Q81: The commonly accepted goal of the MNC is to
- A. maximize short-term earnings
- B. maximize shareholder wealth
- C. minimize risk
- D. A and C
Answer
Answer B. maximize shareholder wealth
Q82: ___are most commonly classified as a direct foreign investment
- A. Foreign acquisitions
- B. Licensing agreements
- C. Purchases of international stocks
- D. Exporting transactions
Answer
Answer A. Foreign acquisitions
Q83: Assume that a bank’s bid rate on Swiss francs is ..contd
- A. 4.00%
- B. 4.26%
- C. about 3.85%
- D. about 4.17%
Answer
Answer C. about 3.85%
Q84: The forward rate is the exchange rate used for immediate exchange of currencies
- A. TRUE
- B. FALSE
- C. NA
- D. Can’t say
Answer
Answer B. FALSE
Q85: Futures contracts are typically___; forward contracts are typically___
- A. sold on an exchange; sold on an exchange
- B. offered by commercial banks; sold on an exchange
- C. sold on an exchange; offered by commercial banks
- D. offered by commercial banks; offered by commercial banks
Answer
Answer C. sold on an exchange; offered by commercial banks
Q86: Which of the following are true regarding the options markets?
- A. Hedgers and speculators both attempt to lower risk
- B. Hedgers attempt to lower risk, while speculators attempt to make riskless profits
- C. Hedgers and speculators are both necessary in order for the market to be liquid
- D. all of the above
Answer
Answer C. Hedgers and speculators are both necessary in order for the market to be liquid
Q87: Which of the following is true of options?
- A. The writer decides whether the option will be exercised
- B. The writer pays the buyer the option premium
- C. The buyer decides if the option will be exercised
- D. More than one of these
Answer
Answer C. The buyer decides if the option will be exercised
Q88: The purchase of a currency put option would be appropriate for which of the following?
- A. Investors who expect to buy a foreign bond in one month
- B. Corporations who expect to buy foreign currency to finance foreign subsidiaries
- C. Corporations who expect to collect on a foreign account receivable in one month
- D. all of the above
Answer
Answer B. Corporations who expect to buy foreign currency to finance foreign subsidiaries
Q89: Currency options are only traded on exchanges. That is, there is no over-the-counter market for options
- A. TRUE
- B. FALSE
- C. NA
- D. Full information has not provided
Answer
Answer B. FALSE
Q90: If interest rate parity (IRP) exists, then the rate of return achieved from covered interest arbitrage should be equal to the rate available in the foreign country
- A. TRUE
- B. FALSE
- C. NA
- D. Full information has not provided
Answer
Answer B. FALSE
Q91: Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries?
- A. If Country A’s inflation rate exceeds Country B’s inflation rate, Country A’s currency will weaken
- B. If Country A’s interest rate exceeds Country B’s inflation rate, Country A’s currency will weaken
- C. If Country A’s interest rate exceeds Country B’s inflation rate, Country A’s currency will strengthen
- D. If Country B’s inflation rate exceeds Country A’s inflation rate, Country A’s currency will weaken
Answer
Answer A. If Country A’s inflation rate exceeds Country B’s inflation rate, Country A’s currency will weaken
Q92: Which of the following forecasting techniques would best represent the use of today’s forward exchange rate to forecast the future exchange rate?
- A. fundamental forecasting
- B. market-based forecasting
- C. technical forecasting
- D. mixed forecasting
Answer
Answer B. market-based forecasting
Q93: If a particular currency is consistently declining substantially over time, then a market-based forecast will usually have
- A. underestimated the future exchange rates over time
- B. overestimated the future exchange rates over time
- C. forecasted future exchange rates accurately
- D. forecasted future exchange rates inaccurately but without any bias toward consistent underestimating or overestimating
Answer
Answer B. overestimated the future exchange rates over time
Q94: Which of the following is not a forecasting technique mentioned in text?
- A. accounting-based forecasting
- B. technical forecasting
- C. fundamental forecasting
- D. market-based forecasting
Answer
Answer A. accounting-based forecasting
Q95: If a foreign country’s interest rate is similar to the UK rate, the forward rate premium or discount will be___, meaning that the forward rate and spot rate will provide___forecasts
- A. substantial; similar
- B. substantial; very different
- C. close to zero; similar
- D. close to zero; very different
Answer
Answer C. close to zero; similar
Q96: Factors such as economic growth, inflation, and interest rates are an integral part of___forecasting
- A. technical
- B. fundamental
- C. market-based
- D. none of the above
Answer
Answer B. fundamental
Q97: Foreign exchange markets appear to be strong-form efficien
- A. True
- B. False
- C. NA
- D. Can’t say
Answer
Answer B. False
Q98: Which of the following is true according to the text?
- A. Forecasts in recent years have been very accurate
- B. Use of the absolute forecast error as a percent of the realized value is a good measure to use in detecting a forecast bias
- C. Forecasting errors are smaller when focused on longer term periods
- D. None of the above
Answer
Answer D. None of the above
Q99: The balance of payments summarizes the transactions that occur during a given time period between
- A. the government of one country and the government of another country
- B. the national government and local governments in the same country
- C. individuals, firms, and government of one country and individuals, firms, and governments throughout the rest of the world
- D. none of the above
Answer
Answer C. individuals, firms, and government of one country and individuals, firms, and governments throughout the rest of the world
Q100: The balance of payments is a
- A. flow variable measuring only transactions which involve payments of money
- B. flow variable measuring all economic transactions, even if no exchange of money occurs
- C. flow variable which is in equilibrium only when exports equal imports
- D. none of the above
Answer
Answer B. flow variable measuring all economic transactions, even if no exchange of money occurs
Q101: The Purchasing Power Parity (PPP) theory is a good predictor of
- A. the long-run tendencies between changes in the price level and the exchange rate of two countries
- B. interest rate differentials between two countries when there are strong barriers preventing trade between the two countries
- C. All of the above
- D. none of the above
Answer
Answer A. the long-run tendencies between changes in the price level and the exchange rate of two countries
Q102: According to the Purchasing Power Parity (PPP) theory
- A. Exchange rates between two national currencies will adjust daily to reflect price level differences in the two countries
- B. In the long run, inflation rates in different countries will equalize around the world
- C. In the long run, the exchange rates between two national currencies will reflect price-level differences in the two countries
- D. none of the above
Answer
Answer C. In the long run, the exchange rates between two national currencies will reflect price-level differences in the two countries
Q103: Interest-rate parity refers to the concept that, where market imperfections are few
- A. the same goods must sell for the same price across countries
- B. interest rates across countries will eventually be the same
- C. there is an offsetting relationship between interest rate differentials and differentials in the forward spot exchange market
- D. “there is an offsetting relationship provided by costs and revenues in similar market environments
Answer
Answer C. there is an offsetting relationship between interest rate differentials and differentials in the forward spot exchange market
Q104: “If inflation goes up in the India relative to other countries, its currency value is expected to”
- A. fall
- B. may increase or decrease
- C. increase
- D. remain the same
Answer
Answer A. fall
Q105: An investment that is hedged against transaction foreign exchange risk is said to be
- A. covered
- B. exposed
- C. risky
- D. arbitraged
Answer
Answer A. covered
Q106: Interest rate parity___opportunities for covered interest arbitrage
- A. precludes
- B. increases
- C. decreases
- D. does not affect
Answer
Answer C. decreases
Q107: A higher___in one country indicates the fact that the country’s currency was expected to depreciate
- A. nominal interest rate
- B. level of deflation
- C. expected real rate of return
- D. PPP
Answer
Answer A. nominal interest rate
Q108: Special drawing rights are not
- A. a credit line allocated by the IMF to member countries according to each country’s quota
- B. backed by US dollars
- C. the IMF’s unit of account
- D. a basket of four currencies
Answer
Answer B. backed by US dollars
Q109: If inflation goes up in the India relative to other countries, its currency value is expected to
- A. fall
- B. may increase or decrease
- C. increase
- D. remain the same
Answer
Answer A. fall
Q110: According to the International Fisher effect, if investors in all countries require the same real rate of return, the differential in nominal interest rates between any two countries
- A. No difference
- B. Real rate of return cannot be same
- C. Governed by the change in exchange rate between these two countries
- D. Because of difference in inflation rate
Answer
Answer D. Because of difference in inflation rate
Q111: Forecasting techniques that do not rely directly on the predictions embodied in forward rates and interest rates can be split into two main categories
- A. fundamental analysis and technical analysis
- B. fundamental analysis and chartist analysis
- C. macroeconomic analysis and technical analysis
- D. macroeconomic analysis and chartist analysis
Answer
Answer A. fundamental analysis and technical analysis
Q112: The fatal flaw of the Bretton Woods system was that
- A. sterling was overvalued and the French franc was undervalued leading to a loss of gold reserves by Great Britain
- B. the growth of the global economy brought with it a demand for dollars to be held as international reserves that exceeded the US gold reserve
- C. the World Bank was underfunded by member central banks
- D. it was too weak to survive simultaneous speculative attacks on the Italian and UK currencies in 1992
Answer
Answer B. the growth of the global economy brought with it a demand for dollars to be held as international reserves that exceeded the US gold reserve
Q113: The functions of the International Monetary Fund include all of the following except
- A. to provide emergency loans to countries facing balance of payments problems
- B. to monitor macroeconomic developments continuously in member countries
- C. to serve as the world central bank
- D. to provide a line of credit for each member country
Answer
Answer C. to serve as the world central bank
Q114: If the USD fixed deposit rate for 1 year is deposit rate is 3% per year while Pound Sterling fixed deposit rate is 6% per year, by how much Pound Sterling is expected to to devalue in the coming year?
- A. 2.00%
- B. 0.30%
- C. 3.00%
- D. 2.90%
Answer
Answer D. 2.90%
Q115: The currency used to buy imported goods is
- A. the currency of a third country
- B. the buyer’s home currency
- C. special drawing rights
- D. the seller’s home currency
Answer
Answer D. the seller’s home currency
Q116: “Which of the following statements is correct?
I. The exchange rate is a price
II. The exchange rate is different from other prices because it is NOT determined by supply and demand.”
A. only I
B. only II
C. I and II
D. neither I nor II
Answer
Answer A. only I
Q117: “When the value of one currency falls relative to another currency, the exchange rate for the first currency has”
- A. revalued
- B. depreciated
- C. appreciated
- D. demanded
Answer
Answer B. depreciated
Q118: “Suppose that the exchange rate between the dollar and the peso changed from 6 pesos per dollar to 8 pesos per dollar. This change means that the
- A. peso appreciated
- B. peso depreciated
- C. dollar depreciated
- D. Both answers A and B are correct
Answer
Answer B. peso depreciated
Q119: “Suppose the exchange rate of the U.S. dollar was 1.00 euro = $0.50 on Thursday, and on Friday the exchange rate was $1.00 = 2.10 euros. Which of the following best explains what has happened between Thursday and Friday?”
- A. The U.S. dollar depreciated against the euro
- B. The U.S. dollar appreciated against the euro
- C. The euro appreciated against the U.S. dollar
- D. Both answers B and C are correct
Answer
Answer B. The U.S. dollar appreciated against the euro
Q120: With everything else the same, in the foreign exchange market
- A. the higher the exchange rate, the cheaper are U.S.-produced goods and services
- B. the lower the exchange rate, the smaller is the expected profit from buying dollars
- C. larger the value of U.S. exports, the greater is the quantity of dollars demanded
- D. lower the exchange rate, the smaller the amount of U.S. exports
Answer
Answer C. larger the value of U.S. exports, the greater is the quantity of dollars demanded
