Question 1

The balance of payments:

Accepted Answer

A)  determines the eligibility of countries for IMF aid. 
B)  adds up the value of all assets and liabilities of a country on a specific date. 
C)  records all international transactions for a country over a period of time. 
D)  all of the above 
A)  determines the eligibility of countries for IMF aid. 
B)  adds up the value of all assets and liabilities of a country on a specific date. 
C)  records all international transactions for a country over a period of time. 
D)  all of the above C

Question 2

What is the Official Reserves Account (ORA), and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?

Accepted Answer

The ORA is the total reserves held by official monetary authorities within the country. Under a fixed exchange regime, a country's currency is convertible into a fixed amount of another country's currency. To keep the relationship between currencies at equilibrium, it may become necessary for the government to buy or sell official reserves until the equilibrium is restored. Under a variable rate regime this is not necessary as exchange rates are allowed to change and official reserves no longer serve the same purpose as under the fixed rate regime.

Question 3

Which of the following is NOT a part of the Current Account of BOP?

Accepted Answer

A)  net export/import of goods 
B)  balance of trade 
C)  net portfolio investment 
D)  net export/import of services 
A)  net export/import of goods 
B)  balance of trade 
C)  net portfolio investment 
D)  net export/import of services C

Question 4

When a currency is devalued, the immediate impact may be an increase in a country's trade deficit. However, this situation tends to correct itself in 2 to 5 weeks.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?

Accepted Answer

A)  An American tourist purchases cheese in Milwaukee, Wisconsin. 
B)  The U.S. subsidiary of a British firm pays profits (dividends) back to its parent firm in London. 
C)  A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in Seattle. 
D)  All of the above are considered BOP transactions. 
A)  An American tourist purchases cheese in Milwaukee, Wisconsin. 
B)  The U.S. subsidiary of a British firm pays profits (dividends) back to its parent firm in London. 
C)  A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in Seattle. 
D)  All of the above are considered BOP transactions.

Question 6

Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path?

Accepted Answer

A)  Imports become relatively more expensive. 
B)  Exports become relatively less expensive. 
C)  The balance of trade gets worse. 
D)  All of the above are true. 
A)  Imports become relatively more expensive. 
B)  Exports become relatively less expensive. 
C)  The balance of trade gets worse. 
D)  All of the above are true.

Question 7

The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of:

Accepted Answer

A)  services trade. 
B)  income trade. 
C)  goods trade. 
D)  current transfers. 
A)  services trade. 
B)  income trade. 
C)  goods trade. 
D)  current transfers.

Question 8

Dutch Disease is a term applied to a problem in the 1970 whereby the Netherlands were experiencing massive and sudden inflows of capital from abroad. What was the cause of this sudden influx of capital, and what types of potential problems did it have for the Dutch or could it have for any small single resource country?

Accepted Answer

With the rapid growth of the natural gas

Question 9

The balance of payments as applied to a course in international finance may be defined as:

Accepted Answer

A)  the amount still owed by an exporting firm after making an initial down payment. 
B)  the amount still owed by governments to the International Monetary Fund. 
C)  the measurement of all international economic transactions between the residents of a country and foreign residents. 
D)  the amount of a country's merchandise trade deficit or surplus. 
A)  the amount still owed by an exporting firm after making an initial down payment. 
B)  the amount still owed by governments to the International Monetary Fund. 
C)  the measurement of all international economic transactions between the residents of a country and foreign residents. 
D)  the amount of a country's merchandise trade deficit or surplus.

Question 10

Use the following terms for this question: C = consumption
I = capital investment spending
G = government spending
X = exports of goods and services
M = imports of goods and services
BOP = balance of payments
GDP = gross domestic product
NPV = net present value
INF = inflation
R = real rate of return
The static equation for the nations GDP is:

Accepted Answer

A)  GDP = C + I + G + (X + M ) × INF 
B)  GDP = C + I + G + X + M 
C)  GDP = C + I + G + X - M 
D)  GDP = C + I + X - M + R 
A)  GDP = C + I + G + (X + M ) × INF 
B)  GDP = C + I + G + X + M 
C)  GDP = C + I + G + X - M 
D)  GDP = C + I + X - M + R

Question 11

Which of the following is NOT an item to be considered in BOP calculations?

Accepted Answer

A)  A foreign resident purchases a U.S. Treasury Bill. 
B)  A U.S.-based firm manages the development of an oil field in Kazakhstan. 
C)  A consumer buys a VCR made in Korea from a Florida Wal-Mart store. 
D)  A U.S. citizen living in Minnesota travels to Winnipeg, Canada, and buys a case of LaBatt's Canadian beer. 
A)  A foreign resident purchases a U.S. Treasury Bill. 
B)  A U.S.-based firm manages the development of an oil field in Kazakhstan. 
C)  A consumer buys a VCR made in Korea from a Florida Wal-Mart store. 
D)  A U.S. citizen living in Minnesota travels to Winnipeg, Canada, and buys a case of LaBatt's Canadian beer.

Question 12

The BOP should always balance.

Accepted Answer

A) True 
 B)False

Question 13

A country experiencing a serious trade deficit is not as likely to expand imports as it would be if running a surplus.

Accepted Answer

A) True 
 B)False

Question 14

Under a floating exchange rate system, the government bears the responsibility to ensure that the BOP is near zero.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would NOT be considered a typical BOP transaction?

Accepted Answer

A)  Toyota U.S.A. is a U.S. distributor of automobiles manufactured in Japan by its parent company. 
B)  The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich. 
C)  A U.S. tourist purchases gifts at a museum in London. 
D)  All are examples of BOP transactions. 
A)  Toyota U.S.A. is a U.S. distributor of automobiles manufactured in Japan by its parent company. 
B)  The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich. 
C)  A U.S. tourist purchases gifts at a museum in London. 
D)  All are examples of BOP transactions.

Question 16

Capital controls may take a variety of forms EXCEPT:

Accepted Answer

A)  currency boards. 
B)  taxes. 
C)  quotas. 
D)  prohibitions. 
A)  currency boards. 
B)  taxes. 
C)  quotas. 
D)  prohibitions.

Question 17

Very often governments seek to alter the market's valuation of their currency by influencing relative interest rates, thus influencing the economic fundamentals of exchange rate determination rather than through direct intervention in the foreign exchange markets. Describe how this strategy works. Describe the case of the U.S. or China where the opposite effect, to the suggest here, have occurred.

Accepted Answer

A country may choose to raise domestic i

Question 18

The financial account consists COMPLETELY of which four components?

Accepted Answer

A)  stock investment, bond investment, derivative investment, and mutual fund investment 
B)  direct investment, stock investment, net financial derivatives, and bond investment 
C)  direct investment, portfolio investment, net financial derivatives, and other asset investment 
D)  mutual fund investment, portfolio investment, derivative investment, and stock investment 
A)  stock investment, bond investment, derivative investment, and mutual fund investment 
B)  direct investment, stock investment, net financial derivatives, and bond investment 
C)  direct investment, portfolio investment, net financial derivatives, and other asset investment 
D)  mutual fund investment, portfolio investment, derivative investment, and stock investment

Question 19

If China wished to reduce their accumulation of foreign exchange reserves they could:

Accepted Answer

A)  allow their currency, the yuan, to float freely in the market place. 
B)  reduce their current account surplus by importing more goods than they export. 
C)  undertake both of the activities identified in choices A and B. 
D)  dig a big hole and bury the reserves. 
A)  allow their currency, the yuan, to float freely in the market place. 
B)  reduce their current account surplus by importing more goods than they export. 
C)  undertake both of the activities identified in choices A and B. 
D)  dig a big hole and bury the reserves.

Question 20

Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade.

Accepted Answer

A)  greater than 
B)  equal to 
C)  less than 
D)  The relationship is constantly shifting from greater than to less than. 
A)  greater than 
B)  equal to 
C)  less than 
D)  The relationship is constantly shifting from greater than to less than.

The balance of payments:

What is the Official Reserves Account (ORA), and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?

Which of the following is NOT a part of the Current Account of BOP?

When a currency is devalued, the immediate impact may be an increase in a country's trade deficit. However, this situation tends to correct itself in 2 to 5 weeks.

Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?

Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path?

The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of:

The balance of payments as applied to a course in international finance may be defined as:

Which of the following is NOT an item to be considered in BOP calculations?

The BOP should always balance.

A country experiencing a serious trade deficit is not as likely to expand imports as it would be if running a surplus.

Under a floating exchange rate system, the government bears the responsibility to ensure that the BOP is near zero.

Which of the following would NOT be considered a typical BOP transaction?

Capital controls may take a variety of forms EXCEPT:

The financial account consists COMPLETELY of which four components?

If China wished to reduce their accumulation of foreign exchange reserves they could:

Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade.

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

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Exam 3: The Balance of Payments

The balance of payments:

What is the Official Reserves Account (ORA), and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?

Which of the following is NOT a part of the Current Account of BOP?

When a currency is devalued, the immediate impact may be an increase in a country's trade deficit. However, this situation tends to correct itself in 2 to 5 weeks.

Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?

Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path?

The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of:

The balance of payments as applied to a course in international finance may be defined as:

Which of the following is NOT an item to be considered in BOP calculations?

The BOP should always balance.

A country experiencing a serious trade deficit is not as likely to expand imports as it would be if running a surplus.

Under a floating exchange rate system, the government bears the responsibility to ensure that the BOP is near zero.

Which of the following would NOT be considered a typical BOP transaction?

Capital controls may take a variety of forms EXCEPT:

The financial account consists COMPLETELY of which four components?

If China wished to reduce their accumulation of foreign exchange reserves they could:

Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade.

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters