Multinational Finance CH3
A country experiencing a serious BOT ________ is more likely to ________ exports than otherwise. A) surplus; contract B) surplus; expand C) deficit; expand D) none of the above
A
Capital controls may take a variety of forms EXCEPT: A) currency boards B) taxes C) quotas D) prohibitions
A
The subcategory that typically dominates the current account is: A) goods (merchandise) trade. B) services trade. C) income trade. D) transfer accounts.
A
The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of: A) services trade. B) income trade. C) goods trade. D) current transfers.
A
This was an era dominated by industrialized nation economies that were dependent on gold convertibility to maintain confidence in the system. A) The Gold Standard, 1860-1914 B) The Interwar Years , 1914-1945 C) The Bretton Woods Era, 1945-1971 D) The Floating Era, 1971-1997
A
A ________ is any restriction that limits or alters the rate or direction of capital movement into or out of a country. A) capital budget B) capital control C) balance of trade deficit D) balance of trade surplus
B
An era of retrenchment, in which major economic powers returned to policies of isolationism and protectionism, restricting trade and nearly eliminating capital mobility. A) The Gold Standard, 1860-1914 B) The Interwar Years , 1914-1945 C) The Bretton Woods Era, 1945-1971 D) The Floating Era, 1971-1997
B
Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of: A) services trade. B) income trade. C) goods trade. D) current transfers.
B
The two major concerns about foreign direct investment are: A) national defense and taxes. B) who controls the assets and who receives the profits. C) who receives the profits and taxes. D) who pays the taxes and who receives the taxes.
B
Which of the following is NOT a major subaccount of the Balance of Payments? A) the financial account B) the accounts payable C) the capital account D) the current account
B
The largest single component of the United States current account is: A) current transfers. B) income payments and receipts. C) goods (merchandise) imports and exports. D) services imports and exports.
C
This dollar-based fixed exchange rate system gave rise to a long period of economic recovery and growing openness of both international trade and capital flows in and out of more and more countries. A) The Gold Standard, 1860-1914 B) The Interwar Years , 1914-1945 C) The Bretton Woods Era, 1945-1971 D) The Floating Era, 1971-1997
C
Which of the following is NOT a part of the Current Account of BOP? A) net export/import of goods B) balance of trade C) net portfolio investment D) net export/import of services
C
In general there is consensus that ________ should be free, but there is no such consensus that ________ should be free. A) international investment; international goods trade B) international investment; international trade C) international trade; international goods trade D) international trade; international investment
D
Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is LESS THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero. A) surplus; sell B) surplus; buy C) deficit; sell D) deficit; buy
D
Under an international regime of fixed exchange rates, countries with a BOP ________ should consider ________ their currency while countries with a BOP ________ should consider ________ their currency. A) deficit, revaluing; surplus, revaluing B) deficit, devaluing; surplus, devaluing C) surplus, devaluing; deficit, revaluing D) surplus, revaluing; deficit, devaluing
D
When categorizing investments for the financial account component of the balance of payments the ________ is an investment where the investor has no control whereas the ________ is an investment where the investor has control over the asset. A) direct investment; portfolio investment B) direct investment; indirect investment C) portfolio investment; indirect investment D) portfolio investment; direct investment
D
Long-term capital flows reflect the following factors EXCEPT: A) short term interest rate differentials B) fundamental economic expectations C) growth prospects D) perceptions of political stability
A
Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is GREATER THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero. A) surplus; sell B) surplus; buy C) deficit; sell D) deficit; buy
A
Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction? A) An American tourist purchases cheese in Milwaukee, Wisconsin. B) The U.S. subsidiary of a British firm pays profits (dividends) back to its parent firm in London. C) A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in Seattle. D) All of the above are considered BOP transactions.
A
The ________ includes all international economic transactions with income or payment flows occurring within the year. A) capital account B) current account C) financial account D) IMF account
B
The authors identify four distinct periods of capital mobility since 1860. Which do they term as a "period of global economic destruction"? A) 1860 - 1914 B) 1914 - 1945 C) 1945 - 1971 D) 1971 - 2007
B
Which of the following is NOT part of the Financial Account of the BOP? A) net foreign direct investment B) net import/export of services C) net portfolio investment D) other Financial items
B
China is currently experiencing a surplus in its current account and its capital/financial accounts. Which of the following is NOT a contributing factor for this unusual situation? A) The exceptional growth in the Chinese economy contributes to the current account surplus. B) The positive prospects for China's continued growth contribute to the capital/financial account surplus. C) China's inevitable acquisition of Taiwan is driving the market for Chinese investment. D) All of the above are contributing factors for China's twins surpluses.
C
If China wished to reduce their accumulation of foreign exchange reserves they could: A) allow their currency, the yuan, to float freely in the market place. B) reduce their current account surplus by importing more goods than they export. C) undertake both of the activities identified in choices A and B. D) dig a big hole and bury the reserves.
C
If your company were to import and export textiles, the transactions would be recorded in the current account subcategory of: A) services trade. B) income trade. C) goods trade. D) current transfers.
C
Imports have the potential to lower a country's inflation rate because of each of the following EXCEPT: A) the import of lower priced goods limits what domestic competitors can charge for goods. B) the import of lower priced services limits what domestic competitors can charge for services. C) the higher prices of foreign goods spurs domestic competitors to cut prices. D) all of the above
C
In 2010 the United States posted a current account deficit of -$471 billion. The bulk of the negative value came from: A) a net transfer deficit. B) an income balance deficit. C) a goods trade deficit. D) an income trade deficit.
C
Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade. A) greater than B) equal to C) less than D) The relationship is constantly shifting from greater than to less than.
C
Portfolio investment is capital invested in activities that are ________ rather than made for ________. A) short term; the long term B) long term; profit C) profit motivated; control D) control motivated; profit
C
The balance of payments as applied to a course in international finance may be defined as: A) the amount still owed by an exporting firm after making an initial down payment. B) the amount still owed by governments to the International Monetary Fund. C) the measurement of all international economic transactions between the residents of a country and foreign residents. D) the amount of a country's merchandise trade deficit or surplus.
C
The balance of payments: A) determines the eligibility of countries for IMF aid. B) adds up the value of all assets and liabilities of a country on a specific date. C) records all international transactions for a country over a period of time. D) all of the above
C
The financial account consists COMPLETELY of which four components? A) stock investment, bond investment, derivative investment, and mutual fund investment B) direct investment, stock investment, net financial derivatives, and bond investment C) direct investment, portfolio investment, net financial derivatives, and other asset investment D) mutual fund investment, portfolio investment, derivative investment, and stock investment
C
Use the following terms for this question: (X-M) = Current Account Balance (CI-CO) = Capital Account Balance (FI-FO) = Financial Account Balance (I-S) = Investment-Saving Balance FXB = Reserve Balance BOP = balance of payments GDP = gross domestic product C = consumption I = capital investment spending G = government spending The static equation for the BOP is: A) BOP = (X-M) - (CI-CO) - (FI-FO) + FXB B) BOP = (X-M) + (I-S) + (FI-FO) + FXB C) BOP = (X-M) + (CI-CO) + (FI-FO) + FXB D) BOP = GDP - [C + I +G] + (FI-FO)
C
Use the following terms for this question: C = consumption I = capital investment spending G = government spending X = exports of goods and services M = imports of goods and services BOP = balance of payments GDP = gross domestic product NPV = net present value INF = inflation R = real rate of return The static equation for the nations GDP is: A) GDP = C + I + G + (X + M ) × INF B) GDP = C + I + G + X + M C) GDP = C + I + G + X - M D) GDP = C + I + X - M + R
C
Which of the following is NOT an item to be considered in BOP calculations? A) A foreign resident purchases a U.S. Treasury Bill. B) A U.S.-based firm manages the development of an oil field in Kazakhstan. C) A consumer buys a VCR made in Korea from a Florida Wal-Mart store. D) A U.S. citizen living in Minnesota travels to Winnipeg, Canada, and buys a case of LaBatt's Canadian beer.
C
Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path? A) Imports become relatively more expensive. B) Exports become relatively less expensive. C) The balance of trade gets worse. D) All of the above are true.
C
An American tourist purchases a leather jacket while in Italy. Which of the following statements is true? A) The leather purchase would be considered an import for the U.S. BOP. B) This transaction would be properly accounted for in the Current Account of the U.S. BOP. C) The leather purchase is considered an import of a good, and thus, considered part of the balance of trade as well. D) All of these statements are true.
D
Balance of payment (BOP) data may be important for any of the following reasons: A) BOP data helps to forecast a country's market potential, especially in the short run. B) the BOP is an important indicator of a country's foreign exchange rate. C) changes in a country's BOP may signal a change in controls over payment of dividends and interest. D) all of the choices provided above
D
Consider the following: A foreign automobile company builds a manufacturing plant in Tennessee and European investors buy U.S. Treasury Bonds. A) Both activities would be considered direct investment. B) Both activities would be considered portfolio investment. C) The auto manufacturer in engaging in portfolio investment, and the European investors are engaged in direct investing. D) The auto manufacturer in engaging in direct investment, and the European investors are engaged in portfolio investing.
D
Of the following, which is NOT a part of J-Curve adjustment path? A) the currency contract period B) the exchange rate pass-through period C) the quantity adjustment period D) Each of the above is part of the J-Curve adjustment path.
D
The ________ of the balance of payments measures all international economic transactions of financial assets. A) current account B) merchandise trade account C) services account D) capital and financial accounts
D
Which of the following is NOT part of the balance of payments account? A) the current account B) the financial/capital account C) the official reserves account D) All of the above are BOP accounts.
D
Which of the following statements about the balance of payments is NOT true? A) The BOP is the summary statement of all international transactions between one country and all other countries. B) The BOP is a flow statement, summarizing all international transactions that occur across the geographic borders over a period of time, typically a year. C) Although the BOP must always balance in theory, in practice there are substantial imbalances as a result of statistical errors and misreporting of current account and financial account flows. D) All of the above are true.
D
Which of the following would NOT be considered a typical BOP transaction? A) Toyota U.S.A. is a U.S. distributor of automobiles manufactured in Japan by its parent company. B) The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich. C) A U.S. tourist purchases gifts at a museum in London. D) All are example of BOP transactions.
D
________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership. A) Capital flight B) Capital mobility C) Irrational exuberance D) Money laundering
D