Bus-D 301 Exam 4

How many countries are members of the IMF and the WB?

189 countries

According to the law of one price, if the exchange rate between the British pound and the dollar is 1 pound=$1.50, a shirt that retails for $120 in NY should sell for---in London.

80 pounds

A Eurocurrency is:

Any currency banked outside its country of origin.

Assume that yen/dollar exchange rate quoted in Tokyo at 3:00 pm is x120=$1, and the yen/dollar exchange rate quoted in NY at the same is x123=$1. A dealer in NY uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in a(n).

Arbitrage

Which of the following occurs when traders start moving as a herd in the same direction as the same time?

Bandwagon effect

What are the three main types of financial crisis that face the IMF?

Bank crisis, currency crisis, and foreign debt crisis

Who is the head of the IMF?

Christine Lagarde

---refers to a range of barter-like agreements by which goods and services can be traded for other goods and services

Countertrade

A(n)--is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

Currency swap

Which of the following statements is true of the deregulation of financial industry?

Deregulation helped the development of an international capital market

When country tries to hold the value of their 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

The---school of thought argues that forward exchange rates do the best possible job of forecasting future spot rates and therefore investing in forecasting services would be a waste of money.

Efficient market

---are normally underwritten by an international syndicate of banks

Eurobonds

Which of the following is a drawback of the Eurocurrency market?

Exposure to foreign exchange risk

Which of the following is a factor that makes Eurobonds more attractive than most major domestic bonds?

Favorable tax status

Prior to the introduction of the euro, many EU countries participated in a---

Fixed exchange rate system

---exchange rates were declared as acceptable in the Jamaica agreement of the IMF

Floating

The largest most liquid financial market in the world is the?

Foreign exchange market

The---is a global network of banks, brokers, and foreign exchange dealers connected by electronic communication systems.

Foreign exchange market

Which of the following is a disadvantage of global capital market?

Foreign investments may be driven by speculative flows in the market.

The most dynamic market in the world is the?

Global Capital Market

The amount of a currency needed to purchase one ounce of gold was referred to as the--?

Gold Par Value

The agreement reached at Bretton Woods established the---

IMF

Who is head of the WB?

Jim Young Kim

The---states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

Law of one price

Name four of the six countries in the world that DO NOT belong to the IMF/WB?

Liechtenstein, Cuba, North Korea, and Andora

Which of the following is the most important foreign exchange trading center?

London

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

----are sold outside of the borrower's country and are dominated in the currency of the country in which they are issued

Micro Bonds

--can inject risk into a foreign currency borrowing.

Movements in exchange rates

Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is:

Overvalued by 25% against the dollar

A---means the value of a currency is fixed relative to a. reference currency

Pegged exchange rate

The WB was established at the at Bretton Woods conference to:

Promote general economic development

The---suggests that given relatively efficient markets, the price of a "basket of good" should roughly equivalent in each country

Purchasing power parity theory

When a tourist goes to a bank in a foreign country to convert money into the local currency, the exchange rate used is the---

Spot Rate

--separated national equity markets from each other historically.

Substantial regulatory barriers

A pair of shoes costs 40 pounds in Britain. An identical pair costs $50 in the US when the exchange rate is 1 pound=$1.50. Which of the following is correct?

The U.S. dollar offers a better deal

Assume that an American company today invests some of its spare cash in a Hungarin money market account that will earn 8% for a percent for a period of two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8% on its investment?

The dollar appreciates against the Hungarian forint

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

The foreign exchange market is:

The market never sleeps.

Capital flight is most likely to occur when:

The value of the domestic currency is appreciating rapidly

Moral Hazard arises when people behave recklessly because:

They know they will be saved if things go wrong

ABB Bank is a financial corporation located in England and uses euro as its official currency. The company borrows 1 million U.S. dollars from a bank based in United States. ABB will be at a disadvantage if the:

U.S. dollar depreciates against the euro

Exchange rates are---under a pure "free float" system

Wildly variable and unpredictable

An equity loan is made when ____.

a corporation sells stock to investors

---limits the ability of the government to print money and, thereby, create inflationary pressures.

a dirty-float system

A currency is said to freely convertible when:

both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it

A--brings together those who want to invest money and those who want to borrow money

capital market

The--refers to the institutional arrangements that govern exchange rates

currency exchange

The foreign exchange market is used for:

currency hedging, currency conversion, currency speculation, and currency arbitage

A lag strategy involves:

delaying collection of foreign currency receivables if that currency is expected to appreciate

The rate at which one currency is converted into another is known as the--

exchange rate

The world's four major trading currencies, the Japanese yen, the U.S. dollar, the British pound, and the European Union's euro are all free to float against each other. What is this an example of?

floating exchange rate regime

When the value of U.S. dollars goes down:

foreign borrowers will garner benefits

When two parties agree to exchange currency and execute the deal at some specific time in the future, a---occurs

forward exchange

The cost of the capital is:

higher in a purely domestic capital market than in a global market

Companies receive a---when using the Eurocurrency market.

higher interest rate on deposits and pay less for loans

A factor that makes the Eurocurrency market attractive to both depositors and borrowers is:

its lack of government regulation

Hedge Funds:

make short bets on assets they they think will decline in value

An exchange rate of 1 eruo=$1.30 indicates that:

one euro buys 1.30 dollars

Assuming the 30-day forward exchange rate were $1 = ¥130 and the spot exchange rate were $1 = ¥120, the dollar is selling at a _____ on the 30-day forward market.

premium

The cost of capital is the:

the price of borrowing money