International Finance Multiple Choice Questions 1

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QuestionsThe commonly accepted goal of the MNC is to:_____________ are most commonly classified as a direct foreign investment.

A General Agreement on Tariffs and Trade (GATT) accord in 1993 called for

The forward rate is the exchange rate used for immediate exchange of currencies.From 1944 to 1971, the exchange rate between any two currencies was typically:

The strike price is also known as the premium price.Which of the following are true regarding the options markets?Which of the following is true of options?

A primary result of the Bretton Woods Agreement was:

Which of the following is not a forecasting technique mentioned in your text?

home currency value, other things equal.country's current account?

financial assets (securities).£0.26. Its bid-ask percentage spread is:

_______.

following?counter market for options.and resulted in less aggregate spending.

discount) on the forward exchange rate between the two currencies.interest rate exceeds the UK interest rate, the:country.correct about purchasing power parity (PPP) as related to these two countries?

Which of the following forecasting techniques would best represent the use of today's forward exchange rate to forecast the future exchange rate?

If a particular currency is consistently declining substantially over time, then a market-based forecast will usually have:

If a foreign country's interest rate is similar to the UK rate, the forward rate premium or discount will be _________, meaning that the forward rate and spot rate will provide ________ forecasts.

Foreign exchange markets appear to be strong-form efficient.

Which of the following is true according to the text?

The exchange rate is the

Factors such as economic growth, inflation, and interest rates are an integral part of __________ forecasting.

If a particular currency is consistently declining substantially over time, then a market-based forecast will usually have:

The balance of payments summarizes the transactions that occur during a given time period between

The balance of payments is a

Exchange rates

An arbitrageur in foreign exchange is a person who

A speculator in foreign exchange is a person who

The Purchasing Power Parity (PPP) theory is a good predictor of

According to the Purchasing Power Parity (PPP) theory

A floating exchange rate

A fixed exchange rate is enforced by

The forward market is especially well-suited to offer hedging protection against

Interest-rate parity refers to the concept that, where market

Interest-rate parity refers to the concept that, where market imperfections are few

If inflation goes up in the India relative to other countries, its currency value is expected to

Interest rate parity _____ opportunities for covered interest arbitrage.

The international parity conditions consist of

The fatal flaw of the Bretton Woods system was that

Special drawing rights are not

An investment that is hedged against transaction foreign exchange risk is said to be

A higher _____ in one country indicates the fact that the country’s currency was expected to depreciate.

Forecasting techniques that do not rely directly on the predictions embodied in forward rates and interest rates can be split into two main categories:

The functions of the International Monetary Fund include all of the following except

If inflation goes up in the India relative to other countries, its currency value is expected to

Interest-rate parity refers to the concept that, where market

The currency used to buy imported goods is

With everything else the same, in the foreign exchange market the

According to the International Fisher effect, if investors in all countries require the same real rate of return, the differential in nominal interest rates between any two countries:

If the USD fixed deposit rate for 1 year is deposit rate is 3% per year while Pound Sterling fixed deposit rate is 6% per year, by how much Pound Sterling is expected to to devalue in the coming year?

Which of the following statements is correct? I. The exchange rate is a price. II. The exchange rate is different from other prices because it is NOT determined by supply and demand.When the value of one currency falls relative to another currency, the exchange rate for the first currency hasSuppose that the exchange rate between the dollar and the peso changed from 6 pesos per dollar to 8 pesos per dollar. This change means that theSuppose the exchange rate of the U.S. dollar was 1.00 euro = $0.50 on Thursday, and on Friday the exchange rate was $1.00 = 2.10 euros. Which of the following best explains what has happened between Thursday and Friday?

When the U.S. exchange rate rises, foreign goods become ________ and U.S. imports ________.

Arbitrageurs in foreign exchange markets:

Covered interest rate parity occurs as the result of:

The balance of payments accounts include the

In part, a country's current account measures

If the exchange rate between the dollar and Japanese yen is below the equilibrium exchange rate, there will be a ________ of dollars, and the exchange rate will ________.Important factors that change the demand for dollars and shift the demand curve for dollars include which of the following? I. Interest rates around the world. II. The current exchange rate. III. The expected future exchange rate.Which of the following exchange rate policies uses a target exchange rate, but allows the target to change?

Which of the following best explains the fact that interest rates on the euro are lower than those on the pound?

In the foreign exchange market, the ________ of one country is traded for the ________ of another country.

Which of the following apply to exchange rates? I. The exchange rate is a price. II. The exchange rate for a currency depends on which foreign exchange market you use. III. The foreign exchange rate is different from other prices because it is NOT determined by supply and demand.The foreign exchange rate is the price at which the ________ of one country exchanges for the ________ of another country.In the foreign exchange market, which of the following results in a movement along the supply curve of dollars?

Which of the following is a factor that determines the amount of dollars supplied in the foreign exchange market?

Option A Option B Option C Option D KeyA and C. B

Aupward downward no Binflation D

BD

4.00% 4.26% about 3.85% about 4.17% C1 0 NA NA B

AC

1 0 NA NA BCCB

1 0 NA NA BACCA

1 0 NA NA BA

B

B

A

C

earnings. wealth. risk.acquisitions agreements l stocks transactions

deficit)income rates stocks

America. world world health lawsincome income transfers income

boundaries intervention intervention transactionsexchange exchange banks banks

risk. profits. liquid. aboveexercised. premium. exercised. these.month. . month. above

increase decrease decrease increase(EMS). governments. set values. necessary).arbitrage arbitrage arbitrage arbitragecurrency. currency. currency. currency.

will weaken. will weaken. strengthen. will weaken.

fundamental forecasting

market-based forecasting

technical forecasting

mixed forecasting

underestimated the future exchange rates over time

overestimated the future exchange rates over time

forecasted future exchange rates accurately

rates inaccurately but without any bias toward consistent underestimating or overestimating

accounting-based forecasting

technical forecasting

fundamental forecasting

market-based forecasting

substantial; similar

substantial; very different

close to zero; similar

close to zero; very different

technical fundamental market-based B

1 0 NA NA B

B

D

D

C

none of the above

underestimated the future exchange rates over time

overestimated the future exchange rates over time

forecasted future exchange rates accurately

rates inaccurately but without any bias toward consistent underestimating or overestimating

Forecasts in recent years have been very accurate.

error as a percent of the realized value is a good measure to use in detecting a forecast bias

Forecasting errors are smaller when focused on longer term periods

None of the above

amount of money changed from one country’s currency to another country’s currency

total monetary value of exports minus imports

amount of country’s currency which can exchanged for one ounce of gold

price of one country’s currency in terms of another country’s currency

the government of one country and the government of another country

the national government and local governments in the same country

firms, and government of one country and individuals, firms, and governments throughout the rest of the world

none of the above

B

B

C

A

A

measuring only transactions which involve payments of money

variable measuring all economic transactions, even if no exchange of money occurs

variable which is in equilibrium only when exports equal imports

none of the above

are always fixed

equate the quantity of foreign exchange demanded with the quantity supplied

fluctuate to equate imports and exports

fluctuate to equate rates of interest in various countries

earns illegal profit by manipulating foreign exchange

causes differences in exchange rates in different geographic markets

large amounts of a currency in one market and sell it in another market

none of the above

currency, hoping to profit by selling it a a higher exchange rate at some later date

earns illegal profit by manipulation foreign exchange

causes differences in exchange rates in different geographic markets

none of the above

the long-run tendencies between changes in the price level and the exchange rate of two countries

two countries when there are strong barriers preventing trade between the two countries

All of the above

none of the above

C

D

C

C

taxation B

fall increase A

B

between two national currencies will adjust daily to reflect price level differences in the two countries

In the long run, inflation rates in different countries will equalize around the world

exchange rates between two national currencies will reflect price-level differences in the two countries

none of the above

by the national governments involved

extremely stable over long periods of time

by the actions of central banks

to vary according to market forces

governments, who establish appropriate trade barriers for each country with whom they trade

national governments, who manipulate gold reserves appropriately

central banks, who buy and sell appropriate currencies

none of the above

the same goods must sell for the same price across countries.

interest rates across countries will eventually be the same.

relationship between interest rate differentials and differentials in the forward spot exchange market.

there is an offsetting relationship provided by costs and revenues in similar market environments.

risk exposure.

risk exposure

risk exposure

may increase or decrease

remain the same

Same goods must sell for the same price across countries

interest rates across countries will eventually be the same

interest rate across countries will be eventually the same

deposits rate for similar maturity will be same.

covered exposed risky arbitraged A

precludes increases decreases C

C

PPP A

A

B

C

B

fall increase A

does not affect

CIRP and UIRP only

and the Fisher hypothesis only

CIRP, and the Fisher hypothesis only

and the Fisher hypothesis only

interest rate

level of deflation

real rate of return

fundamental analysis and technical analysis

fundamental analysis and chartist analysis

c analysis and technical analysis

macroeconomic analysis and chartist analysis

sterling was overvalued and the French franc was undervalued leading to a loss of gold reserves by Great Britain.

economy brought with it a demand for dollars to be held as international reserves that exceeded the US gold reserves.

the World Bank was underfunded by member central banks.

it was too weak to survive simultaneous speculative attacks on the Italian and UK currencies in 1992.

emergency loans to countries facing balance of payments problems.

to monitor macroeconomic developments continuously in member countries.

to serve as the world central bank.

to provide a line of credit for each member country.

allocated by the IMF to member countries according to each country's quota.

backed by US dollars

the IMF's unit of account.

a basket of four currencies

may increase or decrease

remain the same

D

2.00% 0.30% 3.00% 2.90% D

B

D

only I only II I and II A

revalued depreciated appreciated demanded B

B

B

C

D

No difference

Real rate of return can not be same

the change in exchange rate between these two countries

Because of difference in inflation rate.

Same goods must sell for the same price across countries.

interest rates across countries will eventually be the same.

interest rate across countries will be eventually the same

deposits rate for similar maturity will be same.

of a third country

home currency

drawing rights

home currency

neither I nor II

peso appreciated

peso depreciated

dollar depreciated

Both answers A and B are correct

The U.S. dollar depreciated against the euro.

The U.S. dollar appreciated against the euro.

The euro appreciated against the U.S. dollar.

Both answers B and C are correct.

rate, the cheaper are U.S.-produced goods and services.

rate, the smaller is the expected profit from buying dollars

U.S. exports, the greater is the quantity of dollars demanded

lower the exchange rate, the smaller the amount of U.S. exports

more expensive; decrease

less expensive; decrease

more expensive; increase

less expensive; increase

B

II only I and III I and II C

crawling peg C

B

C

B

C

B

goods; goods A

change only when the supply curve shifts leftward

shortage; rise to the equilibrium level

surplus; fall to the equilibrium level

surplus; rise to the equilibrium level

I, II, and III

fixed exchange rate

flexible exchange rate

moving target

through the spread between bid and offer rates of exchange.

the small inconsistencies that develop between markets.

need foreign exchange in order to buy foreign goods.

attempt to make profits by outguessing the market.

the actions of market-makers.

purchasing power parity

interest rate arbitrage.

stabilising speculation.

Unemployment is higher in the eurozone than in the UK.

expectations are higher in the UK than in the eurozone

markets are offshore from mainland Europe.

The euro is a weaker currency than sterling.

performing account

export bank account

current account

exim bank account

its current debt as opposed to its long-term debt.

sale of goods and services to foreigners and payments for goods and services bought from foreigners.

net increases and decreases in a country's holdings of foreign currency.

borrowing and lending activity between the country's residents and foreigners.

currency; currency

currency; financial instruments

currency; goods

I II and III I and II A

goods; goods C

C

D

I, II, and III

currency; goods

currency; financial instruments

currency; currency

the U.S. interest rate

future exchange rate

the current exchange rate

above answers are correct

the exchange rate

interest rates in foreign countries

U.S. interest rate

above affect the number of dollars supplied in the foreign exchange market.