Chapter 10 Smartbook Assignment

If a basket of goods costs $200 in the US and 20,000 yen in Japan, PPP theory predicts that the dollar/yen exchange rate should be Blank______. $.10 per Japanese yen $.01 per Japanese yen $10 per Japanese yen $100 per Japanese yen

$.01 per Japanese yen

If a basket of goods costs $400 in the US and 40,000 yen in Japan, PPP theory predicts that the dollar/yen exchange rate should be Blank______. $.01 per Japanese yen $.20 per Japanese yen $20 per Japanese yen $2 per Japanese yen

$.01 per Japanese yen

An American tourist in Japan is interested in buying a souvenir that costs 1800 yen. How much is this in dollars if the exchange rate is $1 to Y400? $14.50 $45.00 $8.00 $4.50

$4.50

If the exchange rate is 1 British pound to $1.35, an American in London will need $Blank______ (rounded to closest whole number) to purchase a purse priced at 20 pounds. 27 20 35 63

27

Select all that apply For most major currencies, forward exchange rates are commonly quoted for which three periods of time? 90 days 30 days 180 days 2 years 52 weeks

90 days 30 days 180 days

Which type of control of exposure is MOST effective at protecting resources efficiently and ensuring that each subunit adopts the correct mix of tactics and strategies? Decentralized Bottom-up Centralized Formalized

Centralized

Blank______ agreements are barter-like agreements used by countries whose currency is NOT convertible. Forward exchange Spot exchange Countertrade Arbitrage

Countertrade

Select all that apply The PPP, according to research, seems to predict exchange rate movements best for countries exhibiting which two characteristics? Countries with low inflation rates Countries with developed capital markets Countries with underdeveloped capital markets Countries with high inflation rates

Countries with underdeveloped capital markets Countries with high inflation rates

True or false: Most companies focus on reducing their economic exposure while ignoring strategies to reduce their transaction and translation exposure. True False

False

True or false: Short-term exchange rate movements are simple to predict. True False

False

True or False: If many national markets are controlled by a few multinational enterprises with the power to influence prices and distribution channels, PPP theory may not hold. True False

True

True or false: Empirical evidence suggests that the International Fisher effect does NOT explain short-term exchange rate movements well. True False

True

True or false: The gains or losses identified by translation exposure are on paper only. True False

True

When the citizens of the small country realized that the value of their currency was decreasing because of recent government sanctions, they all rushed to exchange their money for a foreign currency. This demonstrates the idea of Blank______. anti-dumping tragedy of the commons forward exchange rates capital flight

capital flight

It would be Blank______ for an international business to use the services of the foreign exchange market. rare unethical common

common

The foreign exchange market is used to Blank______. sell international products convert currency train expatriates enact tariffs

convert currency

When a country trades goods and services for other goods and services it is called Blank______. countertrade dumping forecasting arbitrage

countertrade

In a(n) Blank______ swap, businesses, banks and/or the government choose to move out of one currency into another for a limited period without incurring foreign exchange risk. interest rate dollar spot currency

currency

An investment made in order to profit from future currency movements is called Blank______. currency weighting currency conversion exchange risk currency speculation

currency speculation

Exchange rates are based on the Blank______. GNP of each participating country demand and supply of one currency against another term length of the exchange interest rates for home mortgages

demand and supply of one currency against another

A lead strategy occurs when a firm attempts to collect foreign currency receivables early when a currency is expected to Blank______ and pay foreign currency payables before they are due when a currency is expected to Blank______. appreciate; depreciate depreciate; appreciate depreciate; depreciate appreciate; appreciate

depreciate; appreciate

A country in which inflation is on the rise will have a currency that Blank______ compared to a country in which inflation is low. stabilizes depreciates appreciates remains constant

depreciates

When a dominant enterprise is able to set different prices in different markets to reflect varying demand conditions, it is practicing price Blank______. fixing discrimination parity dumping

discrimination

A key to reducing economic exposure involves Blank______ so the firm is not severely affected by adverse changes in exchange rates. having all the firm's productive assets located in the home country moving the firm's corporate headquarter to the country with a depreciating currency distributing a firm's productive assets to various locations investing heavily in developing nations

distributing a firm's productive assets to various locations

A fundamental analysis approach to forecasting relies on Blank______ theory. social cultural economic political

economic

One way to reduce Blank______ exposure involves distributing a firm's productive assets to various locations. social translation political economic

economic

A market in which prices reflect all available public information is considered to be _____(efficient or inefficient?).

efficient

Kevin works for a company in Japan. His company sells many products in the European market and his company converts the euros from these sales into yen. His company relies on the Blank______ rate to know the value of this transaction. forecast parity production exchange

exchange

Nora is traveling to the Cayman Islands where the Cayman Islands dollar is equal to 1.22 US dollars. The value of the money is an example of a(n) Blank______. parity rate exchange rate forecast rate funding rate

exchange rate

PPP theory shows a direct relationship between a change in relative prices and a change in Blank______. dumping policies political power exchange rates tariff barriers

exchange rates

Transaction Blank______ refers to the extent that income from individual transactions is affected by changes in foreign exchange values. forecasting exposure management float

exposure

Hillary's country only lets nonresidents convert money into a foreign currency without any restrictions. This country has a(n) Blank______ convertible currency. spot expatriate externally forward

externally

When only nonresidents can convert a currency into a foreign currency with no limitations, the currency is identified as Blank______. freely convertible nonconvertible fully convertible externally convertible

externally convertible

Converting the currency of one country into the currency of another country is done through the Blank______. World Bank International Monetary Fund federal reserve market foreign exchange market

foreign exchange market

One major advantage of a currency swap is that it does not incur Blank______. foreign exchange risk trade barriers purchasing power parity anti-dumping policies

foreign exchange risk

An exchange rate that is used to take care of business in the future is called a __________ exchange rate.

forward

The efficient market school believes that the foreign exchange market is efficient at setting Blank______ exchange rates. horizontal backward forward vertical

forward

Scott's company is planning a major purchase from a Japanese company and doesn't want to take the risk that the dollar will depreciate in value against the yen. He sets up an agreement with the Japanese company to exchange currency now and execute the sale in six months. This is an example of Blank______. spot exchange forward exchange swap exchange parity exchange

forward exchange

The efficient market school suggests that Blank______ exchange rates are optimal at forecasting future Blank______ exchange rates. spot; forward forward; float forward; spot float; forward

forward; spot

Marcy is happy to live in a country where she is allowed to purchase unlimited amounts of foreign currency. Her country demonstrates a currency that is Blank______ convertible. externally forward freely spot

freely

When a country allows both residents and nonresidents to purchase unlimited amounts of a foreign currency, the country's currency is Blank______. internally convertible freely convertible nonconvertible externally convertible

freely convertible

The approach to forecasting that draws on economic theory to develop models that predict exchange rate movements is the Blank______ approach. theoretical technical fundamental applied

fundamental

The link between price changes and changes in exchange rates is further weakened by Blank______ intervention in foreign exchange markets in their attempt to affect the value of their currencies. state big business government entrepreneurial

government

A(n) Blank______ market is one in which prices do not reflect all available information, and forward exchange rates will not be the best predictors of future spot exchange rates. efficient inefficient forward futures

inefficient

According to the Blank______ market school of thought, companies can improve the foreign exchange market's estimate of future exchange rates by investing in forecasting services. efficient inefficient

inefficient

The __________ market school believes that forward exchange rates are NOT the best predictors of future spot exchange rates.

inefficient

If the citizens of a country all had enough money to purchase anything they wanted, the demand for products across the country would increase. In response, the companies that supply products would raise the price. This demonstrates the idea of _____ (inflation or deflation?) in an economy.

inflation

Interest rates reflect expectations about future Blank______ rates, which has been shown to lead to a depreciation in exchange rates. inflation currency forward commodity

inflation

The Fisher effect predicts that there is a strong relationship between Blank______ rates and interest rates. tax import inflation export

inflation

When a country's money supply grows faster than goods and services can be produced, it results in Blank______. depression inflation recession rising income levels

inflation

Increases in interest rates reflect likely increases in Blank______, which is connected to depreciating Blank______ rates. inflation; tax income; exchange inflation; exchange income; tax

inflation; exchange

One main reason why the International Fisher Effect is NOT good at explaining short-term exchange rate movements is the impact of Blank______ on those movements. investor psychology personal income environmental conditions regulations

investor psychology

A(n) _____ strategy is when a firm attempts to collect foreign currency receivables early when a currency is expected to depreciate and pay foreign currency payables before they are due when a currency is expected to appreciate.

lead

According to research, the PPP is a relatively good predictor of Blank______ exchange rate movements, but is not as good a predictor of Blank______ movements. short-run; long-run long-run; short-run

long-run; short-run

When a country experiences hyperinflation, money value very rapidly. (Choose gains or loses.)

loses

A(n) Blank______ currency is when neither residents nor nonresidents are allowed to exchange money into a foreign currency. spot exchange forward nonconvertible external

nonconvertible

No one in Trevor's country is allowed to convert currency into any foreign currency. This is an example of Blank______ currency. nonconvertible internally convertible externally convertible freely convertible

nonconvertible

Identical products sold in different countries must sell for the same price in competitive markets when their price is expressed in terms of the same currency. This is called the law of _____ _____.

one price

The adverse consequences of unpredictable changes in exchange rates is called foreign exchange Blank______. risk spot trade float

risk

The impact of psychological factors and investor expectations make it difficult for exchange rate theories to predict Blank______ changes in exchange rates. inefficient long-term short-term stabilized

short-term

Kyle's company has decided to exchange 35% of its investable US dollars into Japanese yen as a shift in exchange rates should help the company establish a profit once it converts this money back into US dollars in a few months. This demonstrates the idea of currency Blank______. speculation spotting float dumping

speculation

Brittany is traveling in Germany and went to a bank to convert $200 into euros. She was concerned when she received fewer euros than she had last week when she converted the same amount of money. The teller explained that the money had been converted based on the rate that was available today for currency exchange and this rate fluctuates. What type of rate is being used in this transaction? hedging currency speculation spot exchange forward exchange

spot exchange

The Blank______ rate is the exchange rate of currency at a particular time on a particular day. spot exchange repeat exchange future exchange forward exchange

spot exchange

It would be possible to determine the PPP exchange rate that would exist if markets were efficient by comparing Blank______. the cost of producing a single good in the United States export tariffs in various countries the prices of identical products in different currencies the spot exchange rate average for one year

the prices of identical products in different currencies

The Fisher effect equates the nominal interest rate as Blank______. the required real interest rate x (1 - the marginal tax rate) the required real interest rate + expected rate of inflation the expected rate of inflation x (1 - the marginal tax rate) the required real interest rate - expected rate of inflation

the required real interest rate + expected rate of inflation

Kenneth wants to buy a new winter coat for his trip to London. He found the coat for $80 at Nordstrom in New York but he thinks he would prefer to buy it at Harrod's when he gets to London. He knows that based on the law of one price, the coat should cost Blank______ in London. Multiple choice question. significantly less slightly more the same

the same

Capital flight is a possibility when Blank______. a country faces high rates of inflation the value of a country's currency is experiencing rapid depreciation the value of a country's currency is experiencing rapid appreciation there is structural unemployment in a country

the value of a country's currency is experiencing rapid depreciation

An efficient market lacks Blank______. a currency exchange the free flow of goods trade barriers agricultural products

trade barriers

Suppose a US company agrees to buy products worth 1 million euros. At the time of the agreement, the dollar/euro exchange rate was $1 = €1.10, but at the time of payment, the exchange rate is $1 = €0.80. The additional money owed by the US company due to the adverse movement in exchange rates between the time of the deal and the time when payment is due is called Blank______ exposure. translation economic transaction financial

transaction

What type of exposure involves the present measurement of past events using currency exchange rate changes on a company's financial statements? political translation transaction economic

translation

Fit-Right Shoe Company is a shoe distribution center. The company agrees to buy 1,000 pairs of shoes from a factory in China. Fit-Right enters into a 30-day forward exchange transaction with the factory. What is the result of this type of agreement? In 30 days, the importer will have to pay for the shoes based on the exchange rate that was in effect on the day the deal was made. The exporter will have to float a loan to the importer for 30 days at the current interest rate. Fit-Right is taking a risk because the exchange rate in 30 days may be higher than when the company placed the order. Fit-Right will be guaranteed that they will have to pay no more than the 30-day forward exchange rate, insuring a profit.

Fit-Right will be guaranteed that they will have to pay no more than the 30-day forward exchange rate, insuring a profit.

Select all that apply The failure to find a link between which two conditions has been referred to as the purchasing power parity puzzle? Inflation rates Exchange rates Tax rates Production rates

Inflation rates Exchange rates

In the mid-1980s, Bolivia was in the midst of hyperinflation. This was partly fueled because of what action by the government? It devalued the gold standard. It prohibited conversion of the peso into other currencies. It converted all pesos into US dollars. It only allowed businesses (and not citizens) to exchange pesos for another form of currency.

It prohibited conversion of the peso into other currencies.

The most important foreign exchange trading center (with 43% of the market) is Blank______. Tokyo New York London Chicago

London

The six most important foreign exchange trading centers are Blank______. London, New York, Zurich, Tokyo, Hong Kong, and Singapore. Paris, Berlin, New York, Shanghai, Dubai, and Mumbai. Dublin, Chicago, Moscow, Tokyo, London, and Sydney. London, New York, Paris, Hong Kong, Paris, and Beijing.

London, New York, Zurich, Tokyo, Hong Kong, and Singapore.

Select all that apply Identify two ways international businesses use the foreign exchange market. When adjusting an employee's income for tax purposes When home country employees are rewarded with a financial incentive When income from foreign investments is received in a foreign currency When a business must pay a foreign company in its country's currency

When income from foreign investments is received in a foreign currency When a business must pay a foreign company in its country's currency

If the demand for dollars is greater than the supply of them and the supply of Indian rupee is greater than the demand for them, then the dollar will Blank______ against the rupee. depreciate appreciate

appreciate

It would be difficult to profit through arbitrage because the demand for a currency would increase when dealers try to profit from exchange rate discrepancies leading to Blank______ of that currency and the price differential would disappear. depreciation appreciation

appreciation

Foreign exchange dealers can make a profit by buying a currency low and selling it high, a process called Blank______. dumping arbitrage spot exchange forward rate

arbitrage