International Financial Management 13th Edition By Jeff Madura – Test Bank

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International Financial Management 13th Edition By Jeff Madura – Test Bank

Madura13e_TB_Ch02

 

 

1. ​Recently, the U.S. experienced an annual balance of trade representing a ____.

  a. ​large surplus (exceeding $100 billion)
  b. ​small surplus
  c. ​level of zero
  d. ​deficit

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

2. ​A high home inflation rate relative to other countries would ____ the home country’s current account balance, other things being equal. High growth in the home income level relative to other countries would ____ the home country’s current account balance, other things being equal.

  a. ​increase; increase
  b. ​increase; decrease
  c. ​decrease; decrease
  d. ​decrease; increase

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

3. ​If a country’s government imposes a tariff on imported goods, that country’s current account balance will likely ____ (assuming no retaliation by other governments).

  a. ​decrease
  b. ​increase
  c. ​remain unaffected
  d. ​either A or C is possible

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

4. ​____ purchases more U.S. exports than the other countries listed here.

  a. Italy​
  b. ​Spain
  c. ​Mexico
  d. ​Canada

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

5. ​An increase in the current account deficit will place ____ pressure on the home currency value, other things being equal.

  a. ​upward
  b. ​downward
  c. ​no
  d. ​upward or downward (depending on the size of the deficit)

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

6. ​If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things being equal (assume that substitutes are readily available in other countries, and that the prices charged by firms remain the same).

  a. ​increase
  b. ​have no impact on
  c. ​reduce
  d. ​all of the above are equally possible

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

7. ​The International Finance Corporation was established to promote economic development:

  a. ​in Asia through grants to businesses.
  b. ​by providing nonsubsidized loans (at market interest rates) to governments and their agencies.
  c. ​by providing low-interest-rate loans (below-market rates) to poor nations.
  d. ​through the private sector by providing loans to corporations and investing in their stock.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

8. ​The World Bank was established to reduce poverty and promote economic development:

  a. ​in Asia through grants to businesses.
  b. ​by providing nonsubsidized loans (at market interest rates) to governments and their agencies.
  c. ​by providing low-interest-rate loans (below-market rates) to poor nations.
  d. ​through the private sector by providing loans to corporations and investing in their stock.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

9. ​The International Development Association was established to promote economic development:

  a. ​in Asia through grants to businesses.
  b. ​by providing nonsubsidized loans (at market interest rates) to governments and their agencies.
  c. ​by providing low-interest-rate loans (below-market rates) to poor nations.
  d. ​through the private sector by providing loans to corporations and investing in their stock.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

10. Which of the following would likely have the least direct influence on a country’s current account?

  a. ​inflation
  b. ​national income
  c. ​exchange rates
  d. ​tariffs
  e. ​a tax on income earned from foreign stocks

 

ANSWER:   e
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

11. ​The “J-curve” effect describes:

  a. ​the continuous long-term inverse relationship between a country’s current account balance and the country’s growth in gross domestic product.
  b. ​the short-run tendency for a country’s balance of trade to deteriorate even while its currency is depreciating.
  c. ​the tendency for exporters to initially reduce the price of goods when their own currency appreciates.
  d. ​the tendency of a country’s currency to initially depreciate after the country’s inflation rate declines.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

12. ​An increase in the use of quotas is expected to:

  a. ​reduce the country’s current account balance, if other governments do not retaliate.
  b. ​increase the country’s current account balance, if other governments do not retaliate.
  c. ​have no impact on the country’s current account balance unless other governments retaliate.
  d. ​increase the volume of a country’s trade with other countries.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

13. ​The United States typically has a balance-of-trade surplus in its trade with ____.

  a. ​China
  b. ​Japan
  c. ​A and B
  d. ​none of the above

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

14. ​The North American Free Trade Agreement (NAFTA) increased restrictions on:

  a. ​trade between Canada and Mexico.
  b. ​trade between Canada and the United States
  c. ​direct foreign investment in Mexico by U.S. firms.
  d. ​none of the above.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

15. ​According to the text, international trade (exports plus imports combined) as a percentage of GDP is:

  a. ​higher in the United States than in European countries.
  b. ​lower in the United States than in European countries.
  c. ​higher in the United States than in about half the European countries, and lower in the United States than in the others.
  d. ​about the same in the United States as in European countries.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

16. ​The direct foreign investment positions by U.S. firms have generally ____ over time. Restrictions by governments on direct foreign investment have generally ___ over time.

  a. ​increased; increased
  b. ​increased; decreased
  c. ​decreased; decreased
  d. ​decreased; increased

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

17. ​Which of the following countries purchases the largest amount of exports by U.S. firms?

  a. ​Mexico
  b. ​Japan
  c. ​Canada
  d. ​France

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

18. ​The primary component of the current account is the:

  a. ​balance of trade.
  b. ​balance of gifts.
  c. ​balance of aid payments.
  d. ​balance of grant payments.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

19. ​As a result of the European Union, restrictions on exports between ____ were reduced or eliminated.

  a. ​member countries and the United States
  b. ​member countries
  c. ​member countries and European nonmembers
  d. ​none of the above

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

20. ​Over the last several years, international trade has generally:

  a. ​increased for most major countries.
  b. ​decreased for most major countries.
  c. ​stayed about constant for most major countries.
  d. ​increased for about half the major countries and decreased for the others.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

21. ​Which of the following is not a result of the North American Free Trade Agreement (NAFTA)?

  a. ​increased trade between the United States and Central American countries
  b. ​increased imports by the United States from Mexico
  c. ​increased exports by U.S. firms to Mexico
  d. ​increased establishment of subsidiaries in Mexico by U.S. firms

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

22. ​The General Agreement on Tariffs and Trade (GATT) accord of 1993 called for:

  a. ​increased trade restrictions outside North America.
  b. ​lower trade restrictions around the world.
  c. ​uniform environmental standards around the world.
  d. ​uniform worker health laws.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

23. ​Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance-of-trade position (increase its exports or reduce its imports)?

  a. ​The government could attempt to reduce its home currency’s value.
  b. ​The government could require firms to engage in outsourcing.
  c. ​The government could provide subsidies to importers.
  d. ​All of the above are mentioned.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

24. ​The demand for U.S. exports tends to increase when:

  a. ​economic growth in foreign countries decreases.
  b. ​the currencies of foreign countries strengthen against the dollar.
  c. ​U.S. inflation rises.
  d. ​none of the above.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

25. ​The term “dumping” refers to the:

  a. ​exporting of goods that do not meet quality standards.
  b. ​sale of junk bonds to foreign countries.
  c. ​removal of foreign subsidiaries by the host government.
  d. ​exporting of goods at prices below cost.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

26. ​The primary income component in a country’s current account may reflect income received due to:

  a. ​grants.
  b. ​direct foreign investment.
  c. ​aid.
  d. ​gifts.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

27. ​A weak home currency may not be a perfect solution to correct a balance-of-trade deficit because:

  a. ​it reduces the prices of imports paid by local companies.
  b. ​it increases the prices of exports by local companies.
  c. ​it prevents international trade transactions from being prearranged.
  d. ​foreign companies may reduce the prices of their products to stay competitive.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

28. ​Intracompany trade makes up more than ____ percent of all international trade.

  a. ​50
  b. ​70
  c. ​25
  d. ​13
  e. ​5

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

29. ​Like the International Monetary Fund (IMF), the ____ is composed of a number of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.

  a. ​World Bank
  b. ​International Finance Corporation (IFC)
  c. ​World Trade Organization (WTO)
  d. ​International Development Association (IDA)
  e. ​Bank for International Settlements (BIS)

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

30. ​The World Bank’s Multilateral Investment Guarantee Agency (MIGA):

  a. ​offers various forms of export insurance.
  b. ​offers various forms of import insurance.
  c. ​offers various forms of exchange rate risk insurance.
  d. ​provides loans to developing countries.
  e. ​offers various forms of political risk insurance.

 

ANSWER:   e
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

31. ​Also known as the “central banks’ central bank,” the ____ attempts to facilitate cooperation among countries with regard to international transactions.

  a. ​World Bank
  b. ​International Finance Corporation (IFC)
  c. ​World Trade Organization
  d. ​International Development Association (IDA)
  e. ​Bank for International Settlements (BIS)

 

ANSWER:   e
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

32. ​Direct foreign investment into the United States represents a ____.

  a. ​capital inflow
  b. ​trade inflow
  c. ​capital outflow
  d. ​trade outflow

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

33. ​A balance-of-trade surplus indicates an excess of imports over exports.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

34. ​A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to Britain and increase U.S. imports from Britain over time.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02

 

35. ​The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

36. ​The World Bank frequently enters into cofinancing agreements, under which it joins with official aid agencies, export credit agencies, or commercial banks in providing financing.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

37. ​The balance of payments is a summary of all transactions between domestic and foreign residents for a specific country over a specified period of time.​

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

38. ​The value of financial assets transferred across country borders by people who move to a different country is included in the balance of payments in the capital account.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

39. ​Portfolio investment represents transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

40. ​The current account represents the investment in fixed assets in foreign countries that can be used to conduct business operations.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

41. ​Exporting of products by one country to other countries at prices below cost is called elasticity.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

42. ​Direct foreign investment by U.S.-based MNCs occurs primarily in the Bahamas and Brazil.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

43. ​The J-curve effect is the initial worsening of the U.S. trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before the U.S. trade balance is improved.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

44. ​Outsourcing is the process of subcontracting to a third party in another country to provide supplies or services that were previously obtained internally.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

45. ​Intracompany trade is the exporting of products by one country to other countries below cost.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

46. ​A tariff is a maximum limit on imports.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

47. ​A country’s net outflow of funds ____ its interest rates, and ____ its economic conditions.

  a. ​affects; affects
  b. ​affects; does not affect
  c. ​does not affect; does not affect
  d. ​does not affect; affects

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

48. ​The sale of patent rights by a U.S. firm to a Russian firm reflects a credit to the U.S. balance of payments account.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

49. ​A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

50. ​Regarding the U.S. balance of payments, capital account items are relatively minor compared to the financial account items.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

51. ​In recent years, the United States has had a relatively (compared to other countries) ____ balance of trade ____ with China.

  a. ​small; surplus
  b. ​large; surplus
  c. ​small; deficit
  d. ​large; deficit

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

52. ​The Central American Trade Agreement (CAFTA) is intended to raise tariffs and regulations between the United States, the Dominican Republic, and Central American countries.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

53. ​U.S. government officials would likely prefer that China devalue the yuan against the dollar.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

54. ​Assume that some U.S. firms will purchase supplies from either China or from U.S. firms. If the Chinese yuan appreciates against the dollar, that should reduce the U.S. balance-of-trade deficit with China.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

55. ​Assume the United States has a balance-of-trade surplus with the country of Thor. When individuals in Thor without permission manufacture video games and DVDs that look almost exactly like the original products produced in the United States and other countries, they ____ the U.S. balance-of-trade surplus with Thor. This activity is called ____.

  a. ​reduce; flipping
  b. ​reduce; piracy
  c. ​increase; piracy
  d. ​increase; flipping

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

56. ​Japan’s annual interest rate has been relatively ____ compared to other countries for several years, because the supply of funds in its credit market has been very ____.

  a. ​low; small
  b. ​high; small
  c. ​low; large
  d. ​high; large

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

57. ​Without international capital flows, there would be ____ funding available in the United States across all risk levels, and the cost of funding would be ____ regardless of the firm’s risk level.

  a. ​more; lower
  b. ​more; higher
  c. ​less; lower
  d. ​less; higher

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

58. ​The primary component of the capital account is the balance of trade.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

59. ​A balance-of-trade surplus indicates an excess of merchandise imports over merchandise exports.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

60. ​An American tourist visiting Germany and spending money there (for lodging, food, etc.) will reduce the U.S. current account deficit and reduce Germany’s current account balance.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

61. ​A balance-of-trade deficit indicates an excess of imports over exports.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

62. ​The capital account reflects changes in country ownership of direct foreign investment.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

63. ​Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

64. ​A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to the United Kingdom and increase U.S. imports from the United Kingdom.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

65. The World Trade Organization was established to provide a forum for multilateral trade negotiations and to settle trade disputes.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

66. ​The ____ is the difference between exports and imports.

  a. ​balance of trade
  b. ​balance on goods and services
  c. ​balance of payments
  d. ​current account
  e. ​capital account

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.03
KEYWORDS:   Bloom’s: Knowledge

 

67. ​Which of the following will probably not result in an increase in a country’s current account balance (assuming everything else remains constant)?

  a. ​a decrease in the country’s rate of inflation
  b. ​a decrease in the country’s national income level
  c. ​an increase in government restrictions in the form of tariffs or quotas
  d. ​an appreciation of the country’s currency
  e. ​All of the above will result in an increased current account balance.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

68. ​Which of the following is a key component that determines a country’s primary income (within the country’s current account)?

  a. ​direct foreign investment
  b. ​international trade
  c. ​tax rates
  d. ​gifts

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

69. ​The ____, an accord among 117 nations, called for lower tariffs around the world.

  a. ​General Agreement on Tariffs and Trade (GATT)
  b. ​North American Free Trade Agreement (NAFTA)
  c. ​Single European Act of 1987
  d. ​European Union Accord
  e. ​none of the above

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

70. ​Which of the following is not likely to represent a strategy by the government of Country X to reduce its balance-of-trade deficit with Country Y?

  a. ​The government of Country X eliminates environmental restrictions.
  b. ​The government of Country X subsidizes firms in its country to facilitate dumping.
  c. ​The government of Country X provides tax breaks to firms in specific industries.
  d. ​The government of Country X removes a tariff on goods imported from Country Y.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Analysis

 

71. ​Which of the following statements is not true?

  a. ​Exporters commonly complain that they are being mistreated because the currency of their country is too weak.
  b. ​Outsourcing affects the balance of trade because it means that a service is purchased in another country.
  c. ​Sometimes, trade policies are used to punish countries for various actions.
  d. ​Tariffs imposed by the EU have caused some friction between EU countries that commonly import products and other EU countries.
  e. ​All of the above are true.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

72. ____ represents aid, grants, and gifts from one country to another.

  a. ​Secondary income
  b. ​Primary income
  c. ​The balance of trade
  d. ​The balance of payments
  e. ​The capital account

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

73. ​Which of the following is not a goal of the International Monetary Fund (IMF)?

  a. ​To promote cooperation among countries on international monetary issues
  b. ​To promote stability in exchange rates
  c. ​To enhance a country’s long-term economic growth via the extension of structural adjustment loans
  d. ​To promote free trade
  e. ​To promote free mobility of capital funds across countries

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.05
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

74. ​According to the “J-curve effect,” a weakening of the U.S. dollar relative to its trading partners’ currencies would result in an initial ____ in the current account balance, followed by a subsequent ____ in the current account balance.

  a. ​decrease; increase
  b. ​increase; decrease
  c. ​decrease; decrease
  d. ​increase; increase

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.02.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

 

Madura13e_TB_Ch06

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

  a. ​sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) 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 (ECB) 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 (ECB) should not intervene.
  d. ​sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell pounds for dollars in the foreign exchange market.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

2. ​A weak dollar is normally expected to cause:

  a. high unemployment and high inflation in the U.S.​
  b. ​high unemployment and low inflation in the U.S.
  c. ​low unemployment and low inflation in the U.S.
  d. ​low unemployment and high inflation in the U.S.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

3. ​A strong dollar is normally expected to cause:

  a. ​high unemployment and high inflation in the U.S.
  b. ​high unemployment and low inflation in the U.S.
  c. ​low unemployment and low inflation in the U.S.
  d. ​low unemployment and high inflation in the U.S.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

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

  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.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

5. ​Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the ____ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the ____ system.

  a. ​floating rate; fixed rate
  b. ​floating rate; floating rate
  c. ​fixed rate; fixed rate
  d. ​fixed rate; floating rate

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

6. ​A primary result of the Bretton Woods Agreement was:

  a. ​the establishment of the European Monetary System (EMS).
  b. ​establishing specific rules for when tariffs and quotas could be imposed by governments.
  c. ​establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values.
  d. ​establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary).

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

7. ​A primary result of the Smithsonian Agreement was:

  a. ​the establishment of the European Monetary System (EMS).
  b. ​establishing that exchange rates of most major countries were to be allowed to fluctuate 2.25% above or below their initially set values.
  c. ​establishing specific rules for when tariffs and quotas could be imposed by governments.
  d. ​establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary).

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

8. Under a fixed exchange rate system:

  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.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

9. ​Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar’s value should ____ the U.S. demand for products produced by major foreign countries.

  a. ​weakening; increase
  b. ​weakening; decrease
  c. ​strengthening; increase
  d. ​strengthening; decrease

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

10. ​The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a:

  a. ​pegged system.
  b. ​fixed system.
  c. ​managed float system.
  d. ​crawling peg system.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

11. ​The interest rate of a country with a currency board:

  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.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

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

  a. ​more; more
  b. ​less; less
  c. ​more; less
  d. ​less; more

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

13. ​Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A’s currency floats against Country B’s currency, and that Country C’s currency is pegged to B’s. If A’s currency depreciates against B, then A’s exports to C should ____, and A’s imports from C should ____.

  a. ​decrease; increase
  b. ​decrease; decrease
  c. ​increase; decrease
  d. ​increase; increase

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

14. ​Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of:

  a. ​pegged intervention.
  b. ​indirect intervention.
  c. ​nonsterilized intervention.
  d. ​sterilized intervention.
  e. ​A and D

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

15. ​If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:

  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.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

16. ​Which of the following is an example of direct intervention in foreign exchange markets?

  a. ​lowering interest rates.
  b. ​increasing the inflation rate.
  c. ​exchanging dollars for foreign currency.
  d. ​imposing barriers on international trade.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

17. ​A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar.

  a. ​upward; upward
  b. ​downward; upward
  c. ​upward; downward
  d. ​downward; downward

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

18. ​The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar’s value is expected to:

  a. ​remain stable.
  b. ​strengthen.
  c. ​weaken.
  d. ​none of the above will have an impact on inflation.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

19. ​A weaker dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which places ____ pressure on U.S. bond prices.

  a. ​upward; downward; upward
  b. ​upward; downward; downward
  c. ​upward; upward; downward
  d. ​downward; upward; upward
  e. ​downward; downward; upward

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

20. ​The euro is the currency:

  a. ​adopted in all western European countries as of 1999.
  b. ​adopted in all eastern European countries as of 1999.
  c. ​adopted in all European countries as of 1999.
  d. ​none of the above

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

21. ​The euro has not been adopted by:

  a. ​Slovenia.
  b. ​the U.K.
  c. ​Germany.
  d. ​France.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

22. ​The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.

  a. ​Latin American
  b. ​European
  c. ​Asian
  d. ​North American

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

23. ​Countries that have adopted the euro must agree on a single ____ policy.

  a. ​monetary
  b. ​fiscal
  c. ​worker compensation
  d. ​foreign relations

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

24. ​Countries that have adopted the euro tend to have very similar ____.

  a. ​interest rates
  b. ​inflation rates
  c. ​income tax rates
  d. ​budget deficits

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

25. ​The risk-free interest rates among countries that have adopted the euro should:

  a. ​not necessarily be similar to risk-free rates in other countries.
  b. ​equal the U.S. risk-free rate.
  c. ​equal the risk-free rates in other European countries.
  d. ​equal the risk-free rates in Asian countries.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

26. ​Which of the following is true regarding the euro?

  a. ​Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders.
  b. ​It allows for more consistent economic conditions across countries.
  c. ​It prevents each country from conducting its own monetary policy.
  d. ​All of the above are true.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

27. ​It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce unemployment. Which of the following is an appropriate action given this scenario?

  a. ​Weaken the dollar
  b. ​Strengthen the dollar
  c. ​Buy dollars with foreign currency in the foreign exchange market
  d. ​Implement a tight monetary policy

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

28. ​It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?

  a. ​Sell dollars for foreign currency
  b. ​Buy dollars with foreign currency
  c. ​Lower interest rates
  d. ​None of the above

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

29. ​To strengthen the dollar using sterilized intervention, the Fed would ____ dollars and simultaneously ____ Treasury securities.

  a. ​buy; sell
  b. ​sell; buy
  c. ​buy; buy
  d. ​sell; sell

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

30. ​As foreign exchange activity has grown, a given degree of central bank intervention has become:

  a. ​more effective.
  b. ​more frequent.
  c. ​less effective.
  d. ​none of the above

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

31. ​When using indirect intervention, a central bank is likely to focus on:

  a. ​inflation.
  b. ​interest rates.
  c. ​income levels.
  d. ​expectations of future exchange rates.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

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

  a. ​Thailand.
  b. ​Indonesia.
  c. ​Russia.
  d. ​China.
  e. ​Malaysia.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.App.
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

33. ​Which of the following is not true regarding Thailand?

  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.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.App.
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

34. ​China’s yuan is presently:

  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.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

35. ​During the period 1944-1971, the U.S. used a ____ system.

  a. ​euro exchange rate
  b. ​fixed
  c. ​dirty float
  d. ​flexible

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

36. ​Which of the following are examples of currency controls?

  a. ​import restrictions.
  b. ​prohibition of remittance of funds.
  c. ​ceilings on granting credit to foreign firms.
  d. ​all of the above

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

37. ​From a financial management perspective, which of the following is true regarding the introduction of the Euro?

  a. ​U.S.-based MNCs are not subject to exchange rate risk when they have transactions in euros.
  b. ​The euro is pegged to all other European currencies.
  c. ​Transactions costs decline for MNCs that conduct transactions within Europe.
  d. ​The euro replaced the British pound.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

38. ​Which of the following countries have not adopted the euro?

  a. ​Germany
  b. ​Italy
  c. ​Switzerland
  d. ​France

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

39. ​Which of the following are true about the Southeast Asian currency crisis?

  a. ​It was preceded by several years of large capital inflows to Asia.
  b. ​It was preceded by a five-year recession in Asia.
  c. ​Asian interest rates declined during the crisis.
  d. ​Asian exchange rates were pegged to the Japanese yen to resolve the crisis.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.App.
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

40. ​Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

41. ​An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

42. ​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.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

43. ​Under a pegged exchange rate system, the home currency’s value is pegged to a foreign currency.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

44. ​A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

45. ​The European countries conforming to the euro are completely insulated from movements in the euro’s value with respect to other currencies.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

46. ​The establishment of the euro allows for more consistent economic conditions across countries but eliminates the power of any individual European country to solve local economic problems with its own unique monetary policy.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

47. ​The Asian crisis is generally believed to have started in Japan.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.App.
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

48. ​A possible reason why China was less affected by the Asian crisis is that its government exerts more influence on financial flows than the governments of other Asian countries.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.App.
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

49. ​Currency devaluation can boost a country’s exports, but currency revaluation can increase foreign competition.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

50. ​Market forces are the determinant of exchange rates in a freely floating exchange rate system.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

51. ​If a government wishes to stimulate its economy in the form of increased foreign demand for its country’s products, it could attempt to weaken its currency.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

52. ​In a sterilized exchange rate arrangement, a country’s home currency value is pegged to a foreign currency or to some unit of account.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.03
KEYWORDS:   Bloom’s: Knowledge

 

53. ​The Bank of England is responsible for setting the monetary policy for the European countries participating in the euro.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

54. ​The Fed’s indirect method of intervention is to trade dollars for or against other currencies.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

55. ​China is commonly criticized for keeping the yuan’s value at superficially high levels.

  a. True
  b. False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

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

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

57. ​Nonsterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

58. ​The euro is pegged to other currencies of European countries that have not adopted the euro.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

59. ​The Smithsonian Agreement was an agreement to allow currencies of major countries to float without any barriers.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

60. ​An example of indirect intervention by the Bank of Japan would be for the Bank of Japan to use interest rates to increase the value of the yen vs. the dollar.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

61. ​A strong home currency can harm exports; exporters typically benefit from a weaker home country currency.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

62. ​An advantage of freely floating exchange rates is that a country with floating exchange rates is more insulated from unemployment problems in other countries.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

63. ​All European countries now use the euro as their currency.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

64. ​A country with a currency board does not have control over its local interest rates.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

65. ​Dollarization refers to the replacement of local currency with U.S. dollars.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

66. ​A country with fixed exchange rates often faces constraints on growth.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

67. ​The Bretton Woods Agreement called for the establishment of a single European currency.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

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

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

69. ​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.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

70. ​If foreign investors fear that a peg may be broken because of fund outflows from that country, they may attempt to purchase more of that currency before the peg is broken.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

71. ​Normally, when a pegged exchange rate is broken because of a crisis in that country, there is downward pressure on the local currency of that country.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

72. ​Which one of the following is a disadvantage of a fixed exchange rate system:

  a. ​Importers are insulated from the risk that the currency will appreciate over time.
  b. ​Management of an MNC is less difficult.
  c. ​The government might change the value of the currency.
  d. ​Exporters are insulated from the risk that the currency will depreciate over time.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

73. ​The Smithsonian Agreement called for a devaluation of the U.S. dollar by about ____ percent.

  a. ​2.25
  b. ​6
  c. ​10
  d. ​8

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

74. ​Which of the following did not occur as a result of Bretton Woods Agreement?

  a. ​Each currency was valued in terms of gold.
  b. ​Values of all currencies were fixed with respect to each other.
  c. ​Currencies were allowed to fluctuate no more than 1% above or below the initially set rates.
  d. ​The United States experienced no balance-of-trade deficits.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

75. ​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.

  a. ​upward; reduce; unchanged
  b. ​upward; increase; higher
  c. ​downward; reduce; unchanged
  d. ​downward; increase; higher

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

76. ​Which one is not a disadvantage of a freely floating exchange rate system?

  a. ​It can adversely affect a country that has high unemployment.
  b. ​It can adversely affect a country that has high inflation.
  c. ​The government may intervene to change the value of a given currency.
  d. ​The exchange rate risk is high and may be costly to manage.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

77. ​A “dirty” float represents a system of:

  a. ​freely floating exchange rates.
  b. ​fixed exchange rates.
  c. ​floating exchange rates, but the central bank can manipulate the currency.
  d. ​fixed exchange rates, but the central bank can manipulate the currency.

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

78. ​If a U.S. firm plans to frequently purchases goods from Hong Kong over the next several years, it does not have to worry about exchange rate risk.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.App.
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

79. ​If the French government wants to decrease inflation in France, it will exchange foreign currency for euros.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

80. ​The European Central Bank is located in:

  a. ​London.
  b. ​Denmark.
  c. ​Luxembourg.
  d. ​Frankfurt.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

81. ​Which of the following is not true regarding the eurozone?

  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.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

82. ​Assuming no credit risk, the interest rates among countries in the eurozone should be similar.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

83. ​Which of the following is not a reason for devaluation of a currency?

  a. ​high inflation.
  b. ​to reduce balance-of-trade deficit.
  c. ​to decrease the amount of imports.
  d. ​high unemployment.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

84. ​Which of the following is the most likely reason for revaluation of a currency?

  a. ​To reduce inflation.
  b. ​To stimulate the local economy.
  c. ​To increase the amount of exports.
  d. ​To increase balance-of-trade surplus.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

85. ​To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities.

  a. ​buy; sell
  b. ​sell; sell
  c. ​sell; buy
  d. ​buy; sell

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

86. ​The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

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

  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.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

88. ​Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.

  a. ​inward shift in demand for; outward shift in supply of
  b. ​inward shift in demand for; inward shift in supply of
  c. ​outward shift in supply of; outward shift in demand for
  d. ​outward shift in supply of; inward shift in demand for

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

89. ​If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____.

  a. ​increases; appreciate; weaken
  b. ​decreases; appreciate; weaken
  c. ​increases; depreciate; strengthen
  d. ​decreases; appreciate; strengthen

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

90. ​A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

91. ​A common way to reduce inflation is to weaken the value of the domestic currency.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

92. ​If a speculator expects that the Fed will intervene by exchanging dollars for Japanese yen, she would most likely ____ to capitalize on this intervention.

  a. ​purchase yen put options
  b. ​sell yen futures contracts
  c. ​purchase yen call options
  d. ​buy U.S. Treasury bonds

 

ANSWER:   c
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

93. ​If a speculator expects that the Fed will intervene by exchanging euros for U.S. dollars, she would most likely ____ to capitalize on this intervention.

  a. ​purchase euro put options
  b. ​purchase euro futures contracts
  c. ​purchase yen call options
  d. ​sell U.S. Treasury bonds

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

94. ​If the Fed decides to weaken the dollar utilizing unsterilized intervention, it should be aware that this action may backfire because it will increase money supply and thus increase inflation.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

95. ​A strong dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which in turn place ____ pressure on U.S. bond prices.

  a. ​downward; upward; upward
  b. ​downward; downward; upward
  c. ​upward; upward; downward
  d. ​upward; downward; upward

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

96. ​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.

  a. ​more; more
  b. ​more; less
  c. ​less; less
  d. ​less; more

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Application

 

97. ​If the Bank of England announces that it will start to frequently intervene in order to reduce the fluctuations of British pound, the premiums on call and put options will increase.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

98. ​Under the ____________ from 1979-1992 (before the euro existed), the currencies of many European countries were currencies of most of these member countries were allowed to fluctuate by no more than 2.25 percent (6 percent for some currencies) from the initially established values.

  a. ​European Monetary System (EMS).
  b. ​snake agreement.
  c. ​Maastricht Treaty.
  d. ​Bretton Woods agreement.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

99. ​Direct intervention is usually more effective than indirect intervention.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

100. ​Currency devaluations have the potential to reduce unemployment, while currency revaluations have the potential to reduce inflation.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

101. ​Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.

  a. True​
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

102. ​An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

103. ​In a freely floating exchange rate system, high U.S. inflation rate may be magnified. This is because the depreciation of the dollar would result in more expensive foreign imports, thus reducing foreign competition.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

104. ​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.

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

105. ​In order to stimulate a stagnant economy, a government operating under a managed float may attempt to weaken its currency.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

106. ​Assume the Fed desires to strengthen the dollar. If it buys dollars and simultaneously buys Treasury securities, this is an example of sterilized intervention.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

107. ​Using indirect intervention, the Fed attempts to affect the dollar’s value indirectly by influencing the factors that determine it, such as interest rates.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

108. ​While a weak currency can reduce unemployment at home, it can also lead to higher inflation, as local companies are better able to raise prices.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

109. ​While a strong currency is a possible cure for high inflation, it may cause higher unemployment due to the attractive foreign prices that result from a strong home currency.

  a. ​True
  b. ​False

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.04
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

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

  a. ​True
  b. ​False

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

111. ​Which of the following is not true regarding the Mexican peso crisis?

  a. ​Mexico encouraged firms and consumers to buy an excessive amount of imports because the peso was stronger than it should have been.
  b. ​Many speculators based in the U.S. speculated on the potential decline in the peso by investing their funds in Mexico.
  c. ​In December of 1994, the central bank of Mexico allowed the peso to float freely.
  d. ​The central bank of Mexico increased interest rates after the peso declined in value in order to prevent investors from withdrawing their investments in Mexico’s debt securities.
  e. ​All of the above are true.

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.01
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

112. ​Which of the following is true regarding the euro?

  a. ​Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders.
  b. ​It allows for more consistent economic conditions across countries.
  c. ​It prevents each country from conducting its own monetary policy.
  d. ​All of the above are true.

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.02
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

113. ​Among the reasons for government intervention are:

  a. ​to smooth exchange rate movement.
  b. ​to establish implicit exchange rate boundaries.
  c. ​to respond to temporary disturbances.
  d. ​all of the above

 

ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

114. ​Which of the following is not true regarding government intervention?

  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.

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Knowledge

 

115. ​Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using sterilized intervention. The Fed would

  a. ​buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
  b. ​buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
  c. ​sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
  d. ​sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
  e. ​none of the above

 

ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

116. ​Assume that the dollar has been consistently appreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using nonsterilized intervention. The Fed would

  a. ​buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
  b. ​buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
  c. ​sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
  d. ​sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
  e. ​none of the above

 

ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   INFM.MADU.15.06.03
NATIONAL STANDARDS:   United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS:   United States – OH – DISC.INFM.MADU.15.02
KEYWORDS:   Bloom’s: Comprehension

 

 

 

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