FIN 4604 Exam 1

A strong dollar is normally expected to cause: a. High unemployment and high inflation in the U.S. b. High unemployment and low inflation in the U.S. c. Low unemployment and low inflation in the U.S. d. Low unemployment and high inflation in the U.S.

b. High unemployment and low inflation in the U.S.

A large increase in the income level in Mexico along with no growth in the U.S. income level, ceteris paribus, is expected to cause a/an _________ in Mexican demand for U.S. goods, and the Mexican peso should ____________ a. Increase; appreciate b. Increase; depreciate c. Decrease; depreciate d. Decrease; appreciate

b. Increase; depreciate

The demand for U.S. exports tends to increase when: a. Economic growth in foreign countries decreases. b. The currencies of foreign countries strengthen against the dollar. c. U.S. inflation rises. d. U.S. income rises.

b. The currencies of foreign countries strengthen against the dollar.

Assume that British corporations begin to purchase more supplies from the U.S. as a result of several labor strikes by British suppliers. This action reflects: a. An increased demand for British pounds. b. A decrease in the demand for British pounds c. An increase in the supply of British pounds for sale. d. A decrease in the supply of British pounds for sale.

c. An increase in the supply of British pounds for sale.

To strengthen the dollar using sterilized intervention, the Fed would ____________ dollars and simultaneously _______________ Treasury Securities. a. Buy; sell b. Sell; buy c. Buy; buy d. Sell; sell

c. Buy; buy

Assume that the U.S. places a strict quota on goods imported from China and that China does not retaliate. Holding other factors constant, this event should immediately cause the U.S. demand for Chinese Yuan to _____and the value of the Yuan to_____ a. Increase; appreciate b. Increase; depreciate c. Decrease; depreciate d. Decrease; appreciate

c. Decrease; depreciate

Which of the following is an example of direct intervention in foreign exchange markets? a. Lowering interest rates. b. Increasing the discount rate. c. Exchanging (selling) dollars for foreign currency. d. Imposing barriers on international trade.

c. Exchanging (selling) dollars for foreign currency.

Which of the following is not an additional risk resulting from international business? a. Exchange rate fluctuations. b. Political risk c. Interest rate risk. d. Exposure to foreign economies.

c. Interest rate risk.

Assume a central bank exchanges (sells) its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of: a. Pegged intervention. b. Indirect intervention. c. Non-sterilized intervention. d. Sterilized intervention. e. A and D

c. Non-sterilized intervention.

If the home currency begins to appreciate against other currencies, this should ___________ the current account balance, other things equal. a. Increase b. Have no impact on c. Reduce d. All of the above are equally possible

c. Reduce

A weak dollar places ______ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rate, which places ______ pressure on U.S. bond prices. a. Upward; downward; upward b. Upward; downward; downward c. Upward; upward; downward d. Downward; upward; upward e. Downward; downward; upward

c. Upward; upward; downward

The interest rate of a country with a currency board: a. Is less stable than it would be without a currency board. b. Is typically below the interest rate of the currency to which it is tied. c. Will move in tandem with the interest rate of the currency to which it is tied. d. Is completely independent of the interest rate of the currency to which it is tied.

c. Will move in tandem with the interest rate of the currency to which it is tied.

If U.S. inflation suddenly increased while European inflation stayed the same, there would be: a. An increased U.S. demand for euros and an increased supply of euros for sale. b. A decreased U.S. demand for euros and an increased supply of euros for sale. c. A decreased U.S. demand for euros and a decreased supply of euros for sale. d. An increased U.S. demand for euros and a decreased supply of euros for sale.

d. An increased U.S. demand for euros and a decreased supply of euros for sale.

The components of the current account are: a. Balance on merchandise trade and balance on transfers. b. Balance on merchandise trade and on money market flows. c. Balance of capital market flows and money market flows d. Balance on goods, services, factors and transfer payments.

d. Balance on goods, services, factors and transfer payments.

A strong dollar places ______ pressure on U.S. inflation, which in turn places _____ pressure on U.S. interest rate, which places ______ pressure on U.S. bond prices. a. Upward; downward; upward b. Upward; downward; downward c. Upward; upward; downward d. Downward; downward; upward e. Downward; upward; upward

d. Downward; downward; upward

______________ is (are) income received by investors on investments in foreign financial assets (securities). a. Portfolio income b. Foreign direct investment income c. Unilateral transfers d. Factor income e. All of the above

d. Factor income

The term "privatization" is typically used to describe: a. Firms that are purchased by their managers. b. Firms that are purchased by the government. c. Firms that are bought out by other firms. d. Government enterprises that are purchased by corporations and other investors.

d. Government enterprises that are purchased by corporations and other investors.

A weak dollar is normally expected to cause: a. High unemployment and high inflation in the U.S. b. High unemployment and low inflation in the U.S. c. Low unemployment and low inflation in the U.S. d. Low unemployment and high inflation in the U.S.

d. Low unemployment and high inflation in the U.S.

The "twin deficits" phenomena in the USA mean: a. The U.S. deficits in both trade and capital accounts b. The deficits of the federal and state governments c. The deficits of the federal government and big business d. The deficits of the federal government and the U.S. current account deficits

d. The deficits of the federal government and the U.S. current account deficits

Which of the following are examples of currency control measures? a. Import restrictions. b. Prohibition of remittance of funds. c. Ceilings on granting credit to foreign firms. d. Dual/ multiple exchange rates e. All of the above

e. All of the above

Also known as the "Central Banks' Central Bank," the ___________ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis. a. World Bank b. International Financial Corporation (IFC) c. World Trade Organization d. International Development Association (IDA) e. Bank for International Settlements (BIS)

e. Bank for International Settlements (BIS)

Which of the following would likely have the least direct influence on a country's current account? a. Inflation. b. Economic growth. c. Exchange rates. d. Tariffs. e. Tax on income earned on foreign stocks. f. Competitiveness g. Capital flows

e. Tax on income earned on foreign stocks.

If the Fed desires to weaken the dollar without affecting the dollar money supply, it should: a. Exchange (sell) dollars for foreign currencies, and sell equivalent value of its existing Treasury Security holdings for dollars. b. Exchange (sell) foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. c. Exchange (sell) dollars for foreign currencies, and buy existing Treasury securities with dollars. d. Exchange (sell) foreign currencies for dollars, and buy existing Treasury securities with dollars.

a. Exchange (sell) dollars for foreign currencies, and sell equivalent value of its existing Treasury Security holdings for dollars.

________ are most commonly classified as a Foreign Direct Investment (FDI). a. Foreign acquisitions b. Purchases of international stocks c. Licensing agreements d. Exporting or importing transactions e. Strategic alliances

a. Foreign acquisitions

Any event that increases the U.S. demand for euros should result in a (an) _________ in the value of the euro with respect to ___________, other things being equal. a. Increase; U.S. dollar b. Increase; non-dollar currencies c. Decrease; non-dollar currencies d. Decrease; U.S. dollar

a. Increase; U.S. dollar

Any event that reduces the supply of Swiss francs to be exchanged for U.S. dollars should result in a (an) ___________ in the value of the Swiss franc with respect to ________, other things being equal. a. Increase; U.S. dollar b. Increase; non-dollar currencies c. Decrease; non-dollar currencies d. Decrease; U.S. dollar

a. Increase; U.S. dollar

In general, products and services are generally becoming ________ standardized across countries, which tends to _________ the globalization of business. a. More; encourage b. More; discourage c. Less; discourage d. Less; encourage

a. More; encourage

An increase in U.S. interest (real) rates relative to German interest rates would likely ___________ the U.S. demand for euros and ____________ the supply of euros for sale. a. Reduce; increase b. Increase; reduce c. Reduce; reduce d. Increase; increase

a. Reduce; increase

The term "target zone arrangement" refers to a: a. Situation where countries adjust their national economic policies to maintain exchange rates within some pre-determined limits. b. System where several central banks act in a coordinated intervention to keep the price of one country's currency within reasonable trading ranges. c. System where currencies are pegged to gold, or to hard currency. d. System where local currencies are replaced by dollars.

a. Situation where countries adjust their national economic policies to maintain

If it was determined that current movement of exchange rates was not related to previous exchange rate values, this implies that a ________ will not be valuable for speculating on expected exchange rate movements. a. Technical forecasting b. Fundamental forecasting c. Market-based forecasting d. Purchasing power parity forecasting e. None of the above

a. Technical forecasting

___________ is not a factor that causes currency supply and demand schedules to change. a. Relative inflation rates b. Change in exchange rates. c. Relative interest rates d. Relative income levels e. Expectations

b. Change in exchange rates.

An increase in the current account deficit will place ________ pressure on the home currency value, other things equal. a. Upward b. Downward c. Neutral d. Upward or downward based on the size of the deficit

b. Downward

A strong dollar places__________ pressure on inflation, which in turn places __________ pressure on the dollar. a. Upward; upward b. Downward; upward c. Upward; downward d. Downward; downward

b. Downward; upward

The World Bank was established to: a. Enhance development solely in Asia through grants. b. Enhance economic development through provision of market interest loans. c. Enhance economic development through low-interest(subsidized) rate loans d. Enhance economic development of the private sector through investment in stock of corporations.

b. Enhance economic development through provision of market interest loans.

__________ typically has (have) maturities of less than one year. a. Eurobonds b. Euro-commercial paper c. Euronotes d. ADRs. e. GDRs

b. Euro-commercial paper