CH 11

Expert A most likely works for which of the following?

Arab-Malaysian Merchant Bank

Which of the following statements is true about currencies?

Convertible currencies can be readily exchanged for other currencies

Which of the following is an example of a country that has experienced dollarization?

Ecuador

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?

European firms would lower their prices on goods made with U.S. parts.

A devaluation is an action taken by the international monetary fund.

False

All else being equal, the greater the demand for a currency, the lower its price; the lower the demand for a currency, the higher its price.

False

Capital flight from a country enhances its ability to service debt and pay for imports.

False

If an individual buys from a supplier whose currency is depreciating against the individual's currency, the individual will have to pay a larger amount of his own currency to complete the purchase.

False

Momentum trading occurs when investors buy stocks whose prices have been falling and sell stocks whose prices have been rising.

False

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

False

The Central Bank is an international agency that provides loans and technical assistance to low- and middle-income countries, with the goal of reducing poverty.

False

The IMF and the World Bank seldom work together.

False

The Indian rupee is one of the currencies upon which the value of the SDR is based.

False

The floating exchange rate system is also called a pegged exchange rate system

False

The floating exchange rate system is victim to maximum governmental intervention

False

The foreign-exchange market is located exclusively in the United States.

False

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

False

The monetary authority in each country that regulates the money supply, issues currency, and manages the exchange rate of the nation's currency relative to other currencies is called the World Bank.

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

Which of the following questions would be more important to evaluate in determining the reason behind the inflation in Country X?

How quickly was the money supply increased by the central bank of Country X?

Which of the following is a characteristic of momentum trading?

Investors buy stocks as prices rise.

Which of the following is an effect caused by capital flight?

It decreases the ability of the nation to service debt and pay for imports.

Which of the following statements is true of the global financial system?

It is built on the activities of firms, banks, and financial institutions engaged in ongoing international financial activity

Which of the following statements is true of trade surplus?

It occurs when a nation's exports exceed its imports

Which of the following is a characteristic of a bond?

It refers to a debt security used to raise capital.

Expert C most likely works for which of the following?

Merrill Lynch

Which of the following, originally known as the International Bank for Reconstruction and Development, was founded to fund construction of Japan and Europe after World War II?

The World Bank

A French company sells goods to a foreign customer whose currency is depreciating against the euro. Which of the following will the company most likely experience when completing the sale?

The company will receive fewer euros if the sales price was expressed in the buyer's currency.

Which of the following supports maintaining the current production status instead of increasing production?

The euro-dollar exchange rate is unpredictable due to its constant fluctuation.

Which of the following statements is most likely to be true regarding a currency's price if the supply of the currency increases?

The price of the currency lowers.

Which of the following should an international manager keep in mind about the constantly fluctuating exchange rates?

The time taken between placement and delivery of an order can at times go up to a few months, fluctuations in the exchange rate during that time can cost or earn the firm money

All else being equal, the greater the supply of a currency, the lower its price; the lower the supply of a currency, the higher its price.

True

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

True

Central banks are categorized at the international organization level of the global monetary and financial system.

True

Companies have a tendency to prefer handling international business transactions with their own country's 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

Investment banks underwrite (guarantee the sale of) stock and bond issues and advise on mergers.

True

Merchant banks provide capital to firms in the form of shares rather than loans.

True

The French franc is one of the European currencies which was taken out of circulation and replaced by the euro.

True

The International Monetary Fund is part of the global financial system

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 can be attributed to the growing role of single-currency systems, such as the euro.

True

The largest proportion of government debt results from national pension and healthcare programs.

True

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

True

The recent global financial crisis was contained in part because some countries use fixed exchange regimes.

True

Which of the following is the most likely underlying reason for the demise of the Bretton Woods system?

U.S. trade deficits

Which of the following questions would be more important for Chisholm to evaluate before presenting his manufacturing recommendations to shareholders

What is the currency risk of exporting additional Plas-Tex products to Europe?

Which of the following should be considered closely before Chisholm recommends increasing production to take advantage of the current exchange rate?

What will be the effect on Plas-Tex if the euro depreciates more than the U.S. dollar?

Which of the following should be considered before the government takes any action to correct the high rate of inflation?

What will be the long-term effects of currency depreciation to Country X?

Which of the following statements is true of the global debt crisis?

When a government tries to pay down its debt, money is drawn out of the national money supply, which hinders economic activity and reduces tax revenues.

The U.S. dollar is an example of ________.

a convertible currency

Which of the following terms refers to the difference between the total amount of money flowing into and out of a nation over the course of a year?

balance of payments

Which of the following terms refers to the government reduction of its currency value relative to the other currency values?

devaluation

Which of the following terms refers to the price of one currency expressed in terms of another?

exchange rate

Which of the following statements is true of a dirty float?

exchange rates fluctuate with occasional central bank intervention

If demand for the dollar is low, the price of the dollar is most likely to ________.

fall

) Which of the following resolves the problem of making international payments and facilitates international investment and borrowing among firms, banks, and governments?

foreign exchange

The purpose of the Bretton Woods Agreement was to ________.

govern the exchange rates of major international currencies

________ is the tendency of investors to mimic each others' actions.

herding

Which of the following is most likely an additional problem faced by Country X due to its inflation?

high interest rates

Which of the following does the central bank perform in order to accommodate a nation's economic growth?

increase the nation's money supply

________ are mangers of pensions and mutual funds, as well as insurance companies who have assumed an enormous role in driving capital markets around the world

institutional investors

The levels of supply and demand for a currency in a free market vary ________ with its price.

inversely

Which of the following would a firm considering a corporate merger consult for issues related to the merger?

invesment bank

Each of the following factors significantly affects the balance of trade EXCEPT ________.

market share

Which of the following levels of the global monetary and financial systems pyramid includes commercial banks?

national infrastructure level

Which of the following terms refers to the type of currency used only for domestic business transactions?

nonconvertible currency

The Bretton Woods Agreement most likely influenced the current trend towards international free trade when member countries agreed to ________.

not impose restrictions on currency trading

The employer of Expert B can most likely be categorized as which of the following?

offshore bank

Currency risk can best be defined as the risk that occurs when ________.

one currency changes in relation to another currency

A U.S. company buys from a supplier whose currency is increasing against the dollar. Which of the following will the company most likely have to do if the purchasing price is expressed in the supplier's currency?

pay more in dollars than originally expected

Which of the following best characterizes the functions of the World Bank?

provide loans and technical assistance to developing countries

Which of the following best describes the role that the international monetary system plays with foreign firms?

provides a framework for monetary and foreign exchange activities worldwide

Which of the following is an example of a currency risk?

purchasing products from a nation with appreciating currency

A ________ is a facility for trading securities and other financial instruments, including shares issued by companies, trust funds, pension funds, and corporate and government bonds

stock exchange

Which of the following statements is true regarding the value of national currencies?

they fluctuate constantly

Which of the following is characteristic of the fixed exchange rate system?

value of currency is set relative to the value of another

Which of the following situations often results in a banking crisis?

when investors withdraw funds from financial institutions