Question 1

A strong dollar is normally expected to cause:

Accepted Answer

A)  high unemployment and high inflation in the U.S. 
B)  high unemployment and low inflation in the U.S. 
C)  low unemployment and low inflation in the U.S. 
D)  low unemployment and high inflation in the U.S. 
A)  high unemployment and high inflation in the U.S. 
B)  high unemployment and low inflation in the U.S. 
C)  low unemployment and low inflation in the U.S. 
D)  low unemployment and high inflation in the U.S.

Question 2

Under a fixed exchange rate system:

Accepted Answer

A)  a foreign exchange market does not exist. 
B)  central bank intervention in the foreign exchange market is not necessary. 
C)  central bank intervention in the foreign exchange market is often necessary. 
D)  central bank intervention in the foreign exchange market is not allowed. 
A)  a foreign exchange market does not exist. 
B)  central bank intervention in the foreign exchange market is not necessary. 
C)  central bank intervention in the foreign exchange market is often necessary. 
D)  central bank intervention in the foreign exchange market is not allowed.

Question 3

Dollarization refers to the replacement of local currency with U.S.dollars.

Accepted Answer

A) True 
 B)False

Question 4

The Smithsonian Agreement was reached in September 1985 by seven major industrialized countries to systematically weaken the dollar.

Accepted Answer

A) True 
 B)False

Question 5

Under a managed float exchange rate system,the Fed may attempt to stimulate the U.S.economy by _______ the dollar.  Such an adjustment in the dollar's value should _______ the U.S.demand for products produced by major foreign countries.

Accepted Answer

A)  weakening;increase 
B)  weakening;decrease 
C)  strengthening;increase 
D)  strengthening;decrease 
A)  weakening;increase 
B)  weakening;decrease 
C)  strengthening;increase 
D)  strengthening;decrease

Question 6

During the period 1944-1971,the U.S.used a __________ system.

Accepted Answer

A)  euro exchange rate 
B)  fixed 
C)  dirty float 
D)  flexible 
A)  euro exchange rate 
B)  fixed 
C)  dirty float 
D)  flexible

Question 7

Countries that have adopted the euro must agree on a single ________ policy.

Accepted Answer

A)  monetary 
B)  fiscal 
C)  worker compensation 
D)  foreign relations 
A)  monetary 
B)  fiscal 
C)  worker compensation 
D)  foreign relations

Question 8

Which of the following are true about the Southeast Asian currency crisis

Accepted Answer

A)  It was preceded by several years of large capital inflows to Asia. 
B)  It was preceded by a five-year recession in Asia. 
C)  Asian interest rates declined during the crisis. 
D)  Asian exchange rates were converted from floating to fixed to resolve the crisis. 
A)  It was preceded by several years of large capital inflows to Asia. 
B)  It was preceded by a five-year recession in Asia. 
C)  Asian interest rates declined during the crisis. 
D)  Asian exchange rates were converted from floating to fixed to resolve the crisis.

Question 9

The currency of country X is pegged to the currency of country Y.Assume that county Y's currency depreciates against the currency of country Z.It is likely that country X will export _______ to country Z and import _______ from country Z.

Accepted Answer

A)  more;more 
B)  less;less 
C)  more;less 
D)  less;more 
A)  more;more 
B)  less;less 
C)  more;less 
D)  less;more

Question 10

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

Accepted Answer

A)  remain stable. 
B)  strengthen. 
C)  weaken. 
D)  none of the above will have an impact on inflation. 
A)  remain stable. 
B)  strengthen. 
C)  weaken. 
D)  none of the above will have an impact on inflation.

Question 11

Under a pegged exchange rate system,the home currency's value is pegged to a foreign currency or to some unit of account.

Accepted Answer

A) True 
 B)False

Question 12

To force the value of the British pound to depreciate against the dollar,the Federal Reserve should:

Accepted Answer

A)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. 
D)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. 
A)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. 
D)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.

Question 13

The interest rate of a country with a currency board:

Accepted Answer

A)  is less stable than it would be without a currency board. 
B)  is typically below the interest rate of the currency to which it is tied. 
C)  will move in tandem with the interest rate of the currency to which it is tied. 
D)  is completely independent of the interest rate of the currency to which it is tied. 
A)  is less stable than it would be without a currency board. 
B)  is typically below the interest rate of the currency to which it is tied. 
C)  will move in tandem with the interest rate of the currency to which it is tied. 
D)  is completely independent of the interest rate of the currency to which it is tied.

Question 14

The risk-free interest rates among countries that have adopted the euro should:

Accepted Answer

A)  are not necessarily similar to risk-free rates in other countries. 
B)  should equal the U.S. risk-free rate. 
C)  should equal the risk-free rates in other European countries. 
D)  should equal the risk-free rates in Asian countries. 
A)  are not necessarily similar to risk-free rates in other countries. 
B)  should equal the U.S. risk-free rate. 
C)  should equal the risk-free rates in other European countries. 
D)  should equal the risk-free rates in Asian countries.

Question 15

A primary result of the Bretton Woods Agreement was:

Accepted Answer

A)  the establishment of the European Monetary System (EMS). 
B)  establishing specific rules for when tariffs and quotas could be imposed by governments. 
C)  establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values. 
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 inter vene when necessary). 
A)  the establishment of the European Monetary System (EMS). 
B)  establishing specific rules for when tariffs and quotas could be imposed by governments. 
C)  establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values. 
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 inter vene when necessary).

Question 16

It has been argued that the exchange rate can be used as a policy tool.Assume that the U.S.government would like to reduce unemployment.Which of the following is an appropriate action given this scenario

Accepted Answer

A)  weaken the dollar. 
B)  strengthen the dollar. 
C)  buy dollars with foreign currency in the foreign exchange market. 
D)  implement a tight monetary policy. 
A)  weaken the dollar. 
B)  strengthen the dollar. 
C)  buy dollars with foreign currency in the foreign exchange market. 
D)  implement a tight monetary policy.

Question 17

Currency devaluation can boost a country's exports,but currency revaluation can increase foreign competition.

Accepted Answer

A) True 
 B)False

Question 18

All European countries now use the euro as their currency.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

An advantage of freely floating exchange rates is that a country with floating exchange rates is more insulated from unemployment problems in other countries.

Accepted Answer

A) True 
 B)False

Exam 6: Government Influence on Exchange Rates

A strong dollar is normally expected to cause:

Under a fixed exchange rate system:

Dollarization refers to the replacement of local currency with U.S.dollars.

The Smithsonian Agreement was reached in September 1985 by seven major industrialized countries to systematically weaken the dollar.

Under a managed float exchange rate system,the Fed may attempt to stimulate the U.S.economy by _______ the dollar. Such an adjustment in the dollar's value should _______ the U.S.demand for products produced by major foreign countries.

During the period 1944-1971,the U.S.used a __________ system.

Countries that have adopted the euro must agree on a single ________ policy.

Which of the following are true about the Southeast Asian currency crisis

The currency of country X is pegged to the currency of country Y.Assume that county Y's currency depreciates against the currency of country Z.It is likely that country X will export _______ to country Z and import _______ from country Z.

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

Under a pegged exchange rate system,the home currency's value is pegged to a foreign currency or to some unit of account.

To force the value of the British pound to depreciate against the dollar,the Federal Reserve should:

The interest rate of a country with a currency board:

The risk-free interest rates among countries that have adopted the euro should:

A primary result of the Bretton Woods Agreement was:

It has been argued that the exchange rate can be used as a policy tool.Assume that the U.S.government would like to reduce unemployment.Which of the following is an appropriate action given this scenario

Currency devaluation can boost a country's exports,but currency revaluation can increase foreign competition.

All European countries now use the euro as their currency.

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

An advantage of freely floating exchange rates is that a country with floating exchange rates is more insulated from unemployment problems in other countries.

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

Multinational Restructuring

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Under a managed float exchange rate system,the Fed may attempt to stimulate the U.S.economy by _ the dollar. Such an adjustment in the dollar's value should _ the U.S.demand for products produced by major foreign countries.

The currency of country X is pegged to the currency of country Y.Assume that county Y's currency depreciates against the currency of country Z.It is likely that country X will export _ to country Z and import _ from country Z.