Question 1

The study of international finance encompasses:

Accepted Answer

A)   exchange rate determination and volatility
B)   the joint determination of the exchange rate and the Balance of Payments
C)   the financial operations of firms in the international environment
D)   all of the answers given D

Question 2

Interest and exchange rates are linked via:

Accepted Answer

A)   purchasing power parity
B)   uncovered interest parity
C)   covered interest parity
D)   the Fisher effect B

Question 3

The term 'international business firm' refers to:

Accepted Answer

A)   a firm engaged in cross border activities such as importing and exporting, without necessarily engaging in offshore production or ownership of foreign assets
B)   a firm engaged in production in another country
C)   a firm which owns a subsidiary located in another country
D)   a firm which is known around the world for its quality A

Question 4

Which of the following issues is least likely to be a source of concern for finance managers?

Accepted Answer

A)   Financial contagion
B)   The rising price of coffee
C)   Balance of payments difficulties
D)   Fluctuations in exchange rates and interest rates

Question 5

Which of the following statements is false?

Accepted Answer

A)  Excessive financial regulation is thought by the majority of observers to be one of the factors causing the global financial crisis to materialise and become pronounced
B)   Excessive financial deregulation is thought by the majority of observers to be one of the factors causing the global financial crisis to materialise and become pronounced
C)   Major countries shifted to a system of flexible of floating exchange rates in 1973
D)   By the 1980s exchange rates had become volatile and misaligned

Question 6

Financial deregulation has been encouraged by:

Accepted Answer

A)   the desire to improve financial efficiency
B)   the growth of international trade
C)   privatisation
D)   all of the answers given

Question 7

Financial market integration requires:

Accepted Answer

A)   free capital movement
B)   substitutability between domestic and foreign assets
C)   membership of a currency area
D)   both free capital movement and substitutability between domestic and foreign assets

Question 8

'Securitisation' refers to:

Accepted Answer

A)   the deregulation of securities houses
B)   banking deregulation
C)   selling off public assets by listing on a securities exchange
D)   raising capital by issuing securities

Question 9

Exchange rate volatility refers to:

Accepted Answer

A)   long-term movements
B)   short-term movements around the long-term trend
C)   short-term movements relative to what is implied by the interest rate differential
D)   exchange rate movements

Question 10

The deterioration of the US external position in the early 1970s led to the:

Accepted Answer

A)   end of the Vietnam War
B)   resignation of President Nixon
C)   collapse of the Bretton Woods system
D)   intensification of the Cold War

Question 11

Examples of a currency crisis include:

Accepted Answer

A)   the EMS crisis in 1992-93
B)   the Asian crisis in 1997-98
C)   the Argentinean crisis in 2001-02
D)   all the answers given

Question 12

Gross capital flows reflect:

Accepted Answer

A)   current account imbalances
B)   international indebtedness
C)   cross-border banking and flows of securities
D)   capital account imbalances

Question 13

One reason for the US housing bubble in the early 2000s was the low interest rate policy of the US Federal Reserve, which:

Accepted Answer

A)   distorted interest rates and asset prices
B)   diverted funding into wrong instruments
C)   motivated a shift away from fixed rate loans in favour of adjustable rate loans
D)   all the answers given

Question 14

Which of the following statements is false?

Accepted Answer

A)   The US stock markets are by far the most influential with respect to their effect on other stock markets
B)   There is not a significant amount of multilateral interaction among national stock markets
C)   Developments in the US stock markets are rapidly transmitted to other stock marketsD ) Richard Roll's 1988 study found that out of 23 international stock markets studied, 19 markets declined by more than 20% immediately following the US market crash of October 1987

Question 15

According to Koos Timmermans 'three types of leverage helped propel the boom and have now accentuated the bust':

Accepted Answer

A)   US financial institutions loaded up on debt; US corporations increased their debt to equity ratios; and the US government increased the national debt
B)   US financial institutions were exposed to liquidity leverage via their use of structure investment vehicles; US corporations increased their debt to equity ratios; and the US government increased the national debt
C)   US financial institutions were exposed to product leverage via complex instruments such as CDOs; US corporations increased their debt to equity ratios; and the US government increased the national debt
D)   BUS financial institutions loaded up on debt; US financial institutions were exposed to liquidity leverage via their use of structure investment vehicles; and US financial institutions were exposed to product leverage via complex instruments such as CDOs

Question 16

The depreciation of the domestic currency is:

Accepted Answer

A)   always good for firms with international operations
B)   always bad for firms with international operations
C)   good or bad, depending on the specific conditions of the situation
D)   good or bad, depending on the interest rate differential

Question 17

Capital mobility is:

Accepted Answer

A)   a sufficient and a necessary condition for financial market integration
B)   a sufficient but not a necessary condition for financial market integration
C)   neither a sufficient nor a necessary condition for financial market integration
D)   any of the answers given, depending on the circumstances

Question 18

The effect of changes in oil prices:

Accepted Answer

A)   depends on the policy response
B)   is to increase inflation
C)   is to increase interest rates
D)   is to reduce output

Question 19

Subprime loans are:

Accepted Answer

A)   housing loans granted to borrowers who do not qualify for loans at the market rate of interest as they have poor credit records
B)   housing loans granted to borrowers who qualify for loans at the market rate of interest
C)   housing loans granted to borrowers at a rate of interest below the market rate of interest
D)   housing loans granted to borrowers solely to extend the primary mortgage on the property

Question 20

Increased volatility of exchange rates can be traced back to:

Accepted Answer

A)   the Vietnam War
B)   the collapse of the Bretton Woods system
C)   speculative attacks on the EMS
D)   the 1985 Plaza Accord to intervene in the foreign exchange market

Exam 1: An Overview

The study of international finance encompasses:

Interest and exchange rates are linked via:

The term 'international business firm' refers to:

Which of the following issues is least likely to be a source of concern for finance managers?

Which of the following statements is false?

Financial deregulation has been encouraged by:

Financial market integration requires:

'Securitisation' refers to:

Exchange rate volatility refers to:

The deterioration of the US external position in the early 1970s led to the:

Examples of a currency crisis include:

Gross capital flows reflect:

One reason for the US housing bubble in the early 2000s was the low interest rate policy of the US Federal Reserve, which:

Which of the following statements is false?

According to Koos Timmermans 'three types of leverage helped propel the boom and have now accentuated the bust':

The depreciation of the domestic currency is:

Capital mobility is:

The effect of changes in oil prices:

Subprime loans are:

Increased volatility of exchange rates can be traced back to: