Question 1

Operation of a gold standard is dependent upon having free trade among nations.

Accepted Answer

A) True 
 B)False  True

Question 2

The sale of IBM computers in France will be recorded as a:

Accepted Answer

A)  Credit item on the current account 
B)  Debit item on the current account 
C)  Credit item on the capital account 
D)  Debit item on the capital account 
E)  Credit item on the official reserves account 
A)  Credit item on the current account 
B)  Debit item on the current account 
C)  Credit item on the capital account 
D)  Debit item on the capital account 
E)  Credit item on the official reserves account A

Question 3

The majority of pegging nations are major industrialized Western countries, while developing countries tend to be floaters as far as their exchange rate policy is concerned.

Accepted Answer

A) True 
 B)False  False

Question 4

The United States balance of payments (BOP) in 2008 was a deficit of just over 700 billion.

Accepted Answer

A) True 
 B)False

Question 5

The central, most important institution in the modern foreign exchange market, according to your text, is the:

Accepted Answer

A)  Central Bank 
B)  Commercial Bank 
C)  Foreign Exchange Broker 
D)  Foreign Exchange Dealer 
E)  Both c and d above
F) None of the above 
A)  Central Bank 
B)  Commercial Bank 
C)  Foreign Exchange Broker 
D)  Foreign Exchange Dealer 
E)  Both c and d above
F) None of the above

Question 6

The United States balance of payments (BOP) in 2008 was a deficit of:

Accepted Answer

A)  $700 billion 
B)  $442 billion 
C)  $583 billion 
D)  $257 billion 
E)  None of the above 
A)  $700 billion 
B)  $442 billion 
C)  $583 billion 
D)  $257 billion 
E)  None of the above

Question 7

The currency exchange rate between euros (€) and pounds (?) is €/? = 1.500 or € 1.50/?. What is the ?/ €?

Accepted Answer

A) ? 0.67/€ 
B)  ? 1.50/€ 
C)  ? 3.0/€ 
D)  ? 1.33/€ 
E)  None of the above 
A) ? 0.67/€ 
B)  ? 1.50/€ 
C)  ? 3.0/€ 
D)  ? 1.33/€ 
E)  None of the above

Question 8

Imports and exports of goods and services and unilateral transfers are recorded in which of the following components of a nation's balance of payments accounts?

Accepted Answer

A)  Capital Account 
B)  Official Reserves 
C)  Merchandise Trade Balance 
D)  Current Account 
E)  None of the above 
A)  Capital Account 
B)  Official Reserves 
C)  Merchandise Trade Balance 
D)  Current Account 
E)  None of the above

Question 9

International transactions resulting in an outflow of foreign currency from the home country would be recorded in the balance of payments accounts as debits (-).

Accepted Answer

A) True 
 B)False

Question 10

In a back-to-back loan arrangement:

Accepted Answer

A)  Banks trade currencies with their customers 
B)  Two businesses agree to swap their loans that are denominated in two different currencies 
C)  Each participant takes on debt securities whose principal and interest are denominated in several different currencies 
D)  Both A and B above are correct 
E)  None of the above are correct 
A)  Banks trade currencies with their customers 
B)  Two businesses agree to swap their loans that are denominated in two different currencies 
C)  Each participant takes on debt securities whose principal and interest are denominated in several different currencies 
D)  Both A and B above are correct 
E)  None of the above are correct

Question 11

The International Monetary Fund (IMF) laid down rules for settling balance-of-payments deficits between nations.

Accepted Answer

A) True 
 B)False

Question 12

An instrument available from government sources designed to cover currency losses incurred by exporters of goods is called:

Accepted Answer

A)  Covered interest arbitrage 
B)  Exchange-risk insurance 
C)  A currency swap 
D)  A local loan 
E)  A dual currency bond 
A)  Covered interest arbitrage 
B)  Exchange-risk insurance 
C)  A currency swap 
D)  A local loan 
E)  A dual currency bond

Question 13

Argentina succumbed to bankruptcy with $132 billion in foreign debt because:

Accepted Answer

A)  It practices dollarizing 
B)  It was unable to sustain a particular domestic currency value relative to the dollar 
C)  Its domestic economic policies were shaped by the U.S. 
D)  All the above 
E)  None of the above 
A)  It practices dollarizing 
B)  It was unable to sustain a particular domestic currency value relative to the dollar 
C)  Its domestic economic policies were shaped by the U.S. 
D)  All the above 
E)  None of the above

Question 14

A U.S. investor who buys foreign securities will use a _____ to protect against a loss on the foreign securities due to currency fluctuations.

Accepted Answer

A)  Covered interest arbitrage hedge 
B)  Selling hedge 
C)  Buying hedge 
D)  Cross hedge 
E)  Reverse arbitrage hedge 
A)  Covered interest arbitrage hedge 
B)  Selling hedge 
C)  Buying hedge 
D)  Cross hedge 
E)  Reverse arbitrage hedge

Question 15

Services included in a nation's balance of payments accounts include all of the following items except:

Accepted Answer

A)  Hotel accommodations for foreigners 
B)  Medical care given by domestic hospitals to foreign citizens 
C)  Receipts of income from direct investments made overseas 
D)  Shipping of ocean freight for foreign firms and individuals 
E)  All of the above items are included in the services account in a nation's balance of payments 
A)  Hotel accommodations for foreigners 
B)  Medical care given by domestic hospitals to foreign citizens 
C)  Receipts of income from direct investments made overseas 
D)  Shipping of ocean freight for foreign firms and individuals 
E)  All of the above items are included in the services account in a nation's balance of payments

Question 16

In an effective currency sterilization operating bank reserves will increase after a currency is purchased and decline after currency is sold.

Accepted Answer

A) True 
 B)False

Question 17

Most U.S. BOP deficits in recent years have been financed by:

Accepted Answer

A)  Changes in official reserve assets 
B)  The sale of offshore drilling rights 
C)  U.S. Government budget surpluses 
D)  Capital inflows from foreign investors 
E)  None of the above 
A)  Changes in official reserve assets 
B)  The sale of offshore drilling rights 
C)  U.S. Government budget surpluses 
D)  Capital inflows from foreign investors 
E)  None of the above

Question 18

In a back-to-back loan agreement two borrowing companies agree to swap their loans which are denominated in two different currencies.

Accepted Answer

A) True 
 B)False

Question 19

The international monetary system in which each nation is allowed to choose its own exchange rate policy and may intervene in the foreign exchange markets to protect its own national currency and correct short-term disorderly conditions, provided the welfare of other countries is taken into account, is called the:

Accepted Answer

A)  Gold standard 
B)  Gold exchange standard 
C)  Modified exchange standard 
D)  Managed floating currency standard 
E)  None of the above 
A)  Gold standard 
B)  Gold exchange standard 
C)  Modified exchange standard 
D)  Managed floating currency standard 
E)  None of the above

Question 20

To hedge against a rise in the price of foreign currency an importer can either _____ or _____ on the foreign currency.

Accepted Answer

A)  Use covered currency arbitrage, sell a futures contracts 
B)  Sell a put option on a futures contract, sell a futures contract 
C)  Buy a call option on a futures contract, sell a futures contract 
D)  Buy a put option on futures contract, sell a futures contract 
E)  Buy a call option on futures contract, buy a futures contract 
A)  Use covered currency arbitrage, sell a futures contracts 
B)  Sell a put option on a futures contract, sell a futures contract 
C)  Buy a call option on a futures contract, sell a futures contract 
D)  Buy a put option on futures contract, sell a futures contract 
E)  Buy a call option on futures contract, buy a futures contract

Exam 23: International Financial Transactions and Balance of Payments

Operation of a gold standard is dependent upon having free trade among nations.

The sale of IBM computers in France will be recorded as a:

The majority of pegging nations are major industrialized Western countries, while developing countries tend to be floaters as far as their exchange rate policy is concerned.

The United States balance of payments (BOP) in 2008 was a deficit of just over 700 billion.

The central, most important institution in the modern foreign exchange market, according to your text, is the:

The United States balance of payments (BOP) in 2008 was a deficit of:

The currency exchange rate between euros (€) and pounds (?) is €/? = 1.500 or € 1.50/?. What is the ?/ €?

Imports and exports of goods and services and unilateral transfers are recorded in which of the following components of a nation's balance of payments accounts?

International transactions resulting in an outflow of foreign currency from the home country would be recorded in the balance of payments accounts as debits (-).

In a back-to-back loan arrangement:

The International Monetary Fund (IMF) laid down rules for settling balance-of-payments deficits between nations.

An instrument available from government sources designed to cover currency losses incurred by exporters of goods is called:

Argentina succumbed to bankruptcy with $132 billion in foreign debt because:

A U.S. investor who buys foreign securities will use a _____ to protect against a loss on the foreign securities due to currency fluctuations.

Services included in a nation's balance of payments accounts include all of the following items except:

In an effective currency sterilization operating bank reserves will increase after a currency is purchased and decline after currency is sold.

Most U.S. BOP deficits in recent years have been financed by:

In a back-to-back loan agreement two borrowing companies agree to swap their loans which are denominated in two different currencies.

To hedge against a rise in the price of foreign currency an importer can either _____ or _____ on the foreign currency.

Understanding the Financial System and Its Impact on the Economy and Markets

Financial Systems, Monetary Units, and the Role of Money in the Economy

Financial Indices, Market Information, and Economic Data

The Financial Crisis and Its Impact on the Mortgage Market and Economy

Understanding Interest Rates, Savings, and the Wealth Effect

Financial Concepts and Interest Rates

Effects of Inflation and Yield Curves on Stock Prices and Investments

Understanding Risk and Market Factors in Financial Securities

Exploring Financial Markets and Hedging Strategies

Factors Affecting the Volume of CDs

Exploring the Reserve Accounting System, Money Markets, and Financial Instruments

Exploring Central Banks and Their Impact on the Economy and Financial System

Central Banking and Monetary Policy: Exploring Tools and Strategies

Banking and Financial Services: Regulations, Operations, and Trends

Comparative Analysis of Financial Institutions and Their Operations

Exploring Various Aspects of Pension Funds, Finance Companies, and Insurance Industry

The Impact of Deregulation and Regulation on Financial Institutions and Banking Industry in the United States

Treasury Auctions, Public Debt, and Government Borrowing: Exploring the Us Treasury System

Corporate Bond Pricing, Market Development, and Financing Strategies

The Truth About Regulation Fd and Stock Holdings: Debunking Common Myths in the Financial Market

Flexible Savings Account Options

Mortgage Market and Mortgage Instruments

International Banking and Financial Regulations

Exploring the Complexities of Financial Services and Regulation

Filters

To hedge against a rise in the price of foreign currency an importer can either _ or _ on the foreign currency.