Question 1

The exchange rate mechanism (ERM)refers to the method of linking __________ currencies to each other within boundaries.

Accepted Answer

A)  Latin American 
B)  European 
C)  Asian 
D)  North American 
A)  Latin American 
B)  European 
C)  Asian 
D)  North American

Question 2

Under the system known as the "dirty" float,official boundaries for the exchange rate exist,but they are wider than they are under a fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Which of the following countries have not adopted the Euro as of January 1,2004

Accepted Answer

A)  Germany 
B)  Italy 
C)  Iceland 
D)  Denmark 
A)  Germany 
B)  Italy 
C)  Iceland 
D)  Denmark

Question 5

As foreign exchange activity has grown:

Accepted Answer

A)  central bank intervention has become more effective. 
B)  central bank intervention has become more frequent. 
C)  central bank intervention has become less effective. 
D)  none of the above 
A)  central bank intervention has become more effective. 
B)  central bank intervention has become more frequent. 
C)  central bank intervention has become less effective. 
D)  none of the above

Question 6

The euro is the currency:

Accepted Answer

A)  adopted in all western European countries as of 1999. 
B)  adopted in all eastern European countries as of 1999. 
C)  adopted in all European countries as of 1999. 
D)  none of the above 
A)  adopted in all western European countries as of 1999. 
B)  adopted in all eastern European countries as of 1999. 
C)  adopted in all European countries as of 1999. 
D)  none of the above

Question 7

To strengthen the dollar using sterilized intervention,the Fed would _____________ dollars and simultaneously ____________ Treasury securities.

Accepted Answer

A)  buy;sell 
B)  sell;buy 
C)  buy;buy 
D)  sell;sell 
A)  buy;sell 
B)  sell;buy 
C)  buy;buy 
D)  sell;sell

Question 8

The term "target zone arrangement" refers to a:

Accepted Answer

A)  situation where countries adjust their national economic policies to maintain exchange rates within some predetermined limits. 
B)  system where several central banks act in a coordinated intervention to keep the price of one country's currency within reasonable trading ranges. 
C)  system where currencies are pegged to gold, or to hard currency. 
D)  system where local currencies are replaced by dollars. 
A)  situation where countries adjust their national economic policies to maintain exchange rates within some predetermined limits. 
B)  system where several central banks act in a coordinated intervention to keep the price of one country's currency within reasonable trading ranges. 
C)  system where currencies are pegged to gold, or to hard currency. 
D)  system where local currencies are replaced by dollars.

Question 9

From a financial management perspective,which of the following is true regarding the introduction of the Euro

Accepted Answer

A)  U.S.-based MNCs are not subject to exchange rate risk when they have transactions in euros. 
B)  The euro is pegged to all other European currencies. 
C)  Transactions costs decline for MNCs that conduct transactions within Europe. 
D)  The euro replaced the British pound. 
A)  U.S.-based MNCs are not subject to exchange rate risk when they have transactions in euros. 
B)  The euro is pegged to all other European currencies. 
C)  Transactions costs decline for MNCs that conduct transactions within Europe. 
D)  The euro replaced the British pound.

Question 10

A strong home currency can harm exports;exporters typically benefit from a weaker home country currency.

Accepted Answer

A) True 
 B)False

Question 11

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 inflation.Which of the following is an appropriate action given this scenario

Accepted Answer

A)  sell dollars for foreign currency. 
B)  buy dollars with foreign currency. 
C)  lower interest rates. 
D)  none of the above 
A)  sell dollars for foreign currency. 
B)  buy dollars with foreign currency. 
C)  lower interest rates. 
D)  none of the above

Question 12

Which of the following is an example of direct intervention in foreign exchange markets

Accepted Answer

A)  lowering interest rates. 
B)  increasing the discount rate. 
C)  exchanging dollars for foreign currency. 
D)  imposing barriers on international trade. 
A)  lowering interest rates. 
B)  increasing the discount rate. 
C)  exchanging dollars for foreign currency. 
D)  imposing barriers on international trade.

Question 13

Nonsterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.

Accepted Answer

A) True 
 B)False

Question 14

A country with fixed exchange rates often faces constraints on growth.

Accepted Answer

A) True 
 B)False

Question 15

The Bretton Woods Agreement called for the establishment of a single European currency.

Accepted Answer

A) True 
 B)False

Question 16

A possible reason why China was less affected by the Asian crisis is that its government exerts more influence on private enterprise than the governments of other Asian countries.

Accepted Answer

A) True 
 B)False

Question 17

The value of the Canadian dollar,Japanese yen,and Australian dollar with respect to the U.S.dollar are part of a:

Accepted Answer

A)  pegged system. 
B)  fixed system. 
C)  managed float system. 
D)  crawling peg system. 
A)  pegged system. 
B)  fixed system. 
C)  managed float system. 
D)  crawling peg system.

Question 18

The euro is pegged to other currencies of European countries that have not adopted the euro.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  upward;downward;upward 
B)  upward;downward;downward 
C)  upward;upward;downward 
D)  downward;upward;upward 
E)  downward;downward;upward 
A)  upward;downward;upward 
B)  upward;downward;downward 
C)  upward;upward;downward 
D)  downward;upward;upward 
E)  downward;downward;upward

Question 20

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

Accepted Answer

A)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should not intervene. 
D)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell pounds for dollars in the foreign exchange market. 
A)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should not intervene. 
D)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell pounds for dollars in the foreign exchange market.

Exam 6: Government Influence on Exchange Rates

The exchange rate mechanism (ERM)refers to the method of linking __________ currencies to each other within boundaries.

Under the system known as the "dirty" float,official boundaries for the exchange rate exist,but they are wider than they are under a fixed exchange rate system.

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.

Which of the following countries have not adopted the Euro as of January 1,2004

As foreign exchange activity has grown:

The euro is the currency:

To strengthen the dollar using sterilized intervention,the Fed would _____________ dollars and simultaneously ____________ Treasury securities.

The term "target zone arrangement" refers to a:

From a financial management perspective,which of the following is true regarding the introduction of the Euro

A strong home currency can harm exports;exporters typically benefit from a weaker home country currency.

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 inflation.Which of the following is an appropriate action given this scenario

Which of the following is an example of direct intervention in foreign exchange markets

Nonsterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.

A country with fixed exchange rates often faces constraints on growth.

The Bretton Woods Agreement called for the establishment of a single European currency.

A possible reason why China was less affected by the Asian crisis is that its government exerts more influence on private enterprise than the governments of other Asian countries.

The value of the Canadian dollar,Japanese yen,and Australian dollar with respect to the U.S.dollar are part of a:

The euro is pegged to other currencies of European countries that have not adopted the euro.

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

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

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

To strengthen the dollar using sterilized intervention,the Fed would _ dollars and simultaneously Treasury securities.

A weaker dollar places ___ pressure on U.S.inflation,which in turn places _ pressure on U.S.interest rates,which places _____ pressure on U.S.bond prices.