1) if a country has a trade surplus, the domestic holdings of foreign currency will tend
to _______ and the foreign currency will _______.
a.decrease; depreciate
b.decrease; appreciate
c.increase; depreciate
d.increase; appreciate
2) in september, 2005, exports of goods from the u.s. decreased $3.3 billion to $73.4
billion, and imports of goods increased $3.8 billion to $144.5 billion. this increased the
deficit in:
a.the balance of payments
b.the financial account
c.the current account
d.unilateral transfers
3) the evaluation of prospective investment alternatives and the commitment of funds to
preferred projects is referred to as:
a.capital budgeting
b.cash management
c.flow budgeting
d.decentralized management
4) if the sum of absolute values of the elasticities of demand for imports and demand
for exports is greater than one, a currency devaluation could:
a.improve the balance of trade
b.further damage the balance of trade
c.restore balance of trade equilibrium
d.nothing can be determined with the given information
5) the citibank trading desk quotes a buy rate of 1.25 and a sell rate of 2.00 for the
dollar/euro exchange rate (s$/). suppose that traders are continually selling dollars to
citibank, leaving citibank with a surplus of dollars. how should citibank adjust its rates
to square off its position?
a.lower both buy and sell rates
b.raise both buy and sell rates
c.lower the buy rate, but raise the sell rate
d.raise the buy rate, but lower the sell rate
6) the official holdings of gold and foreign exchange, special drawing rights (sdrs), and
changes in reserves at the international monetary fund are known as:
a.official settlements balance
b.central bank holdings
c.current account balance
d.capital account balance
7)
8) according to the ________, the current exchange rate is affected by changes in
expectation about future trade flow.
a.overshooting approach
b.news approach
c.portfolio-balance approach
d.trade balance approach
9) according to the monetary approach of the balance of payments (mabp), an increase
in u.s. money supply growth will cause the u.s. foreign reserves ():
a.to fall, as foreign central bank selling its currency and buying u.s. dollars
b.to fall, as foreign central bank selling u.s. dollars and buying its currency
c.to rise, as foreign central bank selling its currency and buying u.s. dollars
d.to rise, as foreign central bank selling u.s. dollars and buying its currency
10) which of the following best describes economic exposure?
a.the sensitivity of the domestic currency value of future operating income to
unexpected changes in exchange rate
b.the risk of operating in politically risky countries
c.when a business leaves only one branch to operate in a foreign country
d.exposure from uncertainty about the currency value of a foreign-denominated
transaction to be fulfilled in the future
11) we can expect deviations from absolute ppp because of:
a.different bundles of goods across countries
b.quotas and tariffs
c.transactions costs
d.all of the above are correct
12) if the owner of the option exercises the right to buy or sell, the seller of the option
must ________.
a.find a broker for the buyer
b.set the strike price and find a new buyer
c.calculate the new strike price based upon the days left on the contract
d.buy or sell the financial instrument to the buyer
13) according to humes specie flow mechanism, during the gold standard, if the
domestic inflation rises sharply, the domestic country will experience ___________ and
the foreign trading partner will experience __________.
a.trade deficit; higher prices
b.trade deficit; lower prices
c.trade surplus; higher prices
d.trade surplus; lower prices
14) assume a letter of contract is in place. if the importer does not pay the bank, then
under the letter of contract the _______ is still obligated to pay the exporter.
a.domestic government
b.foreign government
c.importer
d.bank
15) a u.s. resident increasing her holdings of a foreign financial asset causes a:
a.credit in the u.s. current account
b.debit in the u.s. current account
c.credit in the u.s. capital account
d.debit in the u.s. capital account
16) which of the following equations correctly represents the monetary approach to the
exchange rate (maer)?
a.
b.
c.
d.
17) which of the following describe ways that a business manages foreign exposure?
i.hedge in the goods market
ii.hedge in the forward market
iii.rush payments of currencies expected to appreciate
iv.rush collections of currencies expected to depreciate
a.i only
b.i and ii
c.ii, iii, and iv
d.i, ii, iii, and iv