Question 1

The Fisher Effect states that

Accepted Answer

A)  a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent. 
B)  there is a weak relationship between inflation rates and interest rates. 
C)  a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent. 
D)  when investors are free to transfer capital between countries, "nominal" interest rates will be the same in every country. 
A)  a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent. 
B)  there is a weak relationship between inflation rates and interest rates. 
C)  a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent. 
D)  when investors are free to transfer capital between countries, "nominal" interest rates will be the same in every country.

Question 2

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will

Accepted Answer

A)  export more goods to other countries. 
B)  see depreciation in its currency exchange rate. 
C)  import more goods from other countries. 
D)  see an appreciation in its currency exchange rate. 
A)  export more goods to other countries. 
B)  see depreciation in its currency exchange rate. 
C)  import more goods from other countries. 
D)  see an appreciation in its currency exchange rate.

Question 3

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Accepted Answer

A)  currency pairing 
B)  carry trade 
C)  currency exchange 
D)  currency swap 
A)  currency pairing 
B)  carry trade 
C)  currency exchange 
D)  currency swap

Question 4

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

Accepted Answer

A)  $1,000. 
B)  $750. 
C)  $1,500. 
D)  $667. 
A)  $1,000. 
B)  $750. 
C)  $1,500. 
D)  $667.

Question 5

The ________ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

Accepted Answer

A)  law of one price 
B)  principle of consistent pricing 
C)  model of fair pricing 
D)  rational price theory 
A)  law of one price 
B)  principle of consistent pricing 
C)  model of fair pricing 
D)  rational price theory

Question 6

Carry trade is nonspeculative in nature.

Accepted Answer

A) True 
 B)False

Question 7

________ are reported on a real-time basis on many financial websites and are continually changing-their value being determined by supply and demand for that currency relative to others.

Accepted Answer

A)  Spot exchange rates 
B)  Currency swaps 
C)  Forward exchange rates 
D)  Future exchange rates 
A)  Spot exchange rates 
B)  Currency swaps 
C)  Forward exchange rates 
D)  Future exchange rates

Question 8

What is the law of one price?

Accepted Answer

The law of one price states that in comp

Question 9

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

Accepted Answer

A) True 
 B)False

Question 10

What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs?

Accepted Answer

A)  translation exposure 
B)  economic exposure 
C)  transaction exposure 
D)  risk exposure 
A)  translation exposure 
B)  economic exposure 
C)  transaction exposure 
D)  risk exposure

Question 11

Why do governments limit currency convertibility?

Accepted Answer

A)  to preserve foreign exchange reserves 
B)  to spend foreign exchange reserves 
C)  to keep domestic companies from investing abroad 
D)  to allow nonresidents to convert money to foreign currencies 
A)  to preserve foreign exchange reserves 
B)  to spend foreign exchange reserves 
C)  to keep domestic companies from investing abroad 
D)  to allow nonresidents to convert money to foreign currencies

Question 12

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

Accepted Answer

A) True 
 B)False

Question 13

The rate at which one currency is converted into another is known as the

Accepted Answer

A)  exchange rate. 
B)  currency swap rate. 
C)  fluctuation rate. 
D)  carry over rate. 
A)  exchange rate. 
B)  currency swap rate. 
C)  fluctuation rate. 
D)  carry over rate.

Question 14

How can a firm minimize its foreign exchange exposure?

Accepted Answer

There are several strategies a firm can

Question 15

Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ¥120 = $1, and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1. A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in

Accepted Answer

A)  a currency swap. 
B)  an arbitrage. 
C)  an carry trade. 
D)  a straddle. 
A)  a currency swap. 
B)  an arbitrage. 
C)  an carry trade. 
D)  a straddle.

Question 16

Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services?

Accepted Answer

A)  inflation 
B)  credit squeeze 
C)  deflation 
D)  production surplus 
A)  inflation 
B)  credit squeeze 
C)  deflation 
D)  production surplus

Question 17

________ includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

Accepted Answer

A)  Economic exposure 
B)  Transaction exposure 
C)  Corporate financial exposure 
D)  Translation exposure 
A)  Economic exposure 
B)  Transaction exposure 
C)  Corporate financial exposure 
D)  Translation exposure

Question 18

A(n) ________ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Accepted Answer

A)  A follower strategy 
B)  An interim strategy 
C)  A lead strategy 
D)  A lag strategy 
A)  A follower strategy 
B)  An interim strategy 
C)  A lead strategy 
D)  A lag strategy

Question 19

Restrictions on external convertibility can

Accepted Answer

A)  hamper foreign companies wishing to do business in that country. 
B)  allow domestic companies to freely invest abroad. 
C)  limit the amount of product a foreign company can produce in that country. 
D)  limit domestic companies' ability to invest abroad. 
A)  hamper foreign companies wishing to do business in that country. 
B)  allow domestic companies to freely invest abroad. 
C)  limit the amount of product a foreign company can produce in that country. 
D)  limit domestic companies' ability to invest abroad.

Question 20

If a country has an externally convertible currency

Accepted Answer

A)  neither residents nor nonresidents are allowed to convert it into a foreign currency. 
B)  both residents and nonresidents can purchase unlimited amounts of a foreign currency with it. 
C)  only nonresidents may convert it into a foreign currency without any limitations. 
D)  the government limits convertibility to preserve foreign exchange reserves. 
A)  neither residents nor nonresidents are allowed to convert it into a foreign currency. 
B)  both residents and nonresidents can purchase unlimited amounts of a foreign currency with it. 
C)  only nonresidents may convert it into a foreign currency without any limitations. 
D)  the government limits convertibility to preserve foreign exchange reserves.

The Fisher Effect states that

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

The ________ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

Carry trade is nonspeculative in nature.

________ are reported on a real-time basis on many financial websites and are continually changing-their value being determined by supply and demand for that currency relative to others.

What is the law of one price?

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs?

Why do governments limit currency convertibility?

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

The rate at which one currency is converted into another is known as the

How can a firm minimize its foreign exchange exposure?

Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services?

________ includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

A(n) ________ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Restrictions on external convertibility can

If a country has an externally convertible currency

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and R&D

Global Human Resource Management

Accounting and Finance in the International Business

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Exam 10: The Foreign Exchange Market

The Fisher Effect states that

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

The ________ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

Carry trade is nonspeculative in nature.

________ are reported on a real-time basis on many financial websites and are continually changing-their value being determined by supply and demand for that currency relative to others.

What is the law of one price?

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs?

Why do governments limit currency convertibility?

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

The rate at which one currency is converted into another is known as the

How can a firm minimize its foreign exchange exposure?

Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services?

________ includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

A(n) ________ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Restrictions on external convertibility can

If a country has an externally convertible currency

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and R&D

Global Human Resource Management

Accounting and Finance in the International Business

Filters