Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

Accepted Answer

A) True 
 B)False

Question 4

A currency peg is insulated from economic or political conditions, such that the exchange rate in the market will only change if the country's government breaks the peg and sets a new exchange rate.

Accepted Answer

A) True 
 B)False

Question 5

Assume the Fed desires to strengthen the dollar. If it buys dollars and simultaneously buys Treasury securities, this is an example of sterilized intervention.

Accepted Answer

A) True 
 B)False

Question 6

If the French government wants to decrease inflation in France, it will exchange foreign currency for euros.

Accepted Answer

A) True 
 B)False

Question 7

The Bank of England is responsible for setting the monetary policy for the European countries participating in the euro.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

Countries usually do not have difficulty maintaining a pegged exchange rate, even when they are experiencing major political or economic problems.

Accepted Answer

A) True 
 B)False

Question 11

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates 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) more; less 
C) less; less 
D) less; more 
A) more; more 
B) more; less 
C) less; less 
D) less; more

Question 12

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 13

The euro has not been adopted by:

Accepted Answer

A) Slovenia. 
B) the U.K. 
C) Germany. 
D) France. 
A) Slovenia. 
B) the U.K. 
C) Germany. 
D) France.

Question 14

Market forces are the determinant of exchange rates in a freely floating exchange rate system.

Accepted Answer

A) True 
 B)False

Question 15

A country with a currency board does not have control over its local interest rates.

Accepted Answer

A) True 
 B)False

Question 16

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

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

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

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

A currency peg is insulated from economic or political conditions, such that the exchange rate in the market will only change if the country's government breaks the peg and sets a new exchange rate.

Assume the Fed desires to strengthen the dollar. If it buys dollars and simultaneously buys Treasury securities, this is an example of sterilized intervention.

If the French government wants to decrease inflation in France, it will exchange foreign currency for euros.

The Bank of England is responsible for setting the monetary policy for the European countries participating in the euro.

Under a fixed exchange rate system:

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

Countries usually do not have difficulty maintaining a pegged exchange rate, even when they are experiencing major political or economic problems.

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export to Country Z and import from Country Z.

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

The euro has not been adopted by:

Market forces are the determinant of exchange rates in a freely floating exchange rate system.

A country with a currency board does not have control over its local interest rates.

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

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

Exam 6: Government Influence on Exchange Rates

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

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

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

A currency peg is insulated from economic or political conditions, such that the exchange rate in the market will only change if the country's government breaks the peg and sets a new exchange rate.

Assume the Fed desires to strengthen the dollar. If it buys dollars and simultaneously buys Treasury securities, this is an example of sterilized intervention.

If the French government wants to decrease inflation in France, it will exchange foreign currency for euros.

The Bank of England is responsible for setting the monetary policy for the European countries participating in the euro.

Under a fixed exchange rate system:

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

Countries usually do not have difficulty maintaining a pegged exchange rate, even when they are experiencing major political or economic problems.

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z.

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

The euro has not been adopted by:

Market forces are the determinant of exchange rates in a freely floating exchange rate system.

A country with a currency board does not have control over its local interest rates.

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

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

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export to Country Z and import from Country Z.