International Business Final Exam Chps 10-12
2. The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as
Currency Speculation
144. ____ requires a corporation to repay a predetermined portion of the loan amount at regular intervals regardless of how much profit it is making.
Debt Loan
A country wanted to hold its currency against an important reference currency without a formal pegged rate. This is known as
Dirty Float
When a country tries to hold the value of its currency within some range against an important reference currency such as the U.S. dollar without adopting a formal pegged rate, it is referred to as a
Dirty Float
109. Which of the following arguments is against the use of fixed exchange rates
Each country has the freedom to choose its own inflation rate.
141. ________ is made when a corporation sells stock to investors
Equity Loan
The Asian economic crisis and the global financial crisis of 2008-2009 were caused by
Excessive Debt
103. Fixed exchange rates lead to speculation and uncertainty in the value of currencies. T/F
False
114. The spread between the Eurocurrency deposit rate and the Eurocurrency lending rate is more than the spread between the domestic deposit and lending rates. T/F
False
118. The cost of recording, transmitting, and processing information has doubled with advancements in technology since 1964. T/F
False
132. The cost of capital is the difference between cost of inputs and outputs. T/F
False
133. The globalization of capital has been universally seen as a positive development T/F
False
134. If the international capital market continues to grow, financial intermediaries likely will provide less quality information about foreign investment opportunities. T/F
False
135. Using floating exchange rates will help countries reduce the risk of investing in foreign assets. T/F
False
137. Economist Martin Feldstein has coined the term "hot money" to pertain to long-term capital flows. T/F
False
138. Governments give banks less freedom when they deal in foreign currencies. T/F
False
140. The spread between the Eurocurrency deposit rate and the Eurocurrency lending rate is more than the spread between the domestic deposit and lending rates. T/F
False
95. Gold was declared as the formal reserve asset in the Jamaica agreement of 1976 T/F
False
96. The IMF does not expect governments to meet any obligations except to pay back the money it borrows. T/F
False
97. An effective business strategy to reduce economic exposure is to contract out high-value-added manufacturing. T/F
False
An effective business strategy to reduce economic exposure is to contract out high-value-added manufacturing. T/F
False
Fixed exchange rates lead to speculation and uncertainty in the value of currencies. T/F
False
Gold was declared as the formal reserve asset in the Jamaica agreement of 1976. T/F
False
Implementing a fixed exchange rate regime increases the price inflation in countries. T/F
False
Market forces have produced a stable dollar exchange rate under a floating exchange rate regime. T/F
False
Something "called for fixed exchange rates against the U.S. dollar. "T/F
False
The IMF does not expect governments to meet any obligations except to pay back the money it borrows. T/F
False
The gold standard called for fixed exchange rates against the U.S. dollar. T/F
False
Prior to the introduction of the euro, many EU countries participated in a ________ system, in which the values of a set of currencies are fixed against each other at some mutually agreed upon exchange rate.
Fixed Exchange Rate
149. The element of risk into investing in foreign assets is greater with ________ exchange rates.
Floating
________ exchange rates were declared as acceptable in the Jamaica agreement of the International Monetary Fund.
Floating
The monetary autonomy argument is supported by the advocates of
Floating Exchange Rates
A ________ is a situation in which a country cannot service its foreign debt obligations.
Foreign Debt Crisis
Which of the following is an exchange rate policy where the exchange rate is determined completely by market forces?
Free Float
106. The amount of a currency needed to purchase one ounce of gold was referred to as the
Gold Par Value
142. 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 is a common criticism against the powerful International Monetary Fund?
IMF lacks any real mechanism for accountability.
110. 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.
123. ________ perform a direct connection function in capital markets.
Investment Banks
130. The liquidity of the market is ________ in a purely domestic capital market.
Limited
125. 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
150. 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
145. Which of the following statements is true of market makers?
Market makers connect investors and borrowers in a capital market.
Under a ________ exchange rate regime, a country will attach the value of its currency to that of a major currency.
Pegged
The great virtue claimed for a ________ is that it imposes monetary discipline on a country and leads to low inflation.
Pegged Exchange Rate
105. 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
100. The agreement reached at Bretton Woods established the International Monetary Fund (IMF) and the World Bank. T/F
True
101. The international monetary system refers to the institutional arrangements that govern exchange rates. T/F
True
102. The current system of foreign exchange is a mixed system of government intervention and speculative activity T/F
True
104. World Bank offers low-interest loans to risky customers whose credit rating is often poor. T/F
True
112. Eurocurrency can be created anywhere in the world. T/F
True
113. A capital market brings together those who want to invest money and those who want to borrow money. T/F
True
115. By using the global capital market, investors have a much wider range of investment opportunities than in a purely domestic capital market. T/F
True
116. Debt loans include cash loans from banks and funds raised from the sale of corporate bonds to investors. T/F
True
117. The Eurocurrency market has been one cause of a decrease in global financial regulations. T/F
True
119. Financial services has historically been the most tightly regulated of all industries. T/F
True
121. Investors can reduce the level of risk by diversifying a portfolio internationally. T/F
True
136. The global capital market often lacks information about the fundamental quality of foreign investments. T/F
True
139. Banks charge borrowers a lower interest rate on Eurocurrency borrowings than for borrowings in the home currency. T/F
True
146. The global capital market often lacks information about the fundamental quality of foreign investments. T/F
True
148. The relatively low correlation between the movements of stock markets in different countries indicates that countries face different economic conditions. T/F
True
94. The International Monetary Fund's original function was to provide a pool of money from which members could borrow in the short term. T/F
True
98. A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. T/F
True
99. After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold. T/F
True
A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. T/F
True
After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold. T/F
True
Interest rates adjust automatically under a strict currency board system. T/F
True
The International Monetary Fund's original function was to provide a pool of money from which members could borrow in the short term. T/F
True
The agreement reached at Bretton Woods established the International Monetary Fund (IMF) and the World Bank. T/F
True
The current system of foreign exchange is a mixed system of government intervention and speculative activity. T/F
True
The fixed exchange rate system established at Bretton Woods failed due to speculative pressures on the U.S. dollar. T/F
True
The international monetary system refers to the institutional arrangements that govern exchange rates. T/F
True
World Bank offers low-interest loans to risky customers whose credit rating is often poor. T/F
True
A currency crisis occurs due to
a speculative attack on the exchange value
1. International businesses use foreign exchange markets for many reasons. Which of the following is one of these reasons?
a. To invest for short terms in money markets where they have more cash
3. What are the two main functions of the foreign exchange market?
a. converting currency and providing some insurance against foreign exchange risk
Gold par value refers to the
amount of a currency needed to purchase one ounce of gold.
147. Systematic risk refers to movements in a stock portfolio's value that are
attributable to macroeconomic forces affecting an economy
127. An important drawback of a purely domestic capital market is that the
cost of capital tends to be higher than it is in a global market.
124. The relatively low correlation between the movement of stock markets in different countries indicates that
countries pursue different macroeconomic policies
________ limits the ability of the government to print money and, thereby, create inflationary pressures.
currency board system
129. As investors increase the number of stocks in their portfolio, the portfolio's risk
declines rapidly at the beginning
126. The risk associated with a portfolio
decreases as the investor increases the number of stocks in her portfolio
The monetary autonomy argument holds that
each country should be allowed to choose its own inflation rate.
The Cost of capital is
higher in a purely domestic capital market than in a global market.
122. The systematic risk of the stock market is the
level of nondiversifiable risk in an economy.
108. 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
128. The cost of capital is the
price of borrowing money
111. What was the World Bank's initial mission?
providing low-interest loans to help finance the building of Europe's economy
143. When an investor purchases a corporate bond, he purchases the right to receive a
specified fixed stream of income from the corporation.
107. A country is said to be in balance-of-trade equilibrium when
the income its residents earn from exports is equal to the money its residents pay for imports.
A country is said to be in balance-of-trade equilibrium when
the income its residents earn from exports is equal to the money its residents pay to other countries for imports.
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
