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Test bank International Finance MCQ (word)chap 357

FundamentalsofMultinatio;Chapter3TheInternational;3.1MultipleChoiceandTrue;1)Thepriceofonecountry's;________.;A)foreigninterestrate;B)foreigncurrencyexchang;C)parvalue;D)internatio


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Fundamentals of Multinational Finance, 3e (Moffett)

Chapter 3 The International Monetary System

3.1 Multiple Choice and True/False Questions

1) The price of one country's currency in units of another currency or commodity is the

________.

A) foreign interest rate

B) foreign currency exchange rate

C) par value

D) international rate

Answer: B

Topic: Currency Terminology

Skill: Recognition

2) A country that regulates the rate at which its currency is exchanged for all other currencies is

considered to have a ________ exchange rate system.

A) fixed or managed

B) floating or flexible

C) forward

D) spot

Answer: A

Topic: Currency Terminology

Skill: Recognition

3) You check the Yahoo.com currency web page and find that the Japanese yen is trading at a

rate of

113 yen per dollar. This rate of exchange is typically referred to as the ________.

A) forward rate

B) par rate

C) spot rate

D) 113 rate

Answer: C

Topic: Currency Terminology

Skill: Conceptual

4) The drop in value of a currency pegged to gold or another currency is known as ________.

A) revaluation

B) depreciation

C) deterioration

D) devaluation

Answer: D

Topic: Currency Terminology

Skill: Conceptual

5) A ________ currency is expected to devalue or depreciate relative to major currencies.

A) soft or weak

B) hard or strong

C) deteriorated

D) devalued

Answer: A

Topic: Currency Terminology

Skill: Conceptual

6) The increase in value of a currency pegged to gold or another currency is known as ________.

A) appreciation

B) revaluation

C) strengthened

D) hardened

Answer: B

Topic: Currency Terminology

Skill: Conceptual

7) A currency that has increased in foreign exchange value relative to a floating rate currency

has ________.

A) revalued

B) violated international trade agreements

C) appreciated

D) deteriorated

Answer: C

Topic: Currency Terminology

Skill: Conceptual

8) A currency that has decreased in foreign exchange value relative to a floating rate currency

has ________.

A) revalued

B) appreciated

C) devalued

D) depreciated

Answer: D

Topic: Currency Terminology

Skill: Conceptual

9) The ________, as of December 2007, is the common currency for 13 of the countries that are

members of the European Union.

A) SDR (Special Drawing Rights)

B) ECU (European Currency Unit)

C) Euro

D) Yugo

Answer: C

Topic: Currency Terminology

Skill: Recognition

10) A United States firm had chosen to deposit money in a British bank and have it denominated

in U.S. dollars. This is an example of a (an) ________ deposit.

A) imPounded

B) Euroyen

C) Europound

D) Eurodollar

Answer: D

Topic: Currency Terminology

Skill: Recognition

11) Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of

gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was

A) £4.8665/$.

B) £0.2055/$.

C) always changing because the price of gold was always changing.

D) unknown because there is not enough information to answer this question.

Answer: B

Topic: Gold Standard

Skill: Analytical

12) World War I caused the suspension of the gold standard for fixed international exchange

rates because the war

A) cost too much money.

B) interrupted the free movement of gold.

C) lasted too long.

D) used gold as the main ingredient in armament plating.

Answer: B

Topic: Gold Standard

Skill: Conceptual

13) A speculative technique whereby the speculator sells an asset that he/she doesn't own, such

as a currency, to another party for delivery at a future date is called ________.

A) selling ahead

B) selling behind

C) selling short

D) selling long

Answer: C

Topic: Currency Speculation

Skill: Conceptual

14) Which of the following investment strategies will allow me to make a profit if I anticipate

that the value of the Euro, a currency that I do not own, is going to fall over the next 90 days and I am correct in my prediction?

A) Sell Euros short.

B) Buy Euros short.

C) Sell dollars short.

D) Buy Euros long.

Answer: A

Topic: Currency Speculation

Skill: Conceptual

15) The post WWII international monetary agreement that was developed in 1944 is known as

the ________.

A) United Nations

B) League of Nations

C) Yalta Agreement

D) Bretton Woods Agreement

Answer: D

Topic: Bretton Woods Agreement

Skill: Recognition

16) Another name for the International Bank for Reconstruction and Development is

A) the Recon Bank.

B) the European Monetary System.

C) the Marshall Plan.

D) the World Bank.

Answer: D

Topic: Bretton Woods Agreement

Skill: Recognition

17) The International Monetary Fund (IMF)

A) in recent years has provided large loans to Russia, South Korea, and Brazil.

B) was created as a result of the Bretton Woods Agreement.

C) aids countries with balance of payment and exchange rate problems.

D) is all of the above.

Answer: D

Topic: Bretton Woods Agreement

Skill: Recognition

18) Under the terms of Bretton Woods countries tried to maintain the value of their currencies to

within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen. Answer: FALSE

Topic: Bretton Woods Agreement

Skill: Recognition

19) Members of the International Monetary Fund may settle transactions among themselves by

transferring Special Drawing Rights (SDRs).

Answer: TRUE

Topic: Bretton Woods Agreement

Skill: Recognition

20) Today, the United States has been ejected from the International Monetary Fund for refusal

to pay annual dues.

Answer: FALSE

Topic: Bretton Woods Agreement

Skill: Analytical

21) Which of the following led to the eventual demise of the fixed currency exchange rate

regime worked out at Bretton Woods?

A) widely divergent national monetary and fiscal policies among member nations

B) differential rates of inflation across member nations.

C) several unexpected economic shocks to member nations

D) all of the above

Answer: D

Topic: Exchange Rate Regimes

Skill: Conceptual

22) The IMFs exchange rate regime classification identifies ________ as the most rigidly fixed,

and ________ as the least fixed.

A) exchange arrangements with no separate legal tender; independent floating

B) crawling pegs; managed float

C) currency board arrangements; independent floating

D) pegged exchange rates within horizontal bands; exchange rates within crawling pegs

Answer: A

Topic: Exchange Rate Regimes

Skill: Recognition

23) Which of the following correctly identifies exchange rate regimes from less fixed to more

fixed?

A) independent floating, currency board arrangement, crawling pegs

B) independent floating, currency board arrangement, managed float

C) independent floating, crawling pegs, exchange arrangements with no separate legal

tender

D) exchange arrangements with no separate legal tender, currency board arrangement,

crawling pegs

Answer: C

Topic: Exchange Rate Regimes

Skill: Conceptual

24) As of January 2002, the Independent Floating regime of exchange rate classifications was

used by over 75% of the 186 countries identified by the IMF.

Answer: FALSE

Topic: Exchange Rate Regimes

Skill: Recognition

25) A small economy country whose GDP is heavily dependent on trade with the United States

could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.

A) pegged exchange rate with the United States

B) pegged exchange rate with the Euro

C) independent floating

D) managed float

Answer: A

Topic: Exchange Rate Regimes

Skill: Conceptual

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