginning.
The risk associated with a portfolio
decreases as the investor increases the number of stocks in her portfolio.
When a country tries to hold the value of its currency within some range against an important reference currency such as the US dollar without adopting a formal pegged rate, it is referred to as a
dirty float
The monetary autonomy argument holds that
each country should be allowed to choose its own inflation rate.
Market makers are
financial service companies that connect investors and borrowers.
The monetary autonomy argument is supported by the advocates of
fixed exchange rates.
A purely domestic capital market faces the problem of
limited liquidity
The rise in the value of the dollar between 1985 and 1988
made imports relatively cheap.
International Monetary Fund members were ________ in the Jamaica agreement.
permitted to sell their own gold reserves at the market price
The World Bank was established at the at Bretton Woods conference to
promote general economic development.
What was the World Bank's initial mission?
providing low-interest loans to help finance the building of Europe's economy
When an investor purchases a corporate bond, he purchases the right to receive a
specified fixed stream of income from the corporation.
When a tourist goes to a bank in a foreign country to convert money into the local currency, the exchange rate used is the
spot rate
The cost of capital is
the price of borrowing money
Moral hazard arises when people behave recklessly because
they know they will be saved if things go wrong.
Which of the following is a factor that initiated the collapse of the fixed exchange rate system?
worsening of U.S. foreign trade position
