Exam 6: International Finance and Trade

Quotations of foreign exchange rates in the many cities of the world are identical or nearly so because of

When the flow of income into the United States exceeds the flow of income out of the United States, it creates a

The International Monetary Fund (IMF) was created to promote world trade through monitoring and maintaining fixed exchange rates and by making loans to countries with payment problems.

Holding demand constant, an increase in supply for one currency relative to another will cause its value to appreciate relative to that currency.

The balance of payments is a record of all economic transactions between one country and the rest of the world.

Under the Bretton Woods system, individual currencies would be tied to silver through the U.S. dollar via fixed, or pegged, exchange rates.

Under the system of flexible exchange rates, exchange rates are determined by the actual process of supply and demand in the foreign exchange market.

The exchange rate is the rate at which a given unit of foreign currency is quoted in terms of

Which factor does not impact international trade balances?

A quotation differential of as little as one-sixteenth of one cent may be sufficient to encourage arbitrage activities.

In effect, the commercial letter of credit enables the importer to

The official currency of the EMU is what?

An instrument through which a bank retains title to goods until they are paid for is called a(n)

The maturity of a banker's acceptance arising out of international transactions may not exceed what?

The European Economic Organization (EEO) is an organization of twelve European countries that agreed to have a common overall monetary policy and the euro as their common currency.

Purchasing power parity (PPP) states that the currency of a country with relatively higher inflation will depreciate relative to the currency of a country with a relatively lower inflation rate.

A decrease in demand for a currency relative to other currencies will cause it to depreciate in value.

Which of the following statements is false?

If the U.S. inflation rate is expected to be 3 percent next year, the European inflation rate is expected to be 4% next year, and the spot rate between the euro and dollar is $1.30, then according to purchasing power parity, we would expect the dollar to _________ against the euro from $1.30 to __________.

_________________________ was an international monetary system in which the U.S. dollar was valued in gold and other exchange rates were pegged to the dollar.