Question 1

Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.

Accepted Answer

A) True 
 B)False  False

Question 2

Explain how a central bank would engage in direct intervention to decrease the value of its domestic currency. Since the 1970s, it has been difficult for central banks alone to engage in direct intervention to alter the value of their domestic currency. Identify and explain at least two other activities in which a central bank could engage to alter the value of their domestic currency.

Accepted Answer

To decrease the value of its domestic currency, a central bank could choose to sell its own currency, thus making more of its currency available and driving down its value. Because markets have become so large, it is difficult to effectively move the market in this manner.
Alternative strategies may be to enlist other central banks to make a coordinated effort to sell the currency into the market, thus putting more currency into play and having a greater negative impact on its value. Indirect intervention to drive down real interest rates is a second alternative, and the reduction of capital controls may be able to render a currency less valuable as well.

Question 3

________ is the alteration of economic or financial fundamentals that are thought to be drivers of capital to flow in and out of specific currencies.

Accepted Answer

A)  Indirect Intervention 
B)  Direct Intervention 
C)  Foreign Direct Investment 
D)  Capital Controls 
A)  Indirect Intervention 
B)  Direct Intervention 
C)  Foreign Direct Investment 
D)  Capital Controls A

Question 4

The large and liquid capital and currency markets follow many of the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following versions of PPP is thought to be the most relevant to possibly explaining what drives exchange rate values?

Accepted Answer

A)  The Law of One Price 
B)  Absolute Purchasing Power Parity 
C)  Relative Purchasing Power Parity 
D)  The International Fisher Effect 
A)  The Law of One Price 
B)  Absolute Purchasing Power Parity 
C)  Relative Purchasing Power Parity 
D)  The International Fisher Effect

Question 6

As economic conditions continued to deteriorate in Argentina by the end of 2001, banks suffered increasing runs. The government, fearing that the increasing financial drain on banks would cause their collapse, closed the banks for weeks.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is NOT a motivation for a government or central bank to manipulate domestic currency valuation?

Accepted Answer

A)  fight inflation 
B)  slow too rapid economic growth 
C)  spur too slow economic growth 
D)  All of the above are motivations for the government or central bank to manipulate currency values. 
A)  fight inflation 
B)  slow too rapid economic growth 
C)  spur too slow economic growth 
D)  All of the above are motivations for the government or central bank to manipulate currency values.

Question 8

Which of the following is NOT a technique used by governments or central banks to impact domestic currency valuation?

Accepted Answer

A)  Indirect Intervention 
B)  Direct Intervention 
C)  Capital Controls 
D)  All of the above are techniques used to control currency valuation. 
A)  Indirect Intervention 
B)  Direct Intervention 
C)  Capital Controls 
D)  All of the above are techniques used to control currency valuation.

Question 9

If the goal were to increase the value of a country's currency - to fight an depreciation of the domestic currency in exchange for foreign currency - the central bank would:

Accepted Answer

A)  buy its own currency in exchange for foreign currency. 
B)  follow a expansive monetary policy. 
C)  drive real rates of interest down. 
D)  sell its own currency in exchange for foreign currency. 
A)  buy its own currency in exchange for foreign currency. 
B)  follow a expansive monetary policy. 
C)  drive real rates of interest down. 
D)  sell its own currency in exchange for foreign currency.

Question 10

The ________ provides a means to account for international cash flows in a standardized and systematic manner.

Accepted Answer

A)  parity conditions 
B)  asset approach 
C)  balance of payments 
D)  International Fisher Effect 
A)  parity conditions 
B)  asset approach 
C)  balance of payments 
D)  International Fisher Effect

Question 11

Which of the following did NOT contribute to the Russian currency crisis of 1998?

Accepted Answer

A)  an accelerated flight of capital 
B)  generally deteriorating economic conditions 
C)  a surprisingly healthy government surplus that was neither funding internal investment nor external debt service 
D)  all of the above 
A)  an accelerated flight of capital 
B)  generally deteriorating economic conditions 
C)  a surprisingly healthy government surplus that was neither funding internal investment nor external debt service 
D)  all of the above

Question 12

Which of the following was NOT an international currency crisis in the 1990s and early 2000s?

Accepted Answer

A)  the Asian Crisis 
B)  the Canadian Crisis 
C)  the Argentine Crisis 
D)  All of the above were currency crises in the 1990s and 2000s. 
A)  the Asian Crisis 
B)  the Canadian Crisis 
C)  the Argentine Crisis 
D)  All of the above were currency crises in the 1990s and 2000s.

Question 13

Technical analysts, traditionally referred to as chartists, focus on fundamental data to determine past trends that are expected to continue into the future.

Accepted Answer

A) True 
 B)False

Question 14

A country wishing for its currency to fall in value, particularly when confronted with a continual appreciation of its value against major trading partner currencies, the central bank may work to lower real interest rates, reducing the returns to capital.

Accepted Answer

A) True 
 B)False

Question 15

________ is the restriction of access to foreign currency by government.

Accepted Answer

A)  Indirect Intervention 
B)  Direct Intervention 
C)  Foreign Direct Investment 
D)  Capital Controls 
A)  Indirect Intervention 
B)  Direct Intervention 
C)  Foreign Direct Investment 
D)  Capital Controls

Question 16

The balance of payments approach of exchange rate theory is largely dismissed by the academic community today, while the practitioner public still rely on different variations of the theory for their decision making.

Accepted Answer

A) True 
 B)False

Question 17

The asset market approach to forecasting assumes that whether foreigners are willing to hold claims in monetary form depends on an extensive set of investment considerations. These include all but which of the following choices?

Accepted Answer

A)  relative real interest rates 
B)  capital market liquidity 
C)  political safety 
D)  All of the above are considered by investors in their decision process. 
A)  relative real interest rates 
B)  capital market liquidity 
C)  political safety 
D)  All of the above are considered by investors in their decision process.

Question 18

The more efficient the foreign exchange market is, the more likely it is that exchange rate movements are random walks.

Accepted Answer

A) True 
 B)False

Question 19

The principle focus of the IMF bailout efforts during the Asian financial crisis was:

Accepted Answer

A)  banking liquidity. 
B)  shareholder's wealth. 
C)  reestablishing fixed currency exchange rates in Asia. 
D)  dollarization of Asian currencies. 
A)  banking liquidity. 
B)  shareholder's wealth. 
C)  reestablishing fixed currency exchange rates in Asia. 
D)  dollarization of Asian currencies.

Question 20

The Asian Currency crisis appeared to begin in:

Accepted Answer

A)  South Korea. 
B)  Taiwan. 
C)  Thailand. 
D)  Japan. 
A)  South Korea. 
B)  Taiwan. 
C)  Thailand. 
D)  Japan.

Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.

________ is the alteration of economic or financial fundamentals that are thought to be drivers of capital to flow in and out of specific currencies.

The large and liquid capital and currency markets follow many of the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.

Which of the following versions of PPP is thought to be the most relevant to possibly explaining what drives exchange rate values?

As economic conditions continued to deteriorate in Argentina by the end of 2001, banks suffered increasing runs. The government, fearing that the increasing financial drain on banks would cause their collapse, closed the banks for weeks.

Which of the following is NOT a motivation for a government or central bank to manipulate domestic currency valuation?

Which of the following is NOT a technique used by governments or central banks to impact domestic currency valuation?

If the goal were to increase the value of a country's currency - to fight an depreciation of the domestic currency in exchange for foreign currency - the central bank would:

The ________ provides a means to account for international cash flows in a standardized and systematic manner.

Which of the following did NOT contribute to the Russian currency crisis of 1998?

Which of the following was NOT an international currency crisis in the 1990s and early 2000s?

Technical analysts, traditionally referred to as chartists, focus on fundamental data to determine past trends that are expected to continue into the future.

A country wishing for its currency to fall in value, particularly when confronted with a continual appreciation of its value against major trading partner currencies, the central bank may work to lower real interest rates, reducing the returns to capital.

________ is the restriction of access to foreign currency by government.

The balance of payments approach of exchange rate theory is largely dismissed by the academic community today, while the practitioner public still rely on different variations of the theory for their decision making.

The asset market approach to forecasting assumes that whether foreigners are willing to hold claims in monetary form depends on an extensive set of investment considerations. These include all but which of the following choices?

The more efficient the foreign exchange market is, the more likely it is that exchange rate movements are random walks.

The principle focus of the IMF bailout efforts during the Asian financial crisis was:

The Asian Currency crisis appeared to begin in:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 9: Foreign Exchange Rate Determination and Intervention

Direct intervention for currency valuation involves limiting the ability to exchange domestic currency for foreign currency.

________ is the alteration of economic or financial fundamentals that are thought to be drivers of capital to flow in and out of specific currencies.

The large and liquid capital and currency markets follow many of the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.

Which of the following versions of PPP is thought to be the most relevant to possibly explaining what drives exchange rate values?

As economic conditions continued to deteriorate in Argentina by the end of 2001, banks suffered increasing runs. The government, fearing that the increasing financial drain on banks would cause their collapse, closed the banks for weeks.

Which of the following is NOT a motivation for a government or central bank to manipulate domestic currency valuation?

Which of the following is NOT a technique used by governments or central banks to impact domestic currency valuation?

If the goal were to increase the value of a country's currency - to fight an depreciation of the domestic currency in exchange for foreign currency - the central bank would:

The ________ provides a means to account for international cash flows in a standardized and systematic manner.

Which of the following did NOT contribute to the Russian currency crisis of 1998?

Which of the following was NOT an international currency crisis in the 1990s and early 2000s?

Technical analysts, traditionally referred to as chartists, focus on fundamental data to determine past trends that are expected to continue into the future.

A country wishing for its currency to fall in value, particularly when confronted with a continual appreciation of its value against major trading partner currencies, the central bank may work to lower real interest rates, reducing the returns to capital.

________ is the restriction of access to foreign currency by government.

The balance of payments approach of exchange rate theory is largely dismissed by the academic community today, while the practitioner public still rely on different variations of the theory for their decision making.

The asset market approach to forecasting assumes that whether foreigners are willing to hold claims in monetary form depends on an extensive set of investment considerations. These include all but which of the following choices?

The more efficient the foreign exchange market is, the more likely it is that exchange rate movements are random walks.

The principle focus of the IMF bailout efforts during the Asian financial crisis was:

The Asian Currency crisis appeared to begin in:

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters