Question 1

The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments.

Accepted Answer

A) True 
 B)False

Question 2

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z.

Accepted Answer

A)  more; more 
B)  more; less 
C)  less; less 
D)  less; more 
A)  more; more 
B)  more; less 
C)  less; less 
D)  less; more

Question 3

If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

Accepted Answer

A)  exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. 
B)  exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. 
C)  exchange dollars for foreign currencies, and buy existing Treasury securities with dollars. 
D)  exchange foreign currencies for dollars, and buy existing Treasury securities with dollars. 
A)  exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. 
B)  exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. 
C)  exchange dollars for foreign currencies, and buy existing Treasury securities with dollars. 
D)  exchange foreign currencies for dollars, and buy existing Treasury securities with dollars.

Question 4

Which of the following is not true regarding the eurozone?

Accepted Answer

A)  Members cannot set unique monetary policy individually. 
B)  Members cannot apply their own fiscal policies. 
C)  Members have to agree on the ideal monetary policy. 
D)  Its creation allowed for greater political union among its members. 
A)  Members cannot set unique monetary policy individually. 
B)  Members cannot apply their own fiscal policies. 
C)  Members have to agree on the ideal monetary policy. 
D)  Its creation allowed for greater political union among its members.

Question 5

A currency peg is insulated from economic or political conditions, such that the exchange rate in the market will only change if the country's government breaks the peg and sets a new exchange rate.

Accepted Answer

A) True 
 B)False

Question 6

Countries usually do not have difficulty maintaining a pegged exchange rate, even when they are experiencing major political or economic problems.

Accepted Answer

A) True 
 B)False

Question 7

To force the value of the pound to appreciate against the dollar, the Federal Reserve should:

Accepted Answer

A)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should not intervene. 
D)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell pounds for dollars in the foreign exchange market. 
A)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the European Central Bank (EC
B)  should not intervene. 
D)  sell dollars for pounds in the foreign exchange market and the European Central Bank (EC
B)  should sell pounds for dollars in the foreign exchange market.

Question 8

To force the value of the British pound to depreciate against the dollar, the Federal Reserve should:

Accepted Answer

A)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. 
D)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. 
A)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
B)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. 
C)  sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. 
D)  sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.

Question 9

Which of the following is an appropriate form of indirect intervention?

Accepted Answer

A)  To strengthen the dollar, the Fed increases the money supply to lower interest rates. 
B)  To weaken the dollar, the Fed reduces the money supply to increase interest rates. 
C)  To strengthen the dollar in the long run, the Fed attempts to reduce U.S. inflation. 
D)  To weaken the dollar in the long run, the Fed attempts to reduce U.S. inflation. 
A)  To strengthen the dollar, the Fed increases the money supply to lower interest rates. 
B)  To weaken the dollar, the Fed reduces the money supply to increase interest rates. 
C)  To strengthen the dollar in the long run, the Fed attempts to reduce U.S. inflation. 
D)  To weaken the dollar in the long run, the Fed attempts to reduce U.S. inflation.

Question 10

Which of the following is not true regarding government intervention?

Accepted Answer

A)  Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B)  Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C)  Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D)  Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E)  All of the above are true. 
A)  Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B)  Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C)  Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D)  Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E)  All of the above are true.

Question 11

The European Central Bank is responsible for monetary policy in all countries that adopted the euro as its currency.

Accepted Answer

A) True 
 B)False

Question 12

Among the reasons for government intervention are:

Accepted Answer

A)  to smooth exchange rate movement. 
B)  to establish implicit exchange rate boundaries. 
C)  to respond to temporary disturbances. 
D)  all of the above 
A)  to smooth exchange rate movement. 
B)  to establish implicit exchange rate boundaries. 
C)  to respond to temporary disturbances. 
D)  all of the above

Question 13

The interest rate of a country with a currency board:

Accepted Answer

A)  is less stable than it would be without a currency board. 
B)  is typically below the interest rate of the currency to which it is tied. 
C)  will move in tandem with the interest rate of the currency to which it is tied. 
D)  is completely independent of the interest rate of the currency to which it is tied. 
A)  is less stable than it would be without a currency board. 
B)  is typically below the interest rate of the currency to which it is tied. 
C)  will move in tandem with the interest rate of the currency to which it is tied. 
D)  is completely independent of the interest rate of the currency to which it is tied.

Question 14

Which of the following is not true regarding Thailand?

Accepted Answer

A)  Thailand was one of the slowest growing countries before the Asian crisis. 
B)  High levels of spending and low levels of saving placed upward pressure on prices of real estate, products, and on Thailand's local interest rate. 
C)  Thailand's baht was linked to the dollar prior to July 1997, which made Thailand an attractive site for foreign investors. 
D)  Thai banks provided many loans that were very risky in their attempt to make use of all of their funds. 
E)  All of the above are true. 
A)  Thailand was one of the slowest growing countries before the Asian crisis. 
B)  High levels of spending and low levels of saving placed upward pressure on prices of real estate, products, and on Thailand's local interest rate. 
C)  Thailand's baht was linked to the dollar prior to July 1997, which made Thailand an attractive site for foreign investors. 
D)  Thai banks provided many loans that were very risky in their attempt to make use of all of their funds. 
E)  All of the above are true.

Question 15

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

Accepted Answer

A)  upward; reduce; unchanged 
B)  upward; increase; higher 
C)  downward; reduce; unchanged 
D)  downward; increase; higher 
A)  upward; reduce; unchanged 
B)  upward; increase; higher 
C)  downward; reduce; unchanged 
D)  downward; increase; higher

Question 16

Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 17

China's yuan is presently:

Accepted Answer

A)  allowed to fluctuate freely without any central bank intervention. 
B)  allowed to fluctuate but with central bank intervention. 
C)  pegged to the dollar. 
D)  pegged to the euro. 
A)  allowed to fluctuate freely without any central bank intervention. 
B)  allowed to fluctuate but with central bank intervention. 
C)  pegged to the dollar. 
D)  pegged to the euro.

Question 18

Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following countries was probably the least affected (directly or indirectly) by the Asian crisis?

Accepted Answer

A)  Thailand. 
B)  Indonesia. 
C)  Russia. 
D)  China. 
E)  Malaysia. 
A)  Thailand. 
B)  Indonesia. 
C)  Russia. 
D)  China. 
E)  Malaysia.

Question 20

Under a fixed exchange rate system:

Accepted Answer

A)  a foreign exchange market does not exist. 
B)  central bank intervention in the foreign exchange market is not necessary. 
C)  central bank intervention in the foreign exchange market is often necessary. 
D)  central bank intervention in the foreign exchange market is not allowed. 
A)  a foreign exchange market does not exist. 
B)  central bank intervention in the foreign exchange market is not necessary. 
C)  central bank intervention in the foreign exchange market is often necessary. 
D)  central bank intervention in the foreign exchange market is not allowed.

Exam 6: Government Influence on Exchange Rates

The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments.

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z.

If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

Which of the following is not true regarding the eurozone?

A currency peg is insulated from economic or political conditions, such that the exchange rate in the market will only change if the country's government breaks the peg and sets a new exchange rate.

Countries usually do not have difficulty maintaining a pegged exchange rate, even when they are experiencing major political or economic problems.

To force the value of the pound to appreciate against the dollar, the Federal Reserve should:

To force the value of the British pound to depreciate against the dollar, the Federal Reserve should:

Which of the following is an appropriate form of indirect intervention?

Which of the following is not true regarding government intervention?

The European Central Bank is responsible for monetary policy in all countries that adopted the euro as its currency.

Among the reasons for government intervention are:

The interest rate of a country with a currency board:

Which of the following is not true regarding Thailand?

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system.

China's yuan is presently:

Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system.

Which of the following countries was probably the least affected (directly or indirectly) by the Asian crisis?

Under a fixed exchange rate system:

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export to Country Z and import from Country Z.

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place pressure on Japanese yen, the amount of Japanese yen available for sale, and result in inflation in Japan.