Chapter 9 Quiz

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commercial banks

Financing business​ activity, exchanging foreign​ currencies, and facilitating adjustments in national money supplies are the most important functions of​ ________.

national pension and healthcare programs

The largest proportion of government debt results from​ ________.

Investment banks

​__________ underwrite​ (guarantee the sale​ of) stock and bond issues and advise on mergers.

The value of the currency will weaken as residents and foreign investors exchange their holdings for hard currency.

A developing country has experienced rapid changes in the value of its currency and the military is rumored to be planning a coup. How is this instability likely to affect the value of the​ nation's currency?

Pegging its currency to the value of a hard currency or basket of currencies

A developing country wants to stabilize the value of its currency. Which strategy is most likely to achieve that​ goal?

Norway

According to the 2015 World Economic Outlook Database​, the country with the lowest level of debt is​ ________.

very large flows of capital have been invested into stock markets around the world

China and the former Soviet Union opened to global business following the globalization of finance in the 1990s.​ Today, it is true that​ ______.

Etwas will have a steady stream of revenue from its international sales.

Etwas is a​ Germany-based appliance company that is preparing to begin international​ operations, wherein it plans to open several production facilities and sales centers abroad. The company needs a substantial amount of capital to start its international operations and needs to decide whether to pursue financing by selling bonds in the global market. Which of the following would strengthen the case for​ Etwas's seeking to acquire capital by selling​ bonds?

currency risk

For firms engaged in international​ business, fluctuations in the exchange rate are likely to create​ ________, which is the potential harm that can arise from changes in the price of once currency relative to another.

balance of payments

Governments must manage their​ ________, the annual accounting of all economic transactions of a nation with all other nations.

Buy their currency in the foreign exchange market.

If a​ nation's central bank wants to support the value of its​ currency, which strategy would best achieve that​ goal?

capital flight

Investors withdrew a significant amount of rubles from Russia in 2014 when global investors became far less confident in the Russian economy. This is an example of​ ________.

International Monetary Fund

The institution that attempts to stabilize currencies by monitoring the foreign exchange systems of member countries is the​ ________.

institutional investors

The most significant participants in national stock and bond markets are​ _____.

foreign exchange

The term​ ________ represents all the forms of money that are traded​ internationally, including bank​ deposits, checks, and electronic transfers.

undervalue its currency

To keep the value of its currency artificially​ high, a government would most likely​ ________.

​Single-currency systems have taken on an increasingly important role.

What is a cause of the growing integration of global financial and monetary​ systems?

supply and demand

When the value of a​ nation's currency is allowed to​ fluctuate, the most important factor determining its exchange rate is​ ________.

Global financial system

Which of the following consists of the collective financial institutions that facilitate and regulate flows of investment and capital funds​ worldwide?

A currency that can be easily exchanged for other currencies

Which of the following describes a convertible​ currency?

Another name for the fixed exchange rate system is the pegged exchange rate system.

Which of the following describes the fixed exchange rate​ system?

In an attempt to stabilize foreign​ exchange, the World Bank provides nations with​ short-term loans.

Which of the following does NOT describe the World​ Bank?

New product ideas have been brought to Africa by foreign banks.

Which of the following indicates a solution to the banking problems in​ Africa?

If a nation faces a trade​ deficit, the fixed exchange rate system allows for a more natural correction. (TRUE ANSWERS: Governments achieve the flexibility to adjust monetary policy because of the floating system. Supply and demand set daily exchange rates. World exchange markets allow global currencies like the dollar to float on exchange markets. Market forces establish currency values.)

Which statement about a floating exchange rate system is​ FALSE?

Excessive government spending has led to increased debt.

Why has debt substantially increased in major advanced​ economies?


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