1) for a multinational firm using a decentralized management style, the subsidiary
would be expected to meet goals for key variables such as sales and labor costs.
2) the expected exchange rate changes will be reflected in the differences between the
term structure of interest rates in two countries.
3) the real interest rate is equal to the nominal interest rate minus the expected rate of
inflation.
4) the lm curve represents all the points where money supplied is equal to money
demanded.
5) government restrictions are used to keep the purchasing power parity from deviating
over time.
6) changes in market expectations have their greatest impact on exchange-rate changes
over the long run as opposed to the short run.
7) the following example supports which extension to the monetary approach to
exchange rates: due to a sudden increase in american productivity, the u.s. dollar
depreciated.
a.general equilibrium approach
b.trade balance approach
c.overshooting approach
d.currency substitution approach
8) following the breakdown of the bretton woods system, the major currency countries:
a.moved to the gold standard
b.temporarily pegged currencies to the swiss franc
c.moved to a free market floating arrangement
d.introduced silver as an alternative backing to the dollar
9) according to the monetary approach to the balance of payments, which of the
following economic events would help a country to resolve its balance of trade deficit?
a.an increase in money supply
b.a decrease in money supply
c.a fall of foreign price level
d.a fall of domestic income
10) the 1997 asian financial crisis first struck in:
a.hong kong
b.thailand
c.singapore
d.south korea
11) the sum of the projects initial investment cost, the present values of cash flows, and
all financial effects related to the investment is called:
a.subsidiary investment total
b.transfer total
c.cost above investment
d.adjusted present value
12) according to the absorption approach, if the domestic income is greater than the
domestic absorption, then:
a.a country is experiencing trade surplus
b.a country is experiencing trade deficit
c.a country is experiencing balanced trade
d.a country is always at its full-employment level of production
13) according to the monetary approach of the balance of payments (mabp), if the
foreign inflation rate decreases 50%, the u.s. foreign reserves will
a.increase because foreign central bank buys u.s. dollars and sells its currency
b.increase because foreign central bank buys its currency and sells u.s. dollars
c.decrease because foreign central bank buys u.s. dollars and sells its currency
d.decrease because foreign central bank buys its currency and sells u.s. dollars
14) if the domestic currency is devalued and both export and import contracts are
written in the domestic currency, then the trade balance will:
a.increase
b.decrease
c.stay the same
d.uncertain
15) suppose the u.s. income grows by 4 percent. under the mabr, which of the following
percentage changes could offset this growth?
a.international reserves increase by 2 percent and foreign inflation rises by 2 percent
b.international reserves increase by 2 percent and foreign inflation falls by 2 percent
c.international reserves decrease by 2 percent and foreign inflation rises by 2 percent
d.international reserves decrease by 2 percent and foreign inflation falls by 2 percent
16) assume floating exchange rates. suppose there are a 5% growth in u.s output and a
5% increase in foreign inflation. then, which of the following will offset these changes?
a.10% increase in money supply
b.10% decrease in money supply
c.10% increase in the exchange rate
d.the two changes offset each other
17) suppose that the one-year u.s. interest rate is 8% and the one-year swiss interest rate
is 10%. if the current spot rate is $1.50 per swiss franc, what must the one-year forward
rate ($/sfr) be according to the approximate covered interest parity?
a.$1.47
b.$1.50
c.$1.53
d.$4.50
18) the liquidity premium theory of term structure of interest rates suggests that
long-term bonds should________ short-term bonds due to investor risk aversion.
a.hold a premium over
b.have a discount over
c.offer the same return as
d.be entirely separate of
19) the foreign exchange swap is a combination of spot and forward transactions of the
same amount of the currency delivered in two different dates and is ________.
a.completed when both parties pay a deposit
b.adjusted at the midpoint of the contract
c.no longer used in financial markets
d.executed in a single step