1) which of the following exchange rate systems is best suited for a country with trade
concentrated with one major country?
a.fixed peg
b.currency standard
c.free floating
d.managed floating
2) which of the following are reasons for foreign firms to list their shares in the united
states?
i.ability to raise new capital in worlds largest financial base
ii.enlarged investor base
iii.lower transactions costs
iv.eliminate foreign exchange risk
a.i and ii
b.i, iii, and iv
c.i, ii, and iii
d.i, ii, iii, and iv
3)
referring to figure 2.2, an increase in the demand for british goods by the u.s. importers
has led to pressure on the pound to appreciate against the dollar. if the bank of england
wishes to intervene to maintain a peg of $2.0/pound, what distance represents that
intervention?
a.a to b
b.b to a
c.a to c
d.b to c
4) suppose that the 1-year forward rate of dollar per swiss franc is $0.42, the current
spot rate ($/sfr) is $0.40, and the expected future spot rate ($/sfr) is $0.45. the forward
premium equals to:
a. 7.5%
b.5%
c.6.67%
d.12.5%
5) a change in fiscal policy shifts the:
a.is curve
b.lm curve
c.bp curve
d.none of the above
6) in international finance, covered interest rate parity refers to:
a.the forward rate being in excess of the spot rate
b.the advantage of one currency over another
c.the equivalence of the interest differential between two currencies to the forward
premium or discount
d.the difference of the two comparable investments in two different countries
7) suppose that a central bank sells domestic currency to buy foreign assets to fix the
exchange rate. to sterilize this intervention, the central bank will have to:
a.buy bonds in the open market operations to increase domestic money supply
b.buy bonds in the open market operations to decrease domestic money supply
c.sell bonds in the open market operations to increase domestic money supply
d.sell bonds in the open market operations to decrease domestic money supply
8) how must currency contracts be structured for a currency devaluation to have a
worsening effect on the balance of trade?
a.export contracts in domestic currency and import contracts in foreign currency
b.export contracts in foreign currency and import contracts in domestic currency
c.both contracts in domestic currency
d.both contracts in foreign currency
9) figure 2.3:
refer to figure 2.3. suppose that the u.k agreed to peg its currency against the u.s. dollar
at $2.00 per pound during the bretton woods system. assume that the u.s. decreases its
imports from the u.k. as a result, the bank of england would have to:
a.let the british pound appreciates
b.let the british pound depreciates
c.sell pounds and buy dollars in foreign exchange market
d.sell dollars and buy pounds in foreign exchange market
10) starting from a position where a nations money demand equals the money supply
and its balance of payments is in equilibrium. according to the monetary approach to
the balance of payments, when the nations central bank increases money supply, the
balance of trade moves into ________ position and net official holding of foreign
reserves ________.
a.surplus; increases
b.surplus; decreases
c.deficit; increases
d.deficit; decreases
11) when the domestic currency appreciates, the is curve shifts:
a.to the left, causing domestic interest rate to rise
b.to the left, causing domestic interest rate to fall
c.to the right, causing domestic interest rate to rise
d.to the right, causing domestic interest rate to fall
12) when some troubled emerging-market nations experience a currency crisis, it affects
other healthy emerging-market nations by raising risk premia and reducing investor
confidence in the whole region portfolios. as a result, healthy emerging-market nations
also prone to have a currency crisis as well. this phenomenon is known as:
a.experiential learning
b.contagion
c.moral hazard
d.emerging market dysfunction
13) in 1981, the federal reserves permitted u.s. banks to establish international banking
facilities. international banking facilities (ibfs) are:
a.non-controlling ownership in foreign banks by u.s. banks
b.branches of u.s. banks in foreign countries
c.records of transactions involving banks and their international customers are kept
separate from the rest of the domestic accounts
d.import-export specialized companies operated by u.s. banks
14) figure 6-1: yield curves
refer to figure 6-1. the forward _________ on the u.s. dollar becomes ______ at higher
maturities.
a.discount, larger
b.discount, smaller
c.premium, larger
d.premium, smaller