1) which of the following economies has adopted a currency board exchange rate
system?
a.malaysia
b.south korea
c.china
d.hong kong
2) which of the following statement is correct?
a.since 1974, the major industrial countries have operated under a system of fixed
exchange rates based on the gold standard
b.many developing nations with low inflation rates have pegged their currencies to the
u.s. dollar as a way of allowing modest increases in domestic inflation rates
c.large industrial nations with diversified economies and small trade sectors have
generally pegged their currencies to one of the worlds key currencies
d.today, fixed exchange rates are used primarily by small, developing countries that tie
their currencies to a key currency such as the u.s. dollar
3) assume that a country is at full employment and wants to improve its trade deficit by
devaluing its currency. using the absorption approach which of the following methods
will improve the trade deficit?
i.decrease government spending
ii.decrease consumption taxes
iii.decrease income taxes
a.i only
b.ii only
c.ii and iii
d.i, ii, and iii
4) which of the following is an argument made to explain the large u.s. trade deficit in
the 1980s?
a.deflation in the u.s. dollar
b.inflation in the u.s
c.government budget deficit
d.government budget surplus
5) if, other things being equal, a country with a flexible exchange rate increases its
money supply, this will lead to _____ in the value of the country’s currency, which will
tend to _____ national income.
a.a depreciation; increase
b.a depreciation; decrease
c.an appreciation; increase
d.an appreciation; decrease
6) big can, inc., a u.s. firm, manufactures and sells aluminum cans worldwide. because
of a rising price of aluminum in the u.s., the company is considering to build a new
plant in europe. the plant will cost 20 million to build. assume that the plant will have a
life of 3 years before it is confiscated by the european government (zero salvage value)
and the discount rate of the cash flows is 10%. consider the following cash flows for
this project.
table 9-2
comparing with information in table 9.2, if the forecast exchange rate ($/£) remains
constant at $1.0 per pound throughout the life of the project, which of the following is
true?
a.the net present value of this project increases
b.the net present value of this project decreases
c.the net present value of this project becomes more positive
d.the net present value of this project remains unchanged
7) suppose that the one-year u.s. interest rate is 9% and the one-year u.k. interest rate is
6%. if the current spot rate is $1.80 per pound, what must the one-year forward rate
($/pound) be according to the approximate covered interest parity?
a.1.746
b.1.854
c.1.908
d.1.962
8) how must currency contracts be structured for a currency devaluation to have an
improvement 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) the mabp implies that the ________ equals to the foreign inflation rate plus the
growth rate of domestic output minus the change in domestic money creation.
a.national interest rate
b.holdings of gold
c.change in exchange rates
d.change in international reserves
10) which of the following would not be considered eurocurrency?
a.yen bank accounts inside the eurozone
b.dollar bank accounts outside the u.s
c.euro bank accounts inside the eurozone
d.pound bank accounts inside japan
11) when the parent company consolidates financial statements from foreign
subsidiaries,
a.exchange rate values can affect the translation gains or losses
b.the translation gains or losses always accurately represent the subsidiaries actual
operating gains or losses
c.the translation gains or losses always exaggerate the actual operating gains or losses
of the foreign subsidiaries
d.the translation gains or losses always understate the actual operating gains or losses of
the foreign subsidiaries
12) assume that two caribbean countries announce that they will be coordinating
monetary policy. this is because their currencies are considered:
a.substitutes
b.compliments
c.inferior
d.vulnerable
13) which of the following statements is correct about the sdr?
a.the sdr is a fixed exchange rate system created by the imf
b.the sdr was designed to replace the u.s. dollar
c.the sdr is the most popular trading currency among traders
d.the sdr is used as international reserve assets between central banks
14) the maer emphasizes money demand and money supply as determinants of:
a.the balance of payments under the fixed exchange rate
b.the balance of payments under the floating exchange rate
c.exchange rate movements
d.capital flows