Question 1

Briefly describe the schools of thought regarding exchange rate forecasting.

Accepted Answer

A company's need to predict future excha

Question 2

Which of the following is illustrated by the Big Mac Index published by The Economist?

Accepted Answer

A)  The law of one price 
B)  The purchasing power parity theory 
C)  The Fisher effect 
D)  Flow of FDI 
E)  The bandwagon effect 
A)  The law of one price 
B)  The purchasing power parity theory 
C)  The Fisher effect 
D)  Flow of FDI 
E)  The bandwagon effect

Question 3

What happens in the foreign exchange market does not directly impact the sales,profits,and strategy of a multinational enterprise.

Accepted Answer

A) True 
 B)False

Question 4

When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency,the phenomenon is generally referred to as capital flight.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following refers to the bandwagon effect?

Accepted Answer

A)  When securities are purchased in one market for immediate resale in another 
B)  When dominant enterprises exercise a degree of pricing power, setting different prices in different markets to reflect varying demand conditions 
C)  When traders move like a herd, all in the same direction and at the same time, in response to each others' perceived actions 
D)  When governments routinely intervene in international trade, creating tariff and nontariff barriers to cross-border trade 
E)  When the output of goods and services grows at a lesser rate than that of the money supply 
A)  When securities are purchased in one market for immediate resale in another 
B)  When dominant enterprises exercise a degree of pricing power, setting different prices in different markets to reflect varying demand conditions 
C)  When traders move like a herd, all in the same direction and at the same time, in response to each others' perceived actions 
D)  When governments routinely intervene in international trade, creating tariff and nontariff barriers to cross-border trade 
E)  When the output of goods and services grows at a lesser rate than that of the money supply

Question 6

Explain how investor psychology and bandwagon effects impact the movement in exchange rates.

Accepted Answer

Empirical evidence suggests that neither

Question 7

If a basket of goods costs $100 in the United States and €120 in Europe,purchasing power parity theory predicts that the dollar/euro exchange rate should be _____.

Accepted Answer

A)  $1 = €1.20 
B)  $1 = €1 
C)  $1 = €0.80 
D)  $1 = €0.90 
E)  $1 = €1.10 
A)  $1 = €1.20 
B)  $1 = €1 
C)  $1 = €0.80 
D)  $1 = €0.90 
E)  $1 = €1.10

Question 8

Which of the following weakens the link between relative price changes and changes in exchange rates predicted by purchasing power parity (PPP)theory by violating the assumption of efficient markets?

Accepted Answer

A)  Government intervention in cross-border trade 
B)  The relationship between money supply and price inflation 
C)  The impact of increase in currency on relative demand and supply conditions of currencies 
D)  Excessive growth in money supply 
E)  The insignificant impact of transportation costs on international trade 
A)  Government intervention in cross-border trade 
B)  The relationship between money supply and price inflation 
C)  The impact of increase in currency on relative demand and supply conditions of currencies 
D)  Excessive growth in money supply 
E)  The insignificant impact of transportation costs on international trade

Question 9

Which of the following is true of a country that is running a deficit on a balance-of-payments current account?

Accepted Answer

A)  It is importing fewer goods and services than it is exporting. 
B)  It may result in depreciation of the country's currency on the foreign exchange market. 
C)  It will lead to very low interest rates in the country. 
D)  It will lead to a shortage of the country's currency in the foreign exchange market. 
E)  It is engaging in neo-mercantilism. 
A)  It is importing fewer goods and services than it is exporting. 
B)  It may result in depreciation of the country's currency on the foreign exchange market. 
C)  It will lead to very low interest rates in the country. 
D)  It will lead to a shortage of the country's currency in the foreign exchange market. 
E)  It is engaging in neo-mercantilism.

Question 10

For most major currencies,forward exchange rates are quoted for 30 days,90 days,and 180 days into the future.

Accepted Answer

A) True 
 B)False

Question 11

Explain the concepts of transaction exposure and translation exposure.

Accepted Answer

Foreign exchange risk is usually divided

Question 12

Differentiate between a lead strategy and a lag strategy.

Accepted Answer

A number of tactics can help firms minim

Question 13

In terms of foreign exchange transactions,the _____ has replaced the German mark as the world's second most important vehicle currency.

Accepted Answer

A)  euro 
B)  yen 
C)  pound 
D)  riyal 
E)  mark 
A)  euro 
B)  yen 
C)  pound 
D)  riyal 
E)  mark

Question 14

Spot exchange rates and the 30-day forward rates are the same.

Accepted Answer

A) True 
 B)False

Question 15

The euro/dollar exchange rate is €1 = $1.20.If a trader buys a camera that retails for $300 in New York and sells it for €200 in Berlin (ignoring transaction costs,transportation costs,or trade barriers),this represents a potential profit (arbitrage)of _____.

Accepted Answer

A)  $60 
B)  $80 
C)  $20 
D)  $100 
E)  $40 
A)  $60 
B)  $80 
C)  $20 
D)  $100 
E)  $40

Question 16

The speculative element of the carry trade is that its success is based upon a belief that:

Accepted Answer

A)  there will be no adverse movement in exchange rates or interest rates. 
B)  liquidity is the key factor in determining interest rates. 
C)  increasing money supply will not drive inflation. 
D)  spot exchange rates are more favorable than forward exchange rates. 
E)  hedging insures a company against foreign exchange risks. 
A)  there will be no adverse movement in exchange rates or interest rates. 
B)  liquidity is the key factor in determining interest rates. 
C)  increasing money supply will not drive inflation. 
D)  spot exchange rates are more favorable than forward exchange rates. 
E)  hedging insures a company against foreign exchange risks.

Question 17

Steven converted $1,000 to ¥105,000 for a trip to Japan.However,he spent only ¥50,000.During this period,the value of the dollar weakened against the yen.Considering a current exchange rate of $1=¥100,how many dollars did Steven spend on the trip?

Accepted Answer

A)  $550 
B)  $523 
C)  $450 
D)  $600 
E)  $500 
A)  $550 
B)  $523 
C)  $450 
D)  $600 
E)  $500

Question 18

Currency swaps are transacted between international businesses and their banks,between banks,and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Accepted Answer

A) True 
 B)False

Question 19

What is meant by a currency swap?

Accepted Answer

A currency swap is the simultaneous purc

Question 20

The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as countertrade.

Accepted Answer

A) True 
 B)False

Briefly describe the schools of thought regarding exchange rate forecasting.

Which of the following is illustrated by the Big Mac Index published by The Economist?

What happens in the foreign exchange market does not directly impact the sales,profits,and strategy of a multinational enterprise.

When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency,the phenomenon is generally referred to as capital flight.

Which of the following refers to the bandwagon effect?

Explain how investor psychology and bandwagon effects impact the movement in exchange rates.

If a basket of goods costs $100 in the United States and €120 in Europe,purchasing power parity theory predicts that the dollar/euro exchange rate should be _____.

Which of the following weakens the link between relative price changes and changes in exchange rates predicted by purchasing power parity (PPP)theory by violating the assumption of efficient markets?

Which of the following is true of a country that is running a deficit on a balance-of-payments current account?

For most major currencies,forward exchange rates are quoted for 30 days,90 days,and 180 days into the future.

Explain the concepts of transaction exposure and translation exposure.

Differentiate between a lead strategy and a lag strategy.

In terms of foreign exchange transactions,the _____ has replaced the German mark as the world's second most important vehicle currency.

Spot exchange rates and the 30-day forward rates are the same.

The euro/dollar exchange rate is €1 = $1.20.If a trader buys a camera that retails for $300 in New York and sells it for €200 in Berlin (ignoring transaction costs,transportation costs,or trade barriers),this represents a potential profit (arbitrage)of _____.

The speculative element of the carry trade is that its success is based upon a belief that:

Steven converted $1,000 to ¥105,000 for a trip to Japan.However,he spent only ¥50,000.During this period,the value of the dollar weakened against the yen.Considering a current exchange rate of $1=¥100,how many dollars did Steven spend on the trip?

Currency swaps are transacted between international businesses and their banks,between banks,and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

What is meant by a currency swap?

The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as countertrade.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

National Differences in Culture

Ethics in International Business

International Trade Theory

The Political Economy of International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production, Outsourcing, and Logistics

Global Marketing and R-D

Global Human Resource Management

Filters

Exam 10: The Foreign Exchange Market

Briefly describe the schools of thought regarding exchange rate forecasting.

Which of the following is illustrated by the Big Mac Index published by The Economist?

What happens in the foreign exchange market does not directly impact the sales,profits,and strategy of a multinational enterprise.

When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency,the phenomenon is generally referred to as capital flight.

Which of the following refers to the bandwagon effect?

Explain how investor psychology and bandwagon effects impact the movement in exchange rates.

If a basket of goods costs $100 in the United States and €120 in Europe,purchasing power parity theory predicts that the dollar/euro exchange rate should be _____.

Which of the following weakens the link between relative price changes and changes in exchange rates predicted by purchasing power parity (PPP)theory by violating the assumption of efficient markets?

Which of the following is true of a country that is running a deficit on a balance-of-payments current account?

For most major currencies,forward exchange rates are quoted for 30 days,90 days,and 180 days into the future.

Explain the concepts of transaction exposure and translation exposure.

Differentiate between a lead strategy and a lag strategy.

In terms of foreign exchange transactions,the _____ has replaced the German mark as the world's second most important vehicle currency.

Spot exchange rates and the 30-day forward rates are the same.

The euro/dollar exchange rate is €1 = $1.20.If a trader buys a camera that retails for $300 in New York and sells it for €200 in Berlin (ignoring transaction costs,transportation costs,or trade barriers),this represents a potential profit (arbitrage)of _____.

The speculative element of the carry trade is that its success is based upon a belief that:

Steven converted $1,000 to ¥105,000 for a trip to Japan.However,he spent only ¥50,000.During this period,the value of the dollar weakened against the yen.Considering a current exchange rate of $1=¥100,how many dollars did Steven spend on the trip?

Currency swaps are transacted between international businesses and their banks,between banks,and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

What is meant by a currency swap?

The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as countertrade.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

National Differences in Culture

Ethics in International Business

International Trade Theory

The Political Economy of International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production, Outsourcing, and Logistics

Global Marketing and R-D

Global Human Resource Management

Filters