IB ch.9 HW
Which of the following occurs when investors lose assurance in a nation's banking system and respond by withdrawing funds? A. Banking crisis B. Currency becoming hard C. Foreign debt crisis D. IMF intervention E. Currency crisis
A. Banking crisis A banking crisis results when domestic and foreign investors lose confidence in a nation's banking system, leading to widespread withdrawals of funds from banks and other financial institutions. Banking crises tend to occur in developing economies with inadequate regulatory and institutional frameworks. These crises can lead to other problems, such as exchange rate fluctuations, inflation, abrupt withdrawal of FDI funds, and general economic instability.
Etwas is a Germany-based appliance company that is preparing to begin international operations, wherein it plans to open several production facilities and sales centers abroad. The company needs a substantial amount of capital to start its international operations and needs to decide whether to pursue financing by selling bonds in the global market. Which of the following would strengthen the case for Etwas's seeking to acquire capital by selling bonds? A. Etwas will have a steady stream of revenue from its international sales. B. Etwas will have to specially train its employees to work internationally. C. Etwas will hire many experienced salespeople to work internationally. D. Etwas will be launching several new product lines soon. E. Etwas will have very slim profit margins in its international sales.
A. Etwas will have a steady stream of revenue from its international sales.
Which statement about a floating exchange rate system is FALSE? A. If a nation faces a trade deficit, the fixed exchange rate system allows for a more natural correction. B. Governments achieve the flexibility to adjust monetary policy because of the floating system. C. Supply and demand set daily exchange rates. D. Market forces establish currency values. E. World exchange markets allow global currencies like the dollar to float on exchange markets.
A. If a nation faces a trade deficit, the fixed exchange rate system allows for a more natural correction.
According to the 2018 World Economic Outlook Database, the country with the highest level of debt is ________. A. Japan B. Belgium C. Greece D. the United States E. Norway
A. Japan
Which of the following indicates a solution to the banking problems in Africa? A. New product ideas have been brought to Africa by foreign banks. B. African industry has relied on international banks because local banks are corrupt. C. There is shortage of trained personnel in the local banks of Africa. D. Restrictions on foreign banks in Africa have reduced competition. E. Restrictions on foreign banks have delayed the development of local banks in Africa.
A. New product ideas have been brought to Africa by foreign banks.
A developing country wants to stabilize the value of its currency. Which strategy is most likely to achieve that goal? A. Pegging its currency to the value of a hard currency or basket of currencies B. Allowing the value of its currency to float on the open market C. Pegging the value of its currency to an established value of gold D. Providing aggressive support of its currency's value by the central bank E. Becoming a member of the International Monetary Fund (IMF)
A. Pegging its currency to the value of a hard currency or basket of currencies
Which of the following has NOT facilitated the worldwide integration of financial and monetary activity? A. The holding of the value of one country's currency against the U.S. dollar B. The use of the Internet in international financial activities C. Increasing use of unified currency systems, such as the euro D. Changes to monetary and financial regulations worldwide E. Enhanced international and regional interdependence of financial markets
A. The holding of the value of one country's currency against the U.S. dollar At times, countries try to hold the value of their currency within some range against the U.S. dollar or some other important reference currency, in a system often referred to as dirty float. That is, the value of the currency is determined by market forces, but the central bank intervenes occasionally in the foreign exchange market to maintain the value of its currency within acceptable limits relative to a major reference currency. Many Western countries resort to this type of intervention from time to time.
Which of the following refers to the institutional structures, rules, and processes that manage how national currencies are exchanged for one another? A. The international monetary system B. The global financial system C. The International Monetary Fund D. The foreign exchange market E. The World Bank
A. The international monetary system The international monetary system consists of the institutional frameworks, rules, and procedures that govern how national currencies are exchanged for one another. By providing a framework for the monetary and foreign exchange activities of firms and governments worldwide, the system facilitates international trade and investment.
When changes in the price of one country's money could possibly damage the price of another country's money, it is called ________. A. currency risk B. devaluation C. momentum trading D. capital flight E. exchange rate risk
A. currency risk Currency risk is the potential harm that can arise from changes in the price of one currency relative to another. It is also known as financial risk.
Which of the following is a feature of the fixed exchange rate system? A. Each nation's currency floats independently, according to market forces. B. Currency value is established relative to the value of another at a stated rate. C. Governments have latitude to modify monetary policy to fit the circumstances they face at any time. D. Governments refrain from systematic intervention. E. For countries running a trade deficit, the fixed rate system allows a deficit to be corrected more naturally.
B. Currency value is established relative to the value of another at a stated rate. In the fixed exchange rate system, the value of a currency is set relative to the value of another (or to the value of a basket of currencies) at a specified rate. As this "reference value" rises and falls, so does the currency pegged to it. In the past, some currencies were fixed to some set value of gold.
The institution that attempts to stabilize currencies by monitoring the foreign exchange systems of member countries is the ________. A. Group of Twenty (G20) B. International Monetary Fund (IMF) C. Bretton Woods Consortium D. World Trade Organization (WTO) E. World Bank
B. International Monetary Fund (IMF)
Which of the following countries, according to the International Monetary Fund, has the highest gross government debt as a percentage of GDP? A. Canada B. Japan C. United States D. the United Kingdom E. Norway
B. Japan Based on the International Monetary Fund World Economic Outlook Database of 2018
Financing business activity, exchanging foreign currencies, and facilitating adjustments in national money supplies are the most important functions of ________. A. foreign exchange markets B. commercial banks C. investment banks D. World Bank E. International Monetary Fund
B. commercial banks
The most significant participants in national stock and bond markets are _____. A. commercial banks B. institutional investors C. MNEs with in-house finance departments D. individual investors E. credit unions
B. institutional investors
The largest proportion of government debt results from ________. A. corruption in financial institutions B. national pension and healthcare programs C. reduced buyer purchasing power D. challenges in generating sufficient tax revenues E. large infrastructure projects
B. national pension and healthcare programs
When the value of a nation's currency is allowed to fluctuate, the most important factor determining its exchange rate is ________. A. market psychology B. supply and demand C. interest rates D. inflation E. the central bank
B. supply and demand
Which of the following describes the fixed exchange rate system? A. The fixed exchange rate system is also called the floating exchange rate system. B. Exchange rates are set daily according to supply and demand. C. Another name for the fixed exchange rate system is the pegged exchange rate system. D. Currency values are determined by market forces. E. The fixed exchange rate system is not used by emerging economies today.
C. Another name for the fixed exchange rate system is the pegged exchange rate system.
If a nation's central bank wants to support the value of its currency, which strategy would best achieve that goal? A. Increase the funds the IMF makes available through Special Drawing Rights (SDRs) B. Sell government securities, such as treasury bills and bonds C. Buy their currency in the foreign exchange market D. Increase interest rates on funds loaned to commercial banks E. Pass laws that prevent foreign investors from quickly liquidating investments
C. Buy their currency in the foreign exchange market
__________ underwrite (guarantee the sale of) stock and bond issues and advise on mergers. A. Commercial banks B. Offshore banks C. Investment banks D. Merchant banks E. Private banks
C. Investment banks
Which organization or outlet in a country is responsible for money, credit, and managing the exchange rate of its currency? A. The foreign exchange market B. Commercial banks C. The central bank D. The World Bank E. The International Monetary Fund
C. The central bank To accommodate economic growth, the central bank increases the nation's money supply. The central bank is 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. Next Question
Investors withdrew a significant amount of rubles from Russia in 2014 when global investors became far less confident in the Russian economy. This is an example of ________. A. currency risk B. nonconvertible currency C. capital flight D. fluctuating exchange rates E. convertible currency
C. capital flight
Which of the following describes a convertible currency? A. Money that may not be exchanged for international transactions B. Potential harm that arises from changes in the price of one currency relative to another C. The price of one currency expressed in terms of another D. A currency that can be easily exchanged for other currencies E. All forms of money that are traded internationally
D. A currency that can be easily exchanged for other currencies
________ refers to the price of one currency expressed in terms of another currency. A. Currency risk B. Capital flight C. Interest rate D. Exchange rate E. Inflation rate
D. Exchange rate
Which of the following consists of the collective financial institutions that facilitate and regulate flows of investment and capital funds worldwide? A. World Trade Organization B. World Bank C. Central bank D. Global financial system E. International Monetary Fund
D. Global financial system
Which of the following provides funds to companies in the form of stock rather than loans? A. Private banks B. Central banks C. Offshore banks D. Merchant banks E. Commercial banks
D. Merchant banks Merchant banks provide capital to firms in the form of shares rather than loans. They are essentially investment banks that specialize in international operations. They do not provide regular banking services to the general public. The Arab-Malaysian Merchant Bank is an example.
What is a cause of the growing integration of global financial and monetary systems? A. There has been decreased interdependence of regional financial markets. B. Monetary and financial regulations have increased worldwide. C. There has been decreased interdependence of global financial markets. D. Single-currency systems have taken on an increasingly important role. E. Payment systems for global financial activities have faced many technological problems.
D. Single-currency systems have taken on an increasingly important role.
A developing country has experienced rapid changes in the value of its currency and the military is rumored to be planning a coup. How is this instability likely to affect the value of the nation's currency? A. The government will take advantage of the favorable exchange rate to pay down its foreign debt. B. As uncertainty causes interest rates to rise, foreign investors will take advantage of the opportunity to make a profit. C. The government will reduce its reserves of hard currencies to support the value of its own currency. D. The value of the currency will weaken as residents and foreign investors exchange their holdings for hard currency. E. The government will set a price for the currency instead of allowing it to fluctuate.
D. The value of the currency will weaken as residents and foreign investors exchange their holdings for hard currency.
The term ________ represents all the forms of money that are traded internationally, including bank deposits, checks, and electronic transfers. A. capital market B. hard currency C. foreign equity D. foreign exchange E. official currency
D. foreign exchange
Argentina has had extended periods of very large increases in the prices of its goods and services. This situation describes ________. A. special drawing rights B. a trade surplus C. devaluation D. hyperinflation E. a trade deficit
D. hyperinflation Argentina, Zimbabwe, and some other countries have had prolonged periods of hyperinflation - persistent annual double-digit and sometimes triple-digit rates of price increases. With high inflation, the purchasing power of the nation's currency is constantly falling.
Why has debt substantially increased in major advanced economies? A. The debt ratings of several European countries have been downgraded. B. Governments are faced with funded pension and healthcare programs. C. Most advanced economies face serious threats to fiscal solvency in the long run. D. European countries are susceptible to growing financial and monetary risks. E. Excessive government spending has led to increased debt.
E. Excessive government spending has led to increased debt.
Which of the following does NOT describe the World Bank? A. As part of the United Nations, the World Bank has offices located all over the world. B. The World Bank offers financial services such as equity, loans, and loan guarantees. C. Many World Bank projects improve infrastructure in underdeveloped countries. D. The World Bank aims to reduce world poverty. E. In an attempt to stabilize foreign exchange, the World Bank provides nations with short-term loans.
E. In an attempt to stabilize foreign exchange, the World Bank provides nations with short-term loans.
The main objective of the ________ is to reduce global poverty by providing loans to low- and middle-income nations. A. central bank B. International Monetary Fund C. Group of Twenty D. foreign exchange market E. World Bank
E. World Bank The World Bank is an international agency that provides loans and technical assistance to low- and middle-income countries with the goal of reducing poverty.
Governments must manage their ________, the annual accounting of all economic transactions of a nation with all other nations. A. interest rates B. trade surplus C. devaluation D. trade deficit E. balance of payments
E. balance of payments
For firms engaged in international business, fluctuations in the exchange rate are likely to create ________, which is the potential harm that can arise from changes in the price of once currency relative to another. A. political risk B. hard currencies C. capital flight D. foreign exchange E. currency risk
E. currency risk
To keep the value of its currency artificially high, a government would most likely ________. A. reduce prices on goods it manufactures for export B. allow a controlled amount of inflation C. pay down its debt to foreign investors D. maintain a trade deficit E. undervalue its currency
E. undervalue its currency
China and the former Soviet Union opened to global business following the globalization of finance in the 1990s. Today, it is true that ______. A. money does not flow abroad in the form of portfolio investments B. in developing economies, inward investment has hurt the local development of financial markets C. firms lack access to a range of capital markets and financial instruments around the world D. in developing economies, inward investment has increased the cost of capital E. very large flows of capital have been invested into stock markets around the world
E. very large flows of capital have been invested into stock markets around the world
In the international business environment, ________ represents a primary source of risk and uncertainty. A. national stock exchanges B. devaluation C. fiscal imbalance D. monetary intervention E. balance of payment
Fiscal imbalances represent an important source of risk and uncertainty in the global business environment. Recently, debt has substantially increased in major advanced economies, due mainly to excessive government spending and insufficient revenues. Governments spent huge sums in the wake of the global financial crisis to bail out financial systems and reduce recessionary pressures.
