Question 1

________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership.

Accepted Answer

A) Capital flight 
B) Capital mobility 
C) Irrational exuberance 
D) Money laundering 
A) Capital flight 
B) Capital mobility 
C) Irrational exuberance 
D) Money laundering

Question 2

Under an international regime of fixed exchange rates, countries with a BOP ________ should consider ________ their currency while countries with a BOP ________ should consider ________ their currency.

Accepted Answer

A) deficit, revaluing; surplus, revaluing 
B) deficit, devaluing; surplus, devaluing 
C) surplus, devaluing; deficit, revaluing 
D) surplus, revaluing; deficit, devaluing 
A) deficit, revaluing; surplus, revaluing 
B) deficit, devaluing; surplus, devaluing 
C) surplus, devaluing; deficit, revaluing 
D) surplus, revaluing; deficit, devaluing

Question 3

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 4

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 5

An increase in GDP should lead to a decrease in imports.

Accepted Answer

A) True 
 B)False

Question 6

Expenditures by U.S. students abroad and foreign students pursuing studies in the United States would be considered a services trade and part of the U.S. current account.

Accepted Answer

A) True 
 B)False

Question 7

Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend 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

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 9

International debt security purchases and sales are defined as portfolio investments for financial account purposes because by definition debt securities do not provide the buyer with ownership or control.

Accepted Answer

A) True 
 B)False

Question 10

Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is GREATER THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero.

Accepted Answer

A) surplus; sell 
B) surplus; buy 
C) deficit; sell 
D) deficit; buy 
A) surplus; sell 
B) surplus; buy 
C) deficit; sell 
D) deficit; buy

Question 11

Portfolio investment is capital invested in activities that are ________ rather than made for ________.

Accepted Answer

A) short term; the long term 
B) long term; profit 
C) profit motivated; control 
D) control motivated; profit 
A) short term; the long term 
B) long term; profit 
C) profit motivated; control 
D) control motivated; profit

Question 12

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 13

A country experiencing a serious BOP ________ is more likely to ________ exports than otherwise.

Accepted Answer

A) surplus; contract 
B) surplus; expand 
C) deficit; expand 
D) none of the above 
A) surplus; contract 
B) surplus; expand 
C) deficit; expand 
D) none of the above

Question 14

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.

________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership.

Under an international regime of fixed exchange rates, countries with a BOP should consider their currency while countries with a BOP should consider their currency.

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?

An increase in GDP should lead to a decrease in imports.

Expenditures by U.S. students abroad and foreign students pursuing studies in the United States would be considered a services trade and part of the U.S. current account.

Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of:

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

International debt security purchases and sales are defined as portfolio investments for financial account purposes because by definition debt securities do not provide the buyer with ownership or control.

Portfolio investment is capital invested in activities that are rather than made for .

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

A country experiencing a serious BOP is more likely to exports than otherwise.

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

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

Exam 4: The Balance of Payments

________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership.

Under an international regime of fixed exchange rates, countries with a BOP ________ should consider ________ their currency while countries with a BOP ________ should consider ________ their currency.

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?

An increase in GDP should lead to a decrease in imports.

Expenditures by U.S. students abroad and foreign students pursuing studies in the United States would be considered a services trade and part of the U.S. current account.

Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of:

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

International debt security purchases and sales are defined as portfolio investments for financial account purposes because by definition debt securities do not provide the buyer with ownership or control.

Portfolio investment is capital invested in activities that are ________ rather than made for ________.

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

A country experiencing a serious BOP ________ is more likely to ________ exports than otherwise.

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

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

Under an international regime of fixed exchange rates, countries with a BOP should consider their currency while countries with a BOP should consider their currency.

Portfolio investment is capital invested in activities that are rather than made for .

A country experiencing a serious BOP is more likely to exports than otherwise.