Quiz 3 study guide

______ is used by international businesses and their banks to move out of one currency and into another for a limited period without incurring foreign exchange risk.

A currency swap

The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. What offers a solution to this problem?

A political union

Which statement is true of the Bretton Woods Agreement?

All countries agreed to fix the value of their currency in terms of gold under the agreement

An important drawback of a purely domestic capital market is that the

Cost of capital tends to be higher than it is in a global market.

When a country tries to hold the value of its 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

Which statement is true of Eurocurrency?

Eurocurrency can be created anywhere in the world.

Advocates of a _____ argue that removal of the obligation to maintain exchange rate parity would restore monetary control to a government.

Floating exchange rate regime

______ arises from volatile changes in exchange rates.

Foreign exchange risk

From least integrated to most integrated, the levels of economic integration are a:

Free trade area, a customs union, a common market, an economic union, and a political union.

Banks such as JPMorgan Chase and investment firms such as Charles Schwab are referred to as ______ in that they connect investors and borrowers, either directly or indirectly.

Market Makers

Milo is traveling to Ireland on vacation. When he arrives, he goes to a bank to convert his U.S. dollars into the local currency—the euro. What exchange rate will be used to handle this transaction?

Spot exchange rate

Linking neighboring countries economically and making them interdependent

creates incentives to increase political cooperation as well