1) When a country's currency is weak, the price of its ________.
A) exports and imports declines
B) exports on world markets declines and the price of imports increases
C) exports and imports increases
D) exports on world markets increases and the price o
B) exports on world markets declines and the price of imports increases
2) A company selling in a country with a strong currency while sourcing from a country with a
weak currency ________.
A) suggests unethical conduct
B) generally faces government penalties
C) ends up going bankrupt
D) improves its profits
D) improves its profits
3) Translating subsidiary earnings from a weak host country currency into a strong home
currency ________.
A) reduces the amount of these earnings when stated in the home currency
B) increases stated earnings in the home country
C) reduces stated earnings
A) reduces the amount of these earnings when stated in the home currency
4) Which of these is the intentional lowering of a currency's value by the nation's government?
A) Revaluation
B) Inefficient market view
C) Devaluation
D) Fundamental disequilibrium
C) Devaluation
5) Devaluation of a currency results in all of the following EXCEPT ________.
A) lowers profit margins for domestic companies
B) lowers the price of a country's exports
C) increases the price of a country's imports
D) reduces consumers' buying power
C) increases the price of a country's imports
6) A nation's government intentionally raising its currency's value is called ________.
A) revaluation
B) fundamental disequilibrium
C) devaluation
D) convertible restriction
A) revaluation
7) A government might devalue its currency for any of these reasons EXCEPT to ________.
A) give its domestic companies an edge over foreign competition
B) increase the price of exports and therefore profits
C) improve its balance of payments
D) boost expo
B) increase the price of exports and therefore profits
8) Which of the following lowers the price of a country's exports on world markets and increases
the price of imports?
A) Revaluation
B) Devaluation
C) Liquidity
D) Strong currency
B) Devaluation
9) Managers prefer that exchange rates be ________.
A) stable
B) freely floating
C) volatile
D) unpredictable
A) stable
10) Predictable exchange rates reduce the need for ________.
A) currency conversion
B) globalization
C) financial planning
D) currency hedging
D) currency hedging
11) An exchange rate tells us ________.
A) about the buying power of a currency
B) whether a certain product will be more or less expensive in another country (as measured in
the home currency)
C) how much of one currency we must pay to receive a certain
C) how much of one currency we must pay to receive a certain amount of another
12) Which of these stipulates that an identical product must have an identical price in all
countries when the price is expressed in a common currency?
A) Purchasing power parity
B) Law of one price
C) Fisher effect
D) Efficient market view
B) Law of one price
13) If a kilogram of coal costs �1.5 in Germany and $1 in the United States, the law of one price
________.
A) calculates the expected exchange rate between the euro and the dollar to be �1.5/$
B) calculates the expected exchange rate between the euro and
A) calculates the expected exchange rate between the euro and the dollar to be �1.5/$
14) When the law of one price is violated, a(n) ________ opportunity arises.
A) hedging
B) speculation
C) arbitrage
D) power play
C) arbitrage
15) For the law of one price to apply, products must be all of the following EXCEPT ________.
A) entirely produced within each particular country
B) identical in quality in all countries
C) identical in content in all countries
D) identical in quantity in
D) identical in quantity in all countries
16) The law of one price ________.
A) works well when using the Triple Whopper Index
B) is too simplistic a method for estimating exchange rates
C) is too simplistic a method for estimating fast food prices
D) works well as long as products are sold using
B) is too simplistic a method for estimating exchange rates
17) Which of these is the relative ability of two countries' currencies to buy the same "basket" of
goods in those two countries?
A) Fisher effect
B) Law of one price
C) Purchasing power parity
D) Cross rates
C) Purchasing power parity
18) Inflation ________.
A) occurs when money is injected into an economy that is experiencing greater output
B) is the result of supply and demand for a currency
C) increases people's purchasing power
D) can be controlled through currency movements
B) is the result of supply and demand for a currency
19) Which of these is true about inflation?
A) It is the result of the supply and demand for a currency
B) It erodes people's purchasing power
C) It raises prices of goods and services
D) All of the above
D) All of the above
20) Which of these include activities that directly affect a nation's interest rates or money
supply?
A) Monetary policy
B) Government spending
C) Purchasing power parity
D) Fiscal policy
A) Monetary policy
21) ________ is an example of monetary policy.
A) Increasing taxes
B) Lowering taxes
C) Increasing government spending
D) Selling government securities
D) Selling government securities
22) When a government buys its own securities on the open market, it is employing ________.
A) fiscal policy
B) monetary policy
C) global policy
D) the law of one price
B) monetary policy
23) When a government lowers taxes it is employing ________.
A) fiscal policy
B) monetary policy
C) domestic policy
D) the law of one price
A) fiscal policy
24) ________ involves using taxes and government spending to influence the money supply
indirectly.
A) Monetary policy
B) Domestic policy
C) The law of one price
D) Fiscal policy
D) Fiscal policy
25) When a government buys its own securities on the open market, ________.
A) tax rates decline
B) the money supply increases
C) the nation's productivity increases
D) it encourages FDI outflow
B) the money supply increases
26) To cool off an inflationary economy, a government might ________.
A) lower interest rates
B) raise interest rates
C) lower foreign exchange rates
D) raise foreign exchange rates
B) raise interest rates
27) Suppose the exchange rate at the beginning of the year between the Indian Rupee (R) and
U.S. dollar is R43.125/$. The annual inflation rate in India is 19 percent whereas inflation in the
United States is 3 percent. What would be the new exchange rate
A) R49.8224/$
28) The rule that the nominal interest rate is the sum of the real interest rate and the expected rate
of inflation over a specific period is called ________.
A) the law of one price
B) purchasing power parity
C) the cross rate rule
D) the Fisher effect
D) the Fisher effect
29) The Fisher effect can be written as follows: ________.
A) Nominal Interest Rate = Real Interest Rate + Government Floor Rate
B) Real Interest Rate = Nominal Interest Rate + Inflation Rate
C) Nominal Interest Rate = Real Interest Rate + Inflation Rate
C) Nominal Interest Rate = Real Interest Rate + Inflation Rate
30) If money were free from all controls when transferred internationally, the real rate of interest
would ________.
A) be the same in all countries
B) be reflected in exchange rate conversions
C) create arbitrage opportunities across countries
D) be the
A) be the same in all countries
31) Which of these is the principle that a difference in nominal interest rates supported by two
countries' currencies will cause an equal but opposite change in their spot exchange rates?
A) Purchasing power parity
B) International Monetary Fund Rule
C)
C) International Fisher effect
32) A country experiencing inflation higher than that of another country should see the value of
its currency ________.
A) rise to match the real interest rate
B) rise to match the nominal interest rate
C) rise
D) fall
D) fall
33) Purchasing power parity is better at predicting ________ exchange rates.
A) European
B) short-term
C) spot
D) long-term
D) long-term
34) Which of these are possible reasons for the failure of purchasing power parity to accurately
predict exchange rates?
A) Added costs
B) Business confidence and psychology
C) Trade barriers
D) All of the above
D) All of the above
35) According to the efficient market view, the best predictor of exchange rates is ________.
A) forward exchange rates
B) fundamental analysis
C) technical analysis
D) statistical modeling
A) forward exchange rates
36) Which of the following statements is NOT true?
A) Forward exchange rates reflect all relevant publicly available information at any given time.
B) Forward exchange rates are perfect predictors of future exchange rates.
C) A market is efficient if pric
B) Forward exchange rates are perfect predictors of future exchange rates.
37) The efficient market view holds that prices of financial instruments ________.
A) do not reflect all publicly available information
B) are dependent on economic efficiency
C) are not dependent on economic efficiency
D) reflect all publicly available i
D) reflect all publicly available information at any given time
38) The inefficient market view holds that prices of financial instruments ________.
A) do not reflect all publicly available information
B) are dependent on economic efficiency
C) are not dependent on economic efficiency
D) reflect all publicly available
A) do not reflect all publicly available information
39) Which of these employs statistical models based on fundamental economic indicators to
forecast exchange rates?
A) Efficient market view
B) Fundamental analysis
C) Fisher effect
D) Technical analysis
B) Fundamental analysis
40) Which of these employs charts of past trends in currency prices and other factors to forecast
exchange rates?
A) Efficient market view
B) Fundamental analysis
C) Fisher effect
D) Technical analysis
D) Technical analysis
41) The collection of agreements and institutions that govern exchange rates is the ________.
A) Bretton Woods Agreement
B) Plaza Accord
C) International monetary system
D) Floating-exchange rate system
C) International monetary system
42) Using gold as a medium of exchange in international trade was advantageous for all of the
following reasons EXCEPT ________.
A) its limited supply made it a commodity in high demand
B) it was a good medium of exchange for both small and large purchase
C) its weight made transporting it inexpensive
43) The international monetary system in which nations linked the value of their paper currencies
to specific values of gold is referred to as the ________.
A) bartered system
B) floating exchange-rate system
C) gold standard
D) managed float system
C) gold standard
44) The gold standard is a ________ because it fixed nation's currencies to the value of gold.
A) managed float system
B) floating exchange-rate system
C) bartered system
D) fixed exchange-rate system
D) fixed exchange-rate system
45) ________ was the first nation to implement the gold standard.
A) The United States
B) Britain
C) France
D) Japan
B) Britain
46) The value of a currency expressed in terms of gold is called its ________.
A) exchange rate
B) gold value
C) par value
D) gold currency value
C) par value
47) Under the gold standard, if the U.S. dollar was fixed at $30/oz of gold and Japan was fixed at
�75/oz of gold, what would be the Yen/dollar exchange rate?
A) �2.50/$
B) $2.50/�
C) �0.40/$
D) �2250/$
A) �2.50/$
48) Under the gold standard, the calculation of each currency's par value was based on the
concept of ________.
A) the international Fisher effect
B) nominal and real interest rates
C) purchasing power parity
D) the law of one price
C) purchasing power parity
49) An exchange rate system in which the exchange rate for converting one currency into
another is fixed by international governmental agreement is called a ________.
A) floating exchange-rate system
B) fixed exchange-rate system
C) gold standard
D) curre
B) fixed exchange-rate system
50) By limiting the growth of a nation's money supply, the gold standard was also effective at
controlling ________.
A) cross rates
B) inflation
C) currency reserves
D) economic development
B) inflation
51) Which of the following were advantages of the gold standard?
A) Correcting trade imbalances
B) Imposing strict monetary policies
C) Reducing exchange-rate risk
D) All of the above
D) All of the above
52) Which of the following created a new international monetary system based on the value of
the U.S. dollar?
A) Plaza Accord
B) Bretton Woods Agreement
C) Louvre Accord
D) Jamaica Agreement
B) Bretton Woods Agreement
53) The Bretton Woods Agreement incorporated all of these features EXCEPT ________.
A) funds for economic development
B) an enforcement mechanism
C) floating exchange rates
D) built-in flexibility
C) floating exchange rates
54) An economic condition in which a trade deficit causes a permanent negative shift in a
country's balance of payments is called ________.
A) revaluation
B) managed float system
C) the Fisher effect
D) fundamental disequilibrium
D) fundamental disequilibrium
55) The World Bank was created by the ________.
A) Jamaica Agreement
B) Bretton Woods Agreement
C) Smithsonian Agreement
D) Plaza Accord
B) Bretton Woods Agreement
56) Which of the following was created by the Bretton Woods Agreement to enforce the rules of
the international monetary system?
A) International Monetary Fund (IMF)
B) International Bank for Reconstruction and Development (IBRD)
C) Special Drawing Rights
A) International Monetary Fund (IMF)
57) The ________ is an IMF asset whose value is based on a weighted basket of four currencies.
A) SDR
B) IMF
C) IBRD
D) G5
A) SDR
58) Which of the following is NOT true of the Special Drawing Right (SDR)?
A) The SDR's value is set daily and changes with increases and declines in the values of its
underlying currencies.
B) There are more than 21 billion SDRs in existence.
C) The SDR
D) The SDR's value is based on the Japanese yen, U.S. dollar, Brazilian real, and Indian rupee.
59) The goals of the International Monetary Fund (IMF) include ________.
A) facilitating expansion and balanced growth of international trade
B) promoting international monetary cooperation
C) making the resources of the fund available to members
D) all o
D) all of the above
60) The international monetary system based on fixed exchange rates ended in ________.
A) 1973
B) 1983
C) 1993
D) 2003
A) 1973
61) IMF members formalized the existing system of floating exchange rates as the new
international monetary system by drafting the so-called ________.
A) Bretton Woods Agreement
B) Smithsonian Agreement
C) Plaza Accord
D) Jamaica Agreement
D) Jamaica Agreement
62) A system in which currencies float against one another, with governments intervening to
stabilize their currencies at particular target exchange rates is called a ________.
A) managed float system
B) Bretton Woods system
C) free float system
D) fixed
A) managed float system
63) Today's international monetary system is considered a ________.
A) fixed system
B) managed float system
C) floating system
D) mixed system
B) managed float system
64) A monetary regime based on an explicit commitment to exchange domestic currency for a
specified foreign currency at a fixed exchange rate is known as a ________.
A) fixed exchange rate system
B) Bretton Woods Agreement
C) currency board
D) pegged exch
C) currency board