International Financial Management Chapter 2

____ represent aid, grants, and gifts from one country to another.
A. Transfer payments
B. The balance of payments
C. Factor income
D. The balance of trade

A

The World Bank was established to:
A. enhance economic development of the private sector through investment in stock of corporations.
B. enhance economic development through non-subsidized loans (at market interest rates).
C. enhance economic development

B

If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same).

Reduce

An increase in the current account deficit will place ____ pressure on the home currency value, other things equal.
A. upward
B. upward or downward (depending on the size of the deficit)
C. downward
D. no

C

The International Financial Corporation was established to:
A. enhance economic development of the private sector through investment in stock of corporations.
B. enhance economic development through low-interest rate loans (below-market rates).
C. enhance

A

A. economic growth in foreign countries decreases.
B. U.S. inflation rises.
C. the currencies of foreign countries strengthen against the dollar

C

An increase in the current account deficit will place ____ pressure on the home currency value, other things equal.

Downward

____ represent aid, grants, and gifts from one country to another.
A. Transfer payments
B. The balance of payments
C. Factor income
D. The balance of trade

A

Which of the following factors probably does not directly affect a country's capital account and its components?
A. Interest rates
B. Withholding taxes on foreign income
C. Inflation
D. Exchange rate movements

C

The ____ is the difference between exports and imports.

balance of trade

Which of the following countries purchases the largest amount of exports by U.S. firms?
A. Mexico
B. Japan
C. Canada
D. France

C

The International Financial Corporation was established to:
A. enhance economic development of the private sector through investment in stock of corporations.
B. enhance economic development through low-interest rate loans (below-market rates).
C. enhance

A

The demand for U.S. exports tends to increase when:
A. economic growth in foreign countries decreases.
B. U.S. inflation rises.
C. the currencies of foreign countries strengthen against the dollar

C

D

Recently, the U.S. experienced an annual balance of trade representing a ____.
a. large surplus (exceeding $100 billion)
b. small surplus
c. level of zero
d. deficit

C

A high home inflation rate relative to other countries would ____ the home country's current
account balance, other things equal. A high growth in the home income level relative to
other countries would ____ the home country's current account balance, oth

B

If a country's government imposes a tariff on imported goods, that country's current account
balance will likely ____ (assuming no retaliation by other governments).
a. decrease
b. increase
c. remain unaffected
d. either A or C are possible

D

____ purchases more U.S. exports than the other countries listed here.
a. Italy
b. Spain
c. Mexico
d. Canada

B

An increase in the current account deficit will place ____ pressure on the home currency
value, other things equal.
a. upward
b. downward
c. no
d. upward or downward (depending on the size of the deficit)

C

If the home currency begins to appreciate against other currencies, this should ____ the
current account balance, other things equal (assume that substitutes are readily available
in the countries, and that the prices charged by firms remain the same).
a.

D

The International Financial Corporation was established to:
a. enhance development solely in Asia through grants.
b. enhance economic development through non-subsidized loans (at market
interest rates).
c. enhance economic development through low-interest

B

The World Bank was established to:
a. enhance development solely in Asia through grants.
b. enhance economic development through non-subsidized loans (at market
interest rates).
c. enhance economic development through low-interest rate loans
(below-market

C

The International Development Association was established to:
a. enhance development solely in Asia through grants.
b. enhance economic development through non-subsidized loans (at market
interest rates).
c. enhance economic development through low-intere

E

Which of the following would likely have the least direct influence on a country's current
account?
a. inflation.
b. national income.
c. exchange rates.
d. tariffs.
e. a tax on income earned from foreign stocks.

B

An increase in the use of quotas is expected to:
a. reduce the country's current account balance, if other governments do not
retaliate.
b. increase the country's current account balance, if other governments do
not retaliate.
c. have no impact on the cou

D

The U.S. typically has a balance of trade surplus in its trade with ____.
a. China
b. Japan
c. A and B
d. none of the above

D

The North American Free Trade Agreement (NAFTA) increased restrictions on:
a. trade between Canada and Mexico.
b. trade between Canada and the U.S.
c. direct foreign investment in Mexico by U.S. firms.
d. none of the above.

B

According to the text, international trade (exports plus imports combined) as a percentage
of GDP is:
a. higher in the U.S. than in European countries.
b. lower in the U.S. than in European countries.
c. higher in the U.S. than in about half the European

B

The direct foreign investment positions by U.S. firms have generally ____ over time.
Restrictions by governments on direct foreign investment have generally ___ over time.
a. increased; increased
b. increased; decreased
c. decreased; decreased
d. decrease

C

Which of the following countries purchases the largest amount of exports by U.S. firms?
a. Mexico
b. Japan c. Canada
d. France

A

The primary component of the current account is the:
a. balance of trade.
b. balance of money market flows.
c. balance of capital market flows.
d. unilateral transfers.

B

The demand for U.S. exports tends to increase when:
a. economic growth in foreign countries decreases.
b. the currencies of foreign countries strengthen against the dollar.
c. U.S. inflation rises.
d. none of the above.

D

Dumping" is used in the text to represent the:
a. exporting of goods that do not meet quality standards.
b. sales of junk bonds to foreign countries.
c. removal of foreign subsidiaries by the host government.
d. exporting of goods at prices below cost.

D

____ is (are) income received by investors on foreign investments in financial assets
(securities).
a. Portfolio income
b. Direct foreign income
c. Unilateral transfers
d. Factor income

D

A weak home currency may not be a perfect solution to correct a balance of trade deficit
because:
a. it reduces the prices of imports paid by local companies.
b. it increases the prices of exports by local companies.
c. it prevents international trade tra

B

Like the International Monetary Fund (IMF), the ____ is composed of a collection of nations
as members. However, unlike the IMF, it uses the private rather than the government
sector to achieve its objectives.
a. World Bank b. International Financial Corp

E

The World Bank's Multilateral Investment Guarantee Agency (MIGA):
a. offers various forms of export insurance.
b. offers various forms of import insurance.
c. offers various forms of exchange rate risk insurance.
d. provides loans to developing countries.

E

Also known as the "central banks' central bank," the ____ attempts to facilitate cooperation
among countries with regard to international transactions and provides assistance to
countries experiencing a financial crisis.
a. World Bank
b. International Fin

A

Direct foreign investment into the U.S. represents a ____.
a. capital inflow
b. trade inflow
c. capital outflow
d. trade outflow

D

In recent years, the U.S. has had a relatively (compared to other countries) ____ balance of
trade ____ with China.
a. small; surplus
b. large; surplus
c. small; deficit
d. large; deficit

A

The ____ is the difference between exports and imports.
a. balance of trade
b. balance on goods and services
c. balance of payments
d. current account
e. capital account

A

____ represent aid, grants, and gifts from one country to another.
a. Transfer payments
b. Factor income
c. The balance of trade
d. The balance of payments
e. The capital account

C

Which of the following is not a goal of the International Monetary Fund (IMF)?
a. To promote cooperation among countries on international monetary issues
b. To promote stability in exchange rates
c. To enhance a country's long-term economic growth via the

Without the international capital flows, there would be ____ funding available in the U.S. across all risk levels, and the cost of funding would be ____ regardless of the firm's risk level.

less;higher

The North American Free Trade Agreement (NAFTA) increased restrictions on:
A. trade between Canada and Mexico
B. trade between Canada and the U.S.
C. direct foreign investment in Mexico by U.S. firms

D