Exam 19: The International Financial System

Fluctuating exchange rates can alter a multinational firm's profits and losses.German auto maker Volkswagen produces automobiles in Germany and sells them in the United States.If the dollar depreciates against the euro,then Volkswagen's revenues from these operations should ________ because it will take ________ U.S.dollars to purchase the German-made Volkswagens.

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to ________ in Thailand and exchange ________.This change in investment by foreigners is termed capital flight.

Because the value of the euro is determined by factors that affect the entire euro zone,during the recession of 2007-2009,individual countries using the euro

Why do countries peg their currencies,and what problems can result from pegging?

If a country's currency ________ the dollar,its exchange rate is fixed.

In a fixed exchange rate system,speculation regarding an expected revaluation or devaluation of a currency makes it more difficult to maintain the existing exchange rate.

Which of the following statements about capital markets is true?

By 2013,________ members of the European Union were using the euro as their currency.

Which of the following is a drawback to having a common currency across countries,as in the European Union?

Figure 19-1 -Refer to Figure 19-1.Which of the following would cause the change depicted in the figure above?

Suppose the United States decides to go back on the gold standard.This should

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,what is the dollar cost of a Big Mac in Brazil?

According to the theory of purchasing power parity,if the inflation rate in the United States is greater than the inflation rate in Canada,explain what should happen to the exchange rate between the U.S.dollar and the Canadian dollar.

In Thailand in the late 1990s,there was pressure for the value of the baht to decline as foreign investors began to

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2013,the Economist reported that the average price of a Big Mac in the United States was $4.56.In Mexico,the average price of a Big Mac at that time was 37 pesos.If the exchange rate between the dollar and the peso was 13.60 pesos per dollar,explain how it would be profitable to buy Big Macs in Mexico instead of in the United States.

You decide to work in Japan for the next 10 years,accumulate some savings,then move back to the United States and convert your savings from yen to dollars.At the time of your move,economists predict that consumers in the United States have reignited their love of Japanese products,especially hybrid cars,and expect that this strong preference for Japanese products will continue for the next decade.How should this influence your decision to work and save in Japan?

In the United States today,the Federal Reserve will give you ________ in exchange for $1.

Under the Bretton Woods exchange rate system,the U.S.government agreed to buy or sell gold at a fixed price of ________ per ounce.

The current exchange rate system has which of the following characteristics?

Members of the European Union decided to adopt a single currency by what year?