Question 1

The European Central Bank is located in:

Accepted Answer

A) London. 
B) Denmark. 
C) Luxembourg. 
D) Frankfurt. 
A) London. 
B) Denmark. 
C) Luxembourg. 
D) Frankfurt.

Question 2

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 3

If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:

Accepted Answer

A) exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. 
B) exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. 
C) exchange dollars for foreign currencies, and buy existing Treasury securities with dollars. 
D) exchange foreign currencies for dollars, and buy existing Treasury securities with dollars. 
A) exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. 
B) exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. 
C) exchange dollars for foreign currencies, and buy existing Treasury securities with dollars. 
D) exchange foreign currencies for dollars, and buy existing Treasury securities with dollars.

Question 4

Which of the following is true regarding the euro?

Accepted Answer

A) Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders. 
B) It allows for more consistent economic conditions across countries. 
C) It prevents each country from conducting its own monetary policy. 
D) All of the above are true. 
A) Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders. 
B) It allows for more consistent economic conditions across countries. 
C) It prevents each country from conducting its own monetary policy. 
D) All of the above are true.

Question 5

A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar.

Accepted Answer

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

Question 6

As foreign exchange activity has grown, a given degree of central bank intervention has become:

Accepted Answer

A) more effective. 
B) more frequent. 
C) less effective. 
D) none of the above 
A) more effective. 
B) more frequent. 
C) less effective. 
D) none of the above

Question 7

Which of the following is not true regarding Thailand?

Accepted Answer

A) Thailand was one of the slowest growing countries before the Asian crisis. 
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 the above are true. 
A) Thailand was one of the slowest growing countries before the Asian crisis. 
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 the above are true.

Question 8

Under the ____________ from 1979-1992 (before the euro existed), the currencies of many European countries were currencies of most of these member countries were allowed to fluctuate by no more than 2.25 percent (6 percent for some currencies) from the initially established values.

Accepted Answer

A) European Monetary System (EMS). 
B) snake agreement. 
C) Maastricht Treaty. 
D) Bretton Woods agreement. 
A) European Monetary System (EMS). 
B) snake agreement. 
C) Maastricht Treaty. 
D) Bretton Woods agreement.

Question 9

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

Accepted Answer

A) upward; reduce; unchanged 
B) upward; increase; higher 
C) downward; reduce; unchanged 
D) downward; increase; higher 
A) upward; reduce; unchanged 
B) upward; increase; higher 
C) downward; reduce; unchanged 
D) downward; increase; higher

Question 10

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 11

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 12

While a weak currency can reduce unemployment at home, it can also lead to higher inflation, as local companies are better able to raise prices.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The European countries conforming to the euro are completely insulated from movements in the euro's value with respect to other currencies.

Accepted Answer

A) True 
 B)False

Question 15

If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____.

Accepted Answer

A) increases; appreciate; weaken 
B) decreases; appreciate; weaken 
C) increases; depreciate; strengthen 
D) decreases; appreciate; strengthen 
A) increases; appreciate; weaken 
B) decreases; appreciate; weaken 
C) increases; depreciate; strengthen 
D) decreases; appreciate; strengthen

Question 16

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

Question 17

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% 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% 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).

Question 18

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 19

A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

Exam 6: Government Influence on Exchange Rates

The European Central Bank is located in:

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.

If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:

Which of the following is true regarding the euro?

A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar.

As foreign exchange activity has grown, a given degree of central bank intervention has become:

Which of the following is not true regarding Thailand?

Under the ____________ from 1979-1992 (before the euro existed), the currencies of many European countries were currencies of most of these member countries were allowed to fluctuate by no more than 2.25 percent (6 percent for some currencies) from the initially established values.

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

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

A strong dollar is normally expected to cause:

While a weak currency can reduce unemployment at home, it can also lead to higher inflation, as local companies are better able to raise prices.

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

The European countries conforming to the euro are completely insulated from movements in the euro's value with respect to other currencies.

If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____.

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

A primary result of the Smithsonian 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?

A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency.

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

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

A strong dollar places pressure on inflation, which in turn places pressure on the dollar.

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place pressure on Japanese yen, the amount of Japanese yen available for sale, and result in inflation in Japan.

If the Fed the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will and the economy may .