International MkT & MGt Chp 8
Taxation is a financial force in that:
A. if the firm can achieve a lower tax burden than its competitors, it can generate higher revenues and then lower its prices or pay higher wages and dividends.
Purchasing Power Parity is a way to compare
A. the purchasing power of several currencies.
Fixed-rate relationships among currencies could not stay fixed, according to Obstfeld and Rogoff, because:
A. the volume of global transactions started to exceed most countries' foreign exchange reserves, so governments couldn't intervene to sustain the value of their currency.
World interest rates tend to vary across a small range because
B. world financial markets are integrated, so we see the law of one price at work.
The lowest corporate tax rates are found in
Switzerland, Ireland, Singapore, and Russia
Withholding tax is
an indirect tax levied on passive income
Foreign reserves are used to
cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter
The balance of payments account is divided into the following three major subaccounts
current, capital, and reserves
The current account on the BOP has three subaccounts:
merchandise, services and unilateral transfers
A value added tax is actually a sales tax that is
paid in stages along the process from a raw materials to consumer, and then credited after final sale
The International Fisher effect says that interest rates differentials
predict exchange rate movement
Historically, gold has been used as a way for people to store values because
purity and scarcity
With increasing inflation, borrowing becomes
A. more attractive because repayment can be made with cheaper money.
The US current account deficit can be explained by
B and C B. foreigners wanting to invest in the US C. US citizens importing more than they are exporting
The three major taxes governments uses to generate revenue are
VAT, income tax and withholding tax
The balance of payments account is a record of
a country's transactions with the rest of the world
A purchase of foreign goods within the US will be recorded in the BOP as
a debit in the current account
In an inflationary economy the following conditions may be present
all of the above a. demand exceeds supply b. moeny supply is increasing c, prcies are rising
The foward currency market
allow purchases to lock in purchases or currencies at known rates
In order to strengthen the US dollar, the Federal Reserve might sell yen and buy dollars, in which case yen functions as
an intervention currency
When a government requires a permit to purchase foreign currency, the exchange rates
are set by the government, often above the free market price
Most significantly for the international manager, the balance of payments reveals
demand for a country's currency and potential changes in its economic environment
Currency exchange controls are found most frequently in
developing countries
Sir Isaac Newtown put England on the gold standard when he
established a fixed equivalency between gold and the British currency
The present floating exchange rate system was
established after several trials in which central bankers set rates incorrectly and speculators corrected them in the markets, and it was formalized after the fact in the IMF's Jamaica Agreement.
Arbitrage functions to
exploit price differences between markets, so as to profit with no risk
One attribute of the US tariff schedule is
how specific it is
Exchange rate forecasting is
important because exchange rates influence all aspects of business.
The law of one price is that
in an efficient market, like goods will have like prices
Monetary and fiscal policies have
influence interest rates and taxation, and so may influence exchange rates
Market forces that set the relative prices of currencies are:
influenced by many forces including forces external to business such as world events
The Fisher effect states that the real interest rate
is the nominal rate minus the expected inflation rate
What is appealing about the gold standard is:
its simplicity
The Economist's Big Mac index (May 2010) suggests that against the US dollar, the Chinese yuan is
quite undervalued, since the Chinese Big Mac is almost 50% less expensive than the US Big mac
In general, with regard to exchange controls, developed countries
rarely use them
Balance of payments data
reveal demand for a country's currency.
"If the Japanese yen is strengthening against the U.S. dollar, and the Japanese government wanted to boost exports, the Central Bank of Japan (CBJ) might well"
sell massive amounts of Japanese yen in the FX markets
The present floating exchange rate system is not a totally free float because
some central banks from time to time intervene in the market to buy or sell large amounts
The balance part of the BOP is explained by
the accounts being double-entry, so they are always balanced.
The three main approaches to exchange rate forecasting are
the efficient market approach, the fundamental approach, and the technical approach
The international fisher effect says that the interest rate differentials in any two currencies reflect
the expected change in their exchange rates
Bretton Woods led to an exchange rate agreement known as the Bretton Woods System or
the gold exchange standard
In 1717, Sir Isaac Newton took Britain from the silver standard (pounds sterling) to
the gold standard, with fixed rates
The inflation rate determines
the real price of borrowing in capital markets
Countries put limitations on the convertibility of their currencies when they are concerned that:
their foreign reserves could be depleted.
Financial forces such as inflation and taxation are considered uncontrollable because
they are external forces beyond the influence of the firm, around which manager can manage
The price of gold since about 1200 AD has been
trending upward
A vehicle currency is a currency
used for international trade or investment.
When the law of one price is applied to interest rates, it suggests that:
varying interest rates take into account anticipated differences in inflation rates
