Question 1

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not true regarding Thailand before the Asian crisis?

Accepted Answer

A)  Thailand was one of the slowest growing countries. 
B)  High levels of spending and low levels of saving placed upward pressure on prices of real estate, products, and on Thailand's local interest rate. 
C)  Thailand's baht was linked to the dollar prior to July 1997, which made Thailand an attractive site for foreign investors. 
D)  Thai banks provided many loans that were very risky in their attempt to make use of all of their funds. 
E)  All of these are true. 
A)  Thailand was one of the slowest growing countries. 
B)  High levels of spending and low levels of saving placed upward pressure on prices of real estate, products, and on Thailand's local interest rate. 
C)  Thailand's baht was linked to the dollar prior to July 1997, which made Thailand an attractive site for foreign investors. 
D)  Thai banks provided many loans that were very risky in their attempt to make use of all of their funds. 
E)  All of these are true.

Question 3

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

Accepted Answer

A) True 
 B)False

Question 4

The Bretton Woods Agreement created a system under which exchange rates were determined by market forces without intervention by various governments.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not true regarding government intervention?

Accepted Answer

A)  Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B)  Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C)  Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D)  Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E)  All of these are true. 
A)  Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B)  Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C)  Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D)  Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E)  All of these are true.

Question 6

Which of the following did not occur under the Bretton Woods Agreement?

Accepted Answer

A)  Each currency was valued in terms of gold. 
B)  Values of all currencies were fixed with respect to each other. 
C)  Currencies were allowed to fluctuate no more than 1 percent above or below the initially set rates. 
D)  The United States experienced no balance-of-trade deficits. 
A)  Each currency was valued in terms of gold. 
B)  Values of all currencies were fixed with respect to each other. 
C)  Currencies were allowed to fluctuate no more than 1 percent above or below the initially set rates. 
D)  The United States experienced no balance-of-trade deficits.

Question 7

Countries that have adopted the euro tend to have very similar:

Accepted Answer

A)  interest rates. 
B)  inflation rates. 
C)  income tax rates. 
D)  budget deficits. 
A)  interest rates. 
B)  inflation rates. 
C)  income tax rates. 
D)  budget deficits.

Question 8

Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the factors that determine it, such as interest rates.

Accepted Answer

A) True 
 B)False

Question 9

A common way to reduce inflation is to weaken the value of the domestic currency.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a disadvantage of a freely floating exchange rate system?

Accepted Answer

A)  It can adversely affect a country that has high unemployment. 
B)  It can adversely affect a country that has high inflation. 
C)  The government may intervene to change the value of a given currency. 
D)  The exchange rate risk is high and may be costly to manage. 
A)  It can adversely affect a country that has high unemployment. 
B)  It can adversely affect a country that has high inflation. 
C)  The government may intervene to change the value of a given currency. 
D)  The exchange rate risk is high and may be costly to manage.

Question 11

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

Accepted Answer

A) True 
 B)False

Question 12

Assuming no credit risk, the interest rates among countries in the eurozone should be similar.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a reason for devaluation of a currency?

Accepted Answer

A)  high inflation 
B)  to reduce a balance-of-trade deficit 
C)  to decrease the amount of imports 
D)  high unemployment 
A)  high inflation 
B)  to reduce a balance-of-trade deficit 
C)  to decrease the amount of imports 
D)  high unemployment

Question 14

A strong dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which in turn places ____ pressure on U.S. bond prices.

Accepted Answer

A)  downward; upward; upward 
B)  downward; downward; upward 
C)  upward; upward; downward 
D)  upward; downward; upward
Answer Key 
A)  downward; upward; upward 
B)  downward; downward; upward 
C)  upward; upward; downward 
D)  upward; downward; upward
Answer Key

Question 15

Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.

Accepted Answer

A) True 
 B)False

Question 16

A primary result of the Smithsonian Agreement was:

Accepted Answer

A)  the establishment of the European Monetary System (EMS). 
B)  establishing that exchange rates of most major countries were to be allowed to fluctuate 2.25 percent above or below their initially set values. 
C)  establishing specific rules for when tariffs and quotas could be imposed by governments. 
D)  establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary). 
A)  the establishment of the European Monetary System (EMS). 
B)  establishing that exchange rates of most major countries were to be allowed to fluctuate 2.25 percent above or below their initially set values. 
C)  establishing specific rules for when tariffs and quotas could be imposed by governments. 
D)  establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary).

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Which of the following is not true regarding Thailand before the Asian crisis?

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

The Bretton Woods Agreement created a system under which exchange rates were determined by market forces without intervention by various governments.

Which of the following is not true regarding government intervention?

Which of the following did not occur under the Bretton Woods Agreement?

Countries that have adopted the euro tend to have very similar:

Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the factors that determine it, such as interest rates.

A common way to reduce inflation is to weaken the value of the domestic currency.

Which of the following is not a disadvantage of a freely floating exchange rate system?

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

Assuming no credit risk, the interest rates among countries in the eurozone should be similar.

Which of the following is not a reason for devaluation of a currency?

A strong dollar places pressure on U.S. inflation, which in turn places pressure on U.S. interest rates, which in turn places pressure on U.S. bond prices.

Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.

A primary result of the Smithsonian Agreement was:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 6: Government Influence on Exchange Rates

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Which of the following is not true regarding Thailand before the Asian crisis?

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

The Bretton Woods Agreement created a system under which exchange rates were determined by market forces without intervention by various governments.

Which of the following is not true regarding government intervention?

Which of the following did not occur under the Bretton Woods Agreement?

Countries that have adopted the euro tend to have very similar:

Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the factors that determine it, such as interest rates.

A common way to reduce inflation is to weaken the value of the domestic currency.

Which of the following is not a disadvantage of a freely floating exchange rate system?

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

Assuming no credit risk, the interest rates among countries in the eurozone should be similar.

Which of the following is not a reason for devaluation of a currency?

A strong dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which in turn places ____ pressure on U.S. bond prices.

Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.

A primary result of the Smithsonian Agreement was:

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

A strong dollar places pressure on U.S. inflation, which in turn places pressure on U.S. interest rates, which in turn places pressure on U.S. bond prices.