Exam 7: Dealing With Foreign Exchange

Which of the following is NOT one of the components of the balance of payments?

Which of the following is best defined by the conversion of one currency into another at Time 1, with an agreement to revert it back to the original currency at a specific Time 2 in the future ?

Only managers in financial firms have to worry about foreign exchange issues because non-financial firms are immune to risks of changing currencies.

The ____ is defined as the difference between the offered price and the bid price.

Governments that believe in a free market approach usually adopt floating exchange rate policies.

Why was the US dollar chosen as the currency to which other currencies would be pegged?

A large number of individuals and companies exchanging domestic currencies for US dollars in order to exit their home country is referred to as capital flight.

Which of the following is NOT an advantage of a strong US dollar?

Describe what it means for a country to peg its currency to another, and give two benefits to this policy.

Identify the difference between fixed and floating exchange rates. Provide an example of a situation where the fixed and floating exchange rates are used.

What is the law of one price, where the price for identical products in different countries should be the same if trade barriers are absent?

The rise of a country s productivity is usually accompanied by increased demand for its home currency.

If central bankers raise interest rates to curb inflation, they risk driving currency ____. If their interventions in the foreign exchange market drive the currency ____, they may boost inflation.

Traders and investors trading in a forward transactions market are most concerned about:

When the United States sells products to China, US exporters often demand that they be paid in the Chinese yuan.

Which of the following is the concept behind the Big Mac index?

Purchasing power parity is the price of one currency in terms of another.

The current account balance consists of exports, minus imports of merchandise and services, plus income on US assets abroad, minus payments on foreign assets in the United States, plus unilateral government transfers and private remittances.

Even though a country may have a high currency risk, the country might still be worthy of investment.

Under the gold standard, every central bank needed to maintain gold reserves in order to be able to redeem its currency in gold at a fixed price.