Exam 4: The International Flow of Funds and Exchange Rates

The forex market consists of spot, forward, and _____ markets.

Which of the following regarding potential problems with an IRP is NOT true?

_____ refers to a theory stating that a basket of goods should have approximately the same prices across different countries.

Scenario - S & I Creations Sven and Ingrid Allgertson developed the idea for their thriving business while awaiting the birth of their first child, Olga. Finding nowhere to purchase fine handmade baby clothing and other items, the couple decided to start their own business. Neither Sven nor Ingrid imagined just how successful this endeavor would turn out to be for them. Their designer baby clothes and products were an instant hit in the world marketplace. And even though the baby items are quite expensive to purchase, shoppers from around the world are only too happy to spend large sums of money on their beloved children. Originally S & I Creations only sold products within Sweden, but soon global demand necessitated the company offer its products in several other foreign markets. Now the proud parents of baby Olga are also the proud owners of a $10 billion per year business. Sven and Ingrid cannot wait to see what the future holds for their family and their business operations. -S & I Creations is most likely to use which of the following for converting the currency they are paid in from the foreign countries to the currency of Sweden?

Scenario - The Whoppler Firm The Whoppler Firm is an experienced financial specialist firm that advises thousands of clients regarding foreign investments and transactions. It takes pride in the accuracy of the financial advice that is provided to its clients and strives to increase the wealth of each participant. According to the records of the Whoppler Firm, the financial expertise of the company has saved its clients over five million dollars in the last year alone. -Many investors seeking assistance from the Whoppler Firm wish to obtain an extra return on their investment because of a perceived higher risk involved with that particular investment. Which of the following best identifies what these investors are seeking?

Insurance that reduces future risk is called a(n)_____.

_______ is a principle stating that identical goods should sell for the same price in different countries according to local currencies.

Of the following, which is NOT listed in the text as a reason why currency values can change?

The _____ market trades currencies on a real time basis for immediate delivery.

Differentiate between purchasing power parity and interest rate parity.

Explain how exchange rates can be forecasted using different methodologies.

Of the following, which is NOT true about the Bretton Woods System?

______ refers to the theory stating that interest rates on bonds in different countries should be the same, as investors would buy and sell these bonds to make arbitrage profits until this condition holds.

_____ is the largest foreign exchange market.

_____ refers to a monetary system that pegs currency values to the market value of gold.

Balance of payments is generally split into two major components with major business implications: 1)the current account, and 2)the _____ account.

According to the law of one price, identical goods should sell for the same price in different countries according to the local currencies.

________ refers to the 1976 international monetary order that allowed countries to adopt different exchange rate systems including floating their currencies in world markets.

The values of some currencies (e.g. Indian rupee, Singapore dollar, and Thai baht)are determined by the _____.

_____ encompasses purchases of fixed assets abroad used in the manufacture and sales of goods and services.