Exam 7: Dealing With Foreign Exchange

A country experiencing a current account surplus will see its currency ____, while a country experiencing a current account deficit will see its currency ____.

Which of the following is most focused on currency diversification?

Since foreign exchange is such a unique commodity, its markets are influenced only by economic factors and are free from the effect of social or political pressures.

The best practice for facing currency risk is to have a well thought-out currency management strategy and plan for both long-run movements and short-run movements.

The foreign exchange market has no central physical location but operates 24/7 and is the largest and most active market in the world.

It is only crucial that managers pay attention to long-run movements informed by PPP, productivity changes, and balance of payments because short-run fluctuations always even out.

What measure did worried Latin American governments take to restrain the value of their currencies?

If a country s interest rate is high relative to other countries, the country will:

____ is an international organization that was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements.

While theories on PPP, interest rates, and money supply give often-accurate predictions about long-term movements, investor psychology is regarded as the determinant behind short-term movements.

Strategic hedging means spreading out activities in a number of countries in different currency zones to offset the currency losses in certain regions through gains in other regions.

Currency hedging is a popular way to minimize the foreign exchange risk inherent in all nonspot transactions.

Which is NOT one of the primary types of foreign exchange transactions?

The gold standard propelled the US dollar to commanding heights in the global economy.

Smaller, internationally inexperienced firms sometimes outsource currency hedging to specialists such as currency traders.

____ allow participants to buy and sell currencies now for future delivery.

Where does the International Monetary Fund receive its funds?

Identify the concept behind the Big Mac index and provide an example why this index should be used with caution.

Which of the following best describes a rate in which selective government intervention works hand-in-hand with allowing markets the freedom to work themselves out?

A deficit in the current account does not have to be balanced by other financial accounts.