1) a belgian company pays $100,000 to a consulting company in chicago for a
consulting report. this causes a:
a.credit in the u.s. investment income
b.debit in the u.s. investment income
c.credit in u.s. services
d.debit in u.s. services
2) a central bank sale of _____ to purchase ______ in the foreign exchange market
results in a rise in its international reserves and the money base.
a.foreign assets; domestic currency
b.foreign assets; foreign currency
c.domestic currency; foreign assets
d.domestic currency; domestic currency
3) when foreign countries buy potatoes grown in the united states, they are generating a:
a.demand for u.s. dollars and a demand for a foreign currency
b.demand for u.s. dollars and a supply of a foreign currency
c.supply of u.s. dollars and a demand for a foreign currency
d.supply of u.s. dollars and a supply of a foreign currency
4) assume that the u.s. has a 2 percent inflation rate while sweden has a 7 percent
inflation rate. according to relative ppp, the dollar would be expected to:
a.appreciate by 3.5 percent against the swedish krona
b.depreciate by 3.5 percent against the swedish krona
c.appreciate by 5 percent against the swedish krona
d.depreciate by 5 percent against the swedish krona
5) deviations from interest rate parity could come from:
a.transaction costs
b.government controls
c.political risk
d.all of the above
6) adrs are used by domestic investors because the certificates provide:
a.greater returns than foreign stocks purchased in foreign markets
b.a way to avoid transaction costs associated with currency exchange
c.a tax-free investment
d.a way to avoid foreign exchange risk
7) which of the following is correct about a decentralized management style of the
financial management over foreign operations?
a.there is no monitoring of subsidiary managers, since an mncs foreign subsidiaries are
separate legal entities
b.mncs allow subsidiary managers to make the key decisions about their respective
operations, but the decisions may be monitored by the parents management
c.subsidiary foreign managers respond to directive from the top of the parents
management
d.financial managers at the parent company make most of the key decisions
8) suppose that the one-year u.s. interest rate is 7% and the one-year swedish interest
rate is 10%. if the current spot rate is 80 swedish krona per dollar, what must the
one-year forward rate (skr/$) be according to the approximate covered interest parity?
a.6.596
b.6.720
c.7.004
d.7.276
9) the policies the imf imposes on a member is expected to follow to ensure that the
member will overcome its payment problems and able to repay back the funds are
called:
a.regulations
b.conditionality
c.enforcement
d.rules of the loan
10) when the exchange rate s/$ was 100, a u.s. firm imports one toyota automobile at
1,000,000 and agrees to make payments 60 days from the day of contract signing. on
day 45, the exchange rate value changes to s/$ = 80, what would happen to the u.s.
import value from this exchange rate change?
a.if the contract is written in dollar, the import value decreases
b.if the contract is written in dollar, the import value increases
c.if the contract is written in yen, the import value decreases
d.if the contract is written in yen, the import value increases
11) the preferred habit 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
12) an example of an optimal currency area would be
a.united states
b.southeast asia
c.latin america
d.both a and c
13) suppose that the one-year u.s. interest rate is 13% and the one-year swiss interest
rate is 2%. if the current spot rate is $1.40 per swiss franc, what must the one-year
forward rate ($/sfr) be according to the approximate covered interest parity?
a.1.246
b.1.330
c.1.470
d.2.100
14) 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 risk
premium equals to:
a. 7.5%
b.5%
c.6.67%
d.12.5%
15) capital account transactions include:
i. foreign purchases of u.s. stocks
ii. goods imports
iii. official financial transactions
iv. changes in u.s. bank claims on foreign banks
a.i only
b.ii only
c.i and iv
d.i, iii, and iv
16) which of the following equations correctly represents the monetary approach to the
balance of payments (mabp)?
a.
b.
c.
d.
17) an increase in capital inflow could harm the economy by:
a.causing an appreciation of the recipient countrys currency
b.increasing the political risk in the recipient country
c.creating congestion in the financial market
d.lowering tax receipts on capital outflows
18) let y be domestic income, c be consumption, i be investment, g be government
spending and t be taxes. the private saving is:
a.y c t g
b.y c i
c.y c t
d.y c g
19) when seeking financial support from the imf, country authorities describe their
economic policies in a(n):
a.exchange proposal
b.conditionality
c.letter of credit
d.letter of intent