Question 1

The International Monetary Fund (IMF)

Accepted Answer

A)  in recent years has provided large loans to Russia, South Korea, and Brazil. 
B)  was created as a result of the Bretton Woods Agreement. 
C)  aids countries with balance of payment and exchange rate problems. 
D)  is all of the above. 
A)  in recent years has provided large loans to Russia, South Korea, and Brazil. 
B)  was created as a result of the Bretton Woods Agreement. 
C)  aids countries with balance of payment and exchange rate problems. 
D)  is all of the above.

Question 2

The ________, as of December 2007, is the common currency for 13 of the countries that are members of the European Union.

Accepted Answer

A)  SDR (Special Drawing Rights) 
B)  ECU (European Currency Unit) 
C)  Euro 
D)  Yugo 
A)  SDR (Special Drawing Rights) 
B)  ECU (European Currency Unit) 
C)  Euro 
D)  Yugo

Question 3

The tremendous international mobility of financial capital is forcing emerging market nations to adopt one of two polarized choices, free float or currency board, for their foreign currency exchange regimes. Which of the following would NOT be a reason for an emerging nation to choose to have their currency freely float?

Accepted Answer

A)  The country desires to lose political influence on the valuation of their currency. 
B)  The emerging nation desires an independent monetary policy. 
C)  The emerging nation is willing to tradeoff exchange rate stability to gain free movement of capital. 
D)  All of the above. 
A)  The country desires to lose political influence on the valuation of their currency. 
B)  The emerging nation desires an independent monetary policy. 
C)  The emerging nation is willing to tradeoff exchange rate stability to gain free movement of capital. 
D)  All of the above.

Question 4

In London an investor can buy a U.S. dollar for £0.5356. In New York the £/$ exchange rate is the same as found in London. Given this information, what is the $/£ exchange rate in New York?

Accepted Answer

A)  $1.8671/£ 
B)  £0.5356/$ 
C)  £1.8671/$ 
D)  $0.5356/£ 
A)  $1.8671/£ 
B)  £0.5356/$ 
C)  £1.8671/$ 
D)  $0.5356/£

Question 5

Eurocurrency markets are subject to more stringent reserve requirements than those imposed on U.S. banks by the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 6

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

Accepted Answer

A) True 
 B)False

Question 7

The attempt by many countries to stimulate their domestic economies and to gain access to global financial markets, is causing more and more countries to choose a ________ or ________ exchange rate regime.

Accepted Answer

A)  floating; monetary union 
B)  monetary union; full capital controls 
C)  full capital controls; floating 
D)  pegged; fixed 
A)  floating; monetary union 
B)  monetary union; full capital controls 
C)  full capital controls; floating 
D)  pegged; fixed

Question 8

Which of the following is NOT an example of a Eurocurrency deposit?

Accepted Answer

A)  British pounds deposited outside of the United Kingdom 
B)  Japanese yen deposited outside of Japan 
C)  U.S. dollars deposited outside of the United States 
D)  All of the above could be considered Eurocurrency deposits. 
A)  British pounds deposited outside of the United Kingdom 
B)  Japanese yen deposited outside of Japan 
C)  U.S. dollars deposited outside of the United States 
D)  All of the above could be considered Eurocurrency deposits.

Question 9

Which of the following investment strategies will allow me to make a profit if I anticipate that the value of the Euro, a currency that I do not own, is going to fall over the next 90 days and I am correct in my prediction?

Accepted Answer

A)  Sell Euros short. 
B)  Buy Euros short. 
C)  Sell dollars short. 
D)  Buy Euros long. 
A)  Sell Euros short. 
B)  Buy Euros short. 
C)  Sell dollars short. 
D)  Buy Euros long.

Question 10

The mobility of international capital flows is causing emerging market nations to choose between a free-floating currency exchange regime and a currency board (or taken to the limit, dollarization). Describe how each of the regimes would work and identify at least two likely economic results for each regime.

Accepted Answer

With free float the exchange rate is mar

Question 11

Which of the following is not an attribute of the "ideal" currency?

Accepted Answer

A)  monetary independence 
B)  full financial integration 
C)  exchange rate stability 
D)  All are attributes of an ideal currency. 
A)  monetary independence 
B)  full financial integration 
C)  exchange rate stability 
D)  All are attributes of an ideal currency.

Question 12

A currency that has increased in foreign exchange value relative to a floating rate currency has ________.

Accepted Answer

A)  revalued 
B)  violated international trade agreements 
C)  appreciated 
D)  deteriorated 
A)  revalued 
B)  violated international trade agreements 
C)  appreciated 
D)  deteriorated

Question 13

As of January 2002, the Independent Floating regime of exchange rate classifications was used by over 75% of the 186 countries identified by the IMF.

Accepted Answer

A) True 
 B)False

Question 14

Beginning in 1991 Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because

Accepted Answer

A)  the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy. 
B)  the United States required the action as a prerequisite to finalizing a free trade zone with all of North, South, and Central America. 
C)  the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar. 
D)  all of the above. 
A)  the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy. 
B)  the United States required the action as a prerequisite to finalizing a free trade zone with all of North, South, and Central America. 
C)  the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar. 
D)  all of the above.

Question 15

On January 4, 1999 the member nations of the EMU introduced a new unified currency, the euro, to replace the individual national currencies of many member nations. Identify and explain several of the arguments made both for and against the euro. Do you think the euro has proven to be a "good" idea? Why/Why not?

Accepted Answer

Arguments for the euro include a stable

Question 16

Under the terms of Bretton Woods countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?

Accepted Answer

A)  widely divergent national monetary and fiscal policies among member nations 
B)  differential rates of inflation across member nations. 
C)  several unexpected economic shocks to member nations 
D)  all of the above 
A)  widely divergent national monetary and fiscal policies among member nations 
B)  differential rates of inflation across member nations. 
C)  several unexpected economic shocks to member nations 
D)  all of the above

Question 18

Which of the following would NOT be a valuable Eurocurrency market transaction?

Accepted Answer

A)  Ford Motor Company holds temporary excess dollars in a London bank. 
B)  Dell Computer borrows dollars from a German bank to fund accounts receivable. 
C)  Volkswagen borrows Euros in France to finance working capital. 
D)  A Russian oil firm deposits dollars in Moscow Narodny Bank in London. 
A)  Ford Motor Company holds temporary excess dollars in a London bank. 
B)  Dell Computer borrows dollars from a German bank to fund accounts receivable. 
C)  Volkswagen borrows Euros in France to finance working capital. 
D)  A Russian oil firm deposits dollars in Moscow Narodny Bank in London.

Question 19

Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?

Accepted Answer

A)  National birthrates must be at 2.0 or lower per person. 
B)  The fiscal deficit should be no more than 3% of GDP. 
C)  Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. 
D)  Government debt should be no more than 60% of GDP. 
A)  National birthrates must be at 2.0 or lower per person. 
B)  The fiscal deficit should be no more than 3% of GDP. 
C)  Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. 
D)  Government debt should be no more than 60% of GDP.

The International Monetary Fund (IMF)

The ________, as of December 2007, is the common currency for 13 of the countries that are members of the European Union.

In London an investor can buy a U.S. dollar for £0.5356. In New York the £/$ exchange rate is the same as found in London. Given this information, what is the $/£ exchange rate in New York?

Eurocurrency markets are subject to more stringent reserve requirements than those imposed on U.S. banks by the Federal Reserve.

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

The attempt by many countries to stimulate their domestic economies and to gain access to global financial markets, is causing more and more countries to choose a or exchange rate regime.

Which of the following is NOT an example of a Eurocurrency deposit?

Which of the following investment strategies will allow me to make a profit if I anticipate that the value of the Euro, a currency that I do not own, is going to fall over the next 90 days and I am correct in my prediction?

Which of the following is not an attribute of the "ideal" currency?

A currency that has increased in foreign exchange value relative to a floating rate currency has ________.

As of January 2002, the Independent Floating regime of exchange rate classifications was used by over 75% of the 186 countries identified by the IMF.

Beginning in 1991 Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because

Under the terms of Bretton Woods countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.

Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?

Which of the following would NOT be a valuable Eurocurrency market transaction?

Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

Exam 3: The International Monetary System

The International Monetary Fund (IMF)

The ________, as of December 2007, is the common currency for 13 of the countries that are members of the European Union.

In London an investor can buy a U.S. dollar for £0.5356. In New York the £/$ exchange rate is the same as found in London. Given this information, what is the $/£ exchange rate in New York?

Eurocurrency markets are subject to more stringent reserve requirements than those imposed on U.S. banks by the Federal Reserve.

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

The attempt by many countries to stimulate their domestic economies and to gain access to global financial markets, is causing more and more countries to choose a ________ or ________ exchange rate regime.

Which of the following is NOT an example of a Eurocurrency deposit?

Which of the following investment strategies will allow me to make a profit if I anticipate that the value of the Euro, a currency that I do not own, is going to fall over the next 90 days and I am correct in my prediction?

Which of the following is not an attribute of the "ideal" currency?

A currency that has increased in foreign exchange value relative to a floating rate currency has ________.

As of January 2002, the Independent Floating regime of exchange rate classifications was used by over 75% of the 186 countries identified by the IMF.

Beginning in 1991 Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because

Under the terms of Bretton Woods countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.

Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?

Which of the following would NOT be a valuable Eurocurrency market transaction?

Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

The attempt by many countries to stimulate their domestic economies and to gain access to global financial markets, is causing more and more countries to choose a or exchange rate regime.