Exam 10: International Money System

According to the concept of purchasing power parity, exchange rates adjust to different rates of inflation in different countries.

An exchange rate tells us ________.

The Fisher effect can be written as follows: ________.

The goals of the International Monetary Fund (IMF) include ________.

Scenario: Just-for-Kids, Inc. Just-for-Kids, Inc. is a toys and clothes manufacturer based in San Diego, California. The company has received an inquiry from an overseas company to do business. Tom Dodd is the owner of the company researching the opportunity and how exchange rates will affect its international business activities. -Through his research, Tom learned that exchange rate changes affect the ________ decisions of companies.

When a country's currency is weak, the price of its ________.

A system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates is called a ________.

The inefficient market view holds that prices of financial instruments reflect all publicly available information at any given time.

An exchange rate system in which the exchange rate for converting one currency into another is fixed by international governmental agreement is called a ________.

What was the significance of the Jamaica Agreement? Identify its key provisions.

Purchasing power parity is better at predicting short-term exchange rates (less than 12 months) than long-term rates.

Differentiate the efficient and inefficient market views and discuss the implications of the two schools of thought for companies.

The IMF asset whose value is based on a "weighted basket" of four currencies is called a special drawing right, or SDR.

Under the gold standard, the calculation of each currency's par value was based on the concept of ________.

If money were free from all controls when transferred internationally, the real rate of interest should be the same in all countries.

The Bretton Woods Agreement incorporated all of these features EXCEPT ________.

Currency revaluation increases the prices of exports and reduces the prices of imports.

Exchange rates affect the translation of earnings into the home country currencies.

Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. -Sam has been studying the price of wheat across markets. If a kilogram of wheat costs €1.5 in France and $1 in the United States, the law of one price would tell us ________.

If forecasters combine the techniques of both fundamental and technical analyses, they can achieve 100 percent accurate forecasts.