Archives: Quiz

1) suppose the central bank increases the money supply. then: a.the is curve shifts right b.the is curve shifts left c.the lm curve shifts right d.the lm curve shifts left 2) suppose that the one-year u.s. interest rate is 8% […]

1) assume the following: the current spot rate s/$ = 100.0 and the annual interest rates: ijapan = 2% and ius = 10%. according to covered interest parity, if an intern at citibank sets the one-year forward rate: f360/$ = […]

1) suppose that bank of america quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. how much dollars would you receive, if you sell 1,000 british pounds to bank of america? a.$100 […]

1) political instability and currency conversion are reasons why ________ is more complicated for foreign subsidiaries than domestic ones. a.currency lagging b.capital budgeting c.patterning cash flows d.forward financing 2) which of the following would not be considered a source of […]

1) when investors hedge themselves from risk using forward contracts, the international investment is considered: a.flat b.discounted c.a bargain d.covered 2) which of the following features describe the futures market for foreign exchange? i.fixed contracts ii.tailored size contracts iii.fixed maturities […]

1) for an investor, nonsystematic risk can be eliminated through: a.portfolio diversification b.avoiding transaction costs c.increased variance d.sterilization 2) suppose that the covered interest parity holds. if real interest rates are equal in two countries, then: a.the interest rate differential […]

1) a forward premium occurs when: a.the forward rate is greater than the spot rate b.the spot rate is greater than the forward rate c.the forward and spot rates are equal d.none of the above 2) the difference between the […]

1) information exposure is a type of foreign exchange risk. 2) the spread is the average of deposit and loan interest rates. Answer: false 3) in the uncovered interest rate parity, the forward rate is assumed to be the unbiased […]

1) suppose interest parity holds and there is a sudden change in u.s. policy that leads to expectations of a higher u.s. inflation rate. the increase in expected inflation will cause dollar interest rates to rise. 2) the mabp implies […]

1) if expected inflation in canada is higher than expected inflation in the u.k., and the real interest rates are equal, we would expect the canadian dollar to appreciate. 2) under mabp, the full effect of the monetary policy is […]

1) standardized contracts traded on established exchanges for delivery of currencies at a specified future date are called foreign currency futures. 2) relative prices only change when demand and supply for individual goods shift outwards. Answer: false 3) purchasing power […]

1) the theory of exchange rate overshooting explains high exchange rate volatility by assuming that cirp does not hold in the short run, but ppp does. 2) a stock market in which foreign investors are not allowed to buy domestic […]

1) the j-curve effect could be a result of currency contract period and pass-through price adjustment. 2) assume that the exchange rate is currently at $0.85 per swiss franc and that u.s. importers start to like swiss chocolates more than […]

1) the london interbank offered rate or libor is used as a benchmark to set loan interest rates. 2) the international monetary fund was created to assist countries with balance of payment difficulties and monitor an adjustable peg system with […]

1) the monetary approach states that, under a fixed exchange rate system, an excess demand for money leads to a trade deficit. 2) the law of one price states that identical goods will have the same price in different markets […]

1) a theory based on the relationship of domestic spending for domestic goods relative to domestic output is known as the elasticities approach. 2) if u.s dollar depreciates against foreign currency, the u.s. exports will become relatively more expensive to […]

1) due to fewer regulations domestic banks are able to offer a narrower spread than eurobanks. 2) pegging exchange rates at fixed levels by buying and selling to maintain the fixed rate by the central bank means that domestic and […]

1) due to fewer regulations domestic banks are able to offer a narrower spread than eurobanks. 2) domestic currency devaluation always improves the balance of trade in the short run. Answer: false 3) capital budgeting refers to the evaluation of […]

1) exchange rate overshooting occurs because product prices are slow to change while asset prices adjust immediately. 2) the sum of the projects initial investment cost, the present values of cash flows, and all financial effects related to the investment […]

1) to minimize transaction costs on foreign subsidiary profits in low-tax countries, firms may use transfer prices. 2) the prefix euro was added after the creation of the euro. Answer: false 3) the mabp implies that the change in international […]

1) the expected exchange rate changes will be reflected in the differences between the term structure of interest rates in two countries. 2) suppose that the current buy rate for the japanese yen is 87.410 (yen/dollar) and the current sell […]

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 […]

1) bank claims and liabilities, security purchases, direct investments are examples of items found in the capital account. 2) according to the monetary approach, a balance-of-payments disequilibrium is the result of an imbalance in a countrys money supply and money […]

1) suppose that the one-year u.s. interest rate is 5% and the equivalent one-year swiss interest rate is 4%. according to the covered interest rate parity, there is a forward discount on the swiss franc. 2) the maer emphasizes money […]

1) if the multiplier in a keynesian open economy is 2.0, this is consistent with which one of the following combinations of the marginal propensity to consume (mpc) and the marginal propensity to import (mpm)? (assume that there is no […]

1) if the capital/labor ratio in import-competing industries in country a is $8,000 per worker and the capital/labor ratio in as export industries is $4,000 per worker, then country as leontief statistic is __________. a. 0.50 b. 0.67 c. 1.00 […]

1) when a country joins the international monetary fund, the country is assigned a quota, or subscription fee. at the present time, this quota is paid a. entirely in the countrys own currency b. 25 percent in gold and 75 […]

1) suppose that a countrys unweighted-average (nominal) tariff rate (call it tu) and weighted-average (nominal) tariff rate (call it tw) are calculated both with and without the inclusion of prohibitive tariffs, and that the country does in fact have some […]

1) given the following ricardo-type table shows the labor input required per unit of output in each of the two industries in each of the two countries: suppose that germany is a much larger country in terms of production and […]

1) (this question draws appendix b material.) given the following diagram showing country as demand for imports schedule for good x (dimports), the supply of exports schedule to a from the rest of the world of good x(srow), and the […]

1) if tariffs are used in an attempt to improve country as balance of trade, and if exchange rates are flexible, the imposition of the tariffs will cause __________ in the value of as currency relative to other currencies and, […]

1) 2) in the three-country world in question #19, which one of the following statements is true? a. posttrade prices (terms of trade) of 1 wheat:2.5 clothing (or 1 clothing:0.4 wheat) would give all the gains from trade to the […]

1) the following diagram shows a fixed-quantity production-possibilities frontier, a community indifference curve and the associated autarky price line. suppose that this country is opened to trade from this initial situation where the dashed line indicates autarky prices [(px/py)autarky]. with […]

1) according to the labor theory of value, a. the value of labor is determined by its value in production b. the value of a good is determined by the amount of labor with which each unit of capital in […]

1) you are given the following classical-type table showing the output of 10 days labor in the production of each of the two commodities in each of the two countries. assume that the u.k. workers wage is £30 per day […]

1) two important assumptions contained in david humes price specie-flow adjustment mechanism are that a. countries are at full employment and the demands for traded goods are inelastic b. countries are at full employment and the price level of a […]

1) given the following ricardo-type table shows the labor input required per unit of output in each of the two industries in each of the two countries: if the countries engage in trade at posttrade prices (terms of trade) of […]

1) if e is the current spot rate (units of home currency per unit of foreign currency), efwd is the current three-months forward rate, e(e) is the expected spot rate in three months, and xa is the expected rate of […]

1) an approximation to the real interest rate can be calculated by a. subtracting the nominal interest rate from the inflation rate b. subtracting the price level from the nominal interest rate c. dividing the nominal interest rate by the […]

1) a tariff placed upon a product in order to offset a foreign export subsidy is called a. an antidumping duty b. a countervailing duty c. a predatory duty d. a specific duty 2) which one of the following has […]

1) in the imitation lag hypothesis, the length of time that elapses between when a new product is introduced by innovating firms in country i and when consumers in country ii decide that the new product is a good substitute […]

1) given the following information for industry x in country a, and assuming that input y is imported, that one unit of y is required for each one unit of x, and that country a is a small country: the […]

in a situation of stagflation, the use of aggregate demand-oriented macro policy to address the problem of the rising price level would, at least in the short run, __________ the price level and __________ the level of output in the […]

1) the most recently successfully completed gatt/wto round or set of multilateral trade negotiations was the a. doha development agenda b. uruguay round c. tokyo round d. kennedy round 2) in the following table of production possibilities for a country, […]

1) in view of the theory of optimum currency areas, a country would be a good candidate for membership in such an area if it had a __________ degree of factor mobility with other potential member countries of the currency […]

1) during the price-specie-flow adjustment process to a trade imbalance, if demands for goods are inelastic, then, when the price level __________ in the country with the trade deficit, the value of that countrys exports will __________ as the price-specie-flow […]

1) if relatively capital-abundant country a opens trade with relatively labor-abundant country b and the trade takes place in accordance with the heckscher-ohlin theorem, what would be the consequence for factor prices (w/r) in the two countries? a. (w/r) rises […]

1) in the diagram above, what is the amount of tariff revenue collected by the government when the tariff is in place? a. $3 b. $6 c.. $18 d. $40 suppose that, at the equilibrium level of income in a […]

1) suppose that the offshore assembly provisions (oap) of a country a are extended to a final good x that is imported as well as produced domestically. this action will most likely a. stimulate production in country a of components […]

1) which of the following is generally thought to haveestablished the highest tariffs in u.s. history? a. trade act of 1974 b. reciprocal trade agreements act of 1934 c. tariff act of 1930 (smoot-hawley tariff) d. general agreement on tariffs […]