53) Tanya is a manager at a global firm that has operations located in Brazil, India, and Japan. Tanya is
in the process of making a fundamental analysis in order to forecast exchange rates in each country.
Which of the following questions is most relevant to Tanya?
A) What is the cyclical situation in terms of employment and inflation?
B) Are the government’s intervention practices sustainable?
C) What level of credibility does the government have?
D) What is the possibility of a national crisis?
54) Tanya is a manager at a global firm that has operations located in Brazil, India, and Japan. Tanya is
in the process of making a fundamental analysis in order to forecast exchange rates in each country.
Which of the following is a confidence factor that Tanya should consider in trying to predict exchange
rate movements in each country?
A) What are the expectations of the market with respect to the political environment?
B) Have there been significant national events that have appeared in the news lately?
C) At what rates do there appear to be buy and sell orders?
D) What trends do the charts show?
55) Ray, a marketer at a global firm, monitors the exchange rate of countries in which the firm sells its
products. Ray is most likely concerned about changes in ________.
A) operating expenses
B) exporting policies
C) product demand
D) quality control
56) Which of the following accurately explains how producers are affected by exchange rate changes?
A) To save money, a manufacturer may decide to relocate production to a country with a stronger
currency.
B) A manufacturing firm relocating to a country with a weak currency can make a cheap initial
investment.
C) Goods manufactured in a country with a weak currency may be relatively expensive in world
markets.
D) A manufacturer with high operating expenses would likely relocate production to a country with a
currency that is gaining value.
57) If the euro continues to remain strong against the U.S. dollar, which of the following strategies
would make the most sense for BMW?
A) It might be advantageous for them to consider exporting from Germany to the U.S. to take advantage
of cheaper costs.
B) It might increase its manufacturing capacity in the United States to take advantage of the cheaper
dollar.
C) It might consider raising prices in the United States to earn more profits for BMW.
D) It really doesn’t make any difference to BMW since consumers will buy the cars no matter what they
cost.
58) Endaka, the “high yen,” caused financial problems for ________.
A) Japanese foreign-exchange reserves
B) American foreign-exchange reserves
C) Japanese importers
D) Japanese exporters
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59) Which of the following most accurately describes the economic situation in El Salvador?
A) It is facing significant competition from neighboring countries that are not tied to the dollar.
B) It relies exclusively on the United States as a market for its products.
C) It now has the same exchange rate as other members of CACM.
D) It is putting more resources into industries that have a history of earning profits.
60) According to the text, which currency is expected to experience the most change in the upcoming
years?
A) yen
B) yuan
C) euro
D) U.S. dollar
61) The IMF’s primary role is to identify exchange rate regimes.
62) The SDR is equal in value to the U.S. dollar.
63) Dollarization of a currency occurs when a country takes all of its own currency out of circulation
and replaces it with U.S. dollars.
64) An independently floating exchange rate is adjusted periodically at a fixed pronounced rate.
65) None of the new members of the EU has yet been allowed to adopt the euro as its currency.
66) The major objective of the European Central Bank is to control taxes as a means of deficit spending.
67) According to the Treaty of Maastricht, a euro applicant must have a total outstanding government
debt that does not exceed 60% of its GDP.
68) Inflation in the United States would cause China’s massive dollar reserves to lose value.
69) Demand for a country’s independently floating currency is a function of the demand for that
country’s goods, services, and financial assets.
70) A currency that is pegged to another currency is usually changed on a supply-and-demand basis.
71) Central bank reserve assets are kept in three major forms: foreign-exchange reserves, silver, and
gold.
72) Although central banks are responsible for foreign exchange policy, they have no power to intervene
in exchange rate markets.
73) The Japanese yen is an example of a soft currency.
74) In a multiple exchange-rate system, the government determines which kinds of transactions are to be
conducted at which exchange rate.
75) According to the purchasing power parity theory, a change in relative interest rates between two
countries must cause a change in exchange rates.
76) Purchasing power parity (PPP) is a well-known theory that seeks to define relationships between
currencies.
77) The Big Mac Index perfectly explains the relative size of economies.
78) The Big Mac Index suggests that exchange rates should leave Big Mac hamburgers costing the same
in the U.S. as abroad.
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79) The International Fisher Effect links interest rates and exchange rates.
80) The International Fisher Effect implies that the country with the higher interest rate should have
lower inflation.
81) Fundamental forecasters assume that if current exchange rates reflect all facts in the market, then
under similar circumstances, future rates will follow the same patterns.
82) Fundamental forecasting uses trends in economic variables to predict future rates.
83) The three variables predicted by forecasting are the timing, magnitude, and length of exchange rate
movements.
84) When forecasting exchange rates, forecasters must predict the magnitude, timing, and direction of
change in exchange rates.
85) Technical forecasting relies on trends in economic variables to predict future exchange rates.
86) A current account deficit suggests that a country is importing more than it is exporting and building
up foreign debt.
87) An MNE would most likely benefit from converting local currency into its home-country currency
when exchange rates are most favorable so it can maximize its return.
88) Producers are affected by exchange rate changes because goods manufactured in a country with a
weak currency will be relatively cheap in world markets.
89) The IMF uses the quota system to determine how much a country may borrow from the Fund.
90) El Salvador’s hard peg exchange rate arrangement involves the use of both the U.S. dollar and its
own separate legal tender.
91) What is the International Monetary Fund (IMF)? What are its objectives? What occurs when a
country joins the IMF today?
92) What is a Special Drawing Right (SDR)? How is it used?
93) Describe the exchange rate arrangements used in the EU, Hong Kong, China, and the U.S.
94) In a short essay, compare the roles of the Federal Reserve Bank of New York and the European
Central Bank.
95) What is a black market? Under what conditions might one exist?
96) In a short essay, discuss purchasing power parity and the short-run problems that affect PPP.
97) What methods are used by managers to forecast exchange rates? What are the main factors that
influence exchange rates?
98) How do exchange rate changes affect a company’s marketing, production, and financial decisions?
What predictors should a manager monitor to forecast exchange rate changes?
99) What led to the Greek financial crisis of 2010? What have been the roles of the IMF and European
Central Bank in the crisis? What challenges with the euro facilitated the crisis?
100) What are the main arguments for and against Africa developing a common currency like the EU?