Deck 3: Financial Environment

Question 1

In 1969, the IMF created ____________________________, which are special account entries on the IMF books designed to provide additional liquidity to support growing world trade.

A)special drawing rights (SDRs)
B)special legal rights
C)special finance rights
D)special management rights
E)special equity rights

Answer 1

A

Question 2

Participating nations may use SDRs as a source of currency in a _________ transaction.

A)soft
B)hard
C)simple
D)future
E)spot

Answer 2

E

Question 3

In order to avoid both the rigidity of a fixed exchange rate system and the chaos of freely floating exchange rates, the Bretton Woods Agreement provided for a/n ________.

A)gold standard
B)manually adjusted exchange rate
C)currency-based exchange rate
D)adjustable peg

Answer 3

D

Question 4

The __________________________________ was established at Bretton Woods.

A)Global Monetary Fund
B)European Monetary Fund
C)International Monetary Fund (IMF)
D)Asian Monetary Fund
E)None of the above

Question 5

In the 1960s, the _______________ was the reserve currency, convertible to gold under the Bretton Woods Agreement.

A)Australian dollar
B)Canadian dollar
C)U.S.dollar
D)Hong Kong dollar
E)None of the above

Question 6

The __________ oversees the international monetary system.

A)UN
B)IMF
C)GMF
D)U.S.Treasury

Question 7

One creation of the Bretton Woods Agreement was the International Bank for Reconstruction and Development, known as ________________.

A)the Merchant Bank.
B)the Monetary Bank.
C)the World Bank.
D)the European Bank.
E)none of the above.

Question 8

The World Bank was initially intended for:

A)financing postwar reconstruction and development in Japan.
B)financing postwar reconstruction and development in France.
C)financing postwar reconstruction and development in Italy.
D)financing postwar reconstruction and development in Russia.
E)financing postwar reconstruction and development in Europe.

Question 9

_____________ float is the closest approximation to perfect competition, because there is no government intervention and because billions of units of currency are being traded by buyers and sellers.

A)Managed (clean)
B)Managed (dirty)
C)Vertical
D)Free (clean)
E)Horizontal

Question 10

To an extent, the International Monetary Fund served as an _____________________ to help countries during periods of temporary balance-of-payments difficulties.

A)International legal bank.
B)International central bank.
C)International liability bank.
D)International claims bank.
E)None of the above

Question 11

More recently, the World Bank has added goals which it seeks to achieve by 2030:

A)To end extreme poverty and to promote shared prosperity
B)To decrease banking regulations and promote trade
C)To increase contributions by member organizations and move off of gold
D)To reform the United Nations and the IMF

Question 12

The U.S.trade deficit has pushed the value of the U.S.dollar _______________.

A)forward
B)backward.
C)inward
D)upward.
E)downward.

Question 13

The adoption of the _________ as a common currency in the European Union in 1999 signifies a major change in the global financial environment.

A)Euro
B)Lira
C)pound sterling
D)French franc
E)Swiss franc

Question 14

In 1944, the Bretton Woods (New Hampshire) Conference took place to establish the:

A)international marketing system.
B)international logistics system.
C)international monetary system.
D)international banking system.
E)international monetary system.

Question 15

Exchange rate stability cannot be imposed by adoption of ______________________ and official intervention in the foreign exchange markets.

A)pegged exchange rates
B)pegged value rates
C)pegged equity rates
D)pegged volume rates
E)pegged finance rates

Question 16

The value of SDRs is determined by a weighted average of a basket of four currencies:

A)the U.S.dollar, the Japanese yen, the euro, and the Swiss franc.
B)the U.S.dollar, the Japanese yen, the euro, and the French franc.
C)the U.S.dollar, the Japanese yen, the euro, and the British pound.
D)the U.S.dollar, the Japanese yen, the euro, and the Italian lira.
E)none of the above.

Question 17

All of the following are purposes of the International Monetary Fund (IMF) EXCEPT:

A)To promote international monetary cooperation through a permanent institution.
B)To facilitate the expansion and balanced growth of international trade.
C)To develop a world currency by 2010.
D)To promote exchange stability.
E)To give confidence to members by making the general resources of the fund temporarily available to them under adequate safeguards.

Question 18

The acronym IMF stands for:

A)the International Marketing Fund.
B)the International Methods Fund.
C)the International Monetary Fund.
D)the International Mutual Fund.
E)the International Masters Fund.

Question 19

Since the 1970s, all major nations have had _____ currencies.

A)floating
B)fixed
C)common
D)adjustable
E)pegged

Question 20

The negotiators at Bretton Woods recommended the following except what?

A)Each nation should use macroeconomic policy for full employment.
B)Nations should use a gold standard.
C)Free floating exchange rates could not work.
D)A monetary system was needed that would recognize that exchange rates were both a national and international concern

Question 21

______________ float allows for a limited amount of government intervention to soften sudden swings in the value of a currency.

A)Free (dirty)
B)Free (clean)
C)Restricted
D)Profit
E)Managed

Question 22

Forward currency markets typically exist for the ______________ currencies.

A)Asian
B)weakest
C)strongest
D)convertible
E)flat

Question 23

If payment on a transaction is to be made immediately, the purchaser has no choice other than to buy foreign exchange on:

A)the spot market.
B)the forward market.
C)a hedge.
D)a future date invoice.
E)an exchange rate pass-through.

Question 24

The problem with tight exchange controls is that often they promote a ______________.

A)black market
B)white market
C)flat market
D)slim market
E)regular market

Question 25

Actual exchange rates can be very different from the expected rates forecasted by economists.Many interrelated factors influence the value of a floating currency.The three most important fundamental factors are the nation's balance of payments situation, world political events, and:

A)the world inflation rate.
B)the country's currency value.
C)the nation's inflation rate relative to its trading partners.
D)the tax structure of the nation.
E)the supply of gold that the nation holds.

Question 26

With respect to a balance of payments between nations calculation, transactions are recorded in three categories.These are the current account, the capital account, and the:

A)goods inventory.
B)cost of goods sold.
C)manufacturer's inventory.
D)capital goods.
E)official reserves.

Question 27

________________ refers to the exchange of one country's money for that of another country.

A)Foreign reserve
B)Foreign dilution
C)Foreign exchange
D)Foreign float
E)Foreign control

Question 28

The __________________ of a nation summarizes all the transactions that have taken place between its residents and the residents of other countries over a specified time period (usually a month, quarter or a year).

A)target exchange rate
B)portfolio acquisition
C)balance of payments
D)debt accumulation
E)exchange inflation

Question 29

Today, the global economy is increasingly dominated by five major currencies.They are:

A)the U.S.dollar, the EU's euro, the British pound, the Chinese yuan and the Japanese yen.
B)the U.S.dollar, the EU's euro, the Swiss franc, the Chinese yuan and the Japanese yen.
C)the U.S.dollar, the EU's euro, the German mark, the Chinese yuan and the Japanese yen.
D)the U.S.dollar, the EU's euro, the Swiss franc, the Chinese yuan and the British pound.

Question 30

The Chinese yuan and the Japanese yen have increasingly become a regional transaction currency in _____________.

A)Eastern Europe.
B)Asia.
C)North America.
D)Africa.
E)none of the above.

Question 31

If payment for goods is to be made at some future date, the purchaser has the option of buying foreign exchange on the ________________ for delivery at some future date.

A)black market
B)gray market
C)forward market
D)exchange rate pass-through market
E)commodities market

Question 32

One of the most fundamental determinants of the exchange rate is ______________ whereby the exchange rate between the currencies of two countries is in equilibrium when it equates the prices of a basket of goods and services in both countries.

A)free float
B)free float (dirty)
C)managed float
D)purchasing power parity (PPP)
E)absolute cost advantage

Question 33

Many countries attempt to maintain a lower value for their currency to encourage _________.

A)black marketing
B)grey marketing
C)outsourcing
D)exports
E)imports

Question 34

Protecting oneself against potential loss is called:

A)hedging.
B)factoring.
C)risk analysis.
D)portfolio reduction strategy.
E)devaluing.

Question 35

The extent to which a foreign company changes dollar prices of its products in the U.S.market as a result of exchange rate fluctuations is called:

A)hedging.
B)exchange rate pass-through.
C)a target exchange rate.
D)factoring.
E)inflation-proofing.

Question 36

Factors that might influence foreign exchange rates with respect to political factors would include election year or leadership change and:

A)money supply.
B)balance of payments.
C)exchange rate control as imposed by a government.
D)size of the military.
E)amount of armed conflict in the world.

Question 37

When a buyer locks in an exchange rate and avoids the risk of currency fluctuations, it is called:

A)the spot market.
B)the gray market.
C)vertical purchasing.
D)currency hedging.
E)factoring.

Question 38

With respect to balance of payments calculation, when a German tourist visits the United States and spends money on meals and lodging, it is a(n) ___________ to the U.S.trade in services balance.

A)debit
B)credit
C)convertible
D)exchange interest factor
E)non-entity

Question 39

Currencies of many _____________________ are pegged (or fixed) to one of the major currencies or to a basket of major currencies such as the U.S.dollar, SDRs, or some specially chosen currency mix.

A)regional countries
B)developed countries
C)emerging markets
D)developing countries
E)none of the above

Question 40

Balance of payments between nations is based on which of the following principles of accounting?

A)Debit only.
B)Credit only.
C)Factor analysis.
D)First in, last out.
E)Double entry accounting.

Question 41

The balance of payments in _____________ summarizes financial transactions with respect to short and long term accounts.

A)current account balance
B)capital account
C)trade balance
D)direct investments
E)portfolio investment

Question 42

The mechanisms (according to the theory of international trade and balance of payments) for producing self-correction in out-of-balance accounts is accomplished through:

A)internal market adjustments.
B)external market adjustments.
C)internal and external market adjustments.
D)governmental control.
E)governmental tariff and nontariff barriers.

Question 43

According to the theory of international trade and balance of payments, a surplus or deficit in a country's basic balance should be:

A)always weighted toward the deficit side.
B)always weighted toward the surplus side.
C)self-correcting.
D)continually out of balance.
E)only brought into balance by government tariff action.

Question 44

Double entry accounting, with respect to calculation of balance of payments calculation, means:

A)the balance of payments statement must always balance because total debits must equal total credits.
B)the balance of payments statement will always favor the larger nation.
C)the balance of payments statement will always favor the smaller nation.
D)the balance of payments statement will never be in complete balance.
E)the balance of payments statement will rarely be accurate.

Question 45

In April 2002, Argentina's currency had lost nearly ________ percent of its value.

A)20
B)40
C)50
D)60
E)70

Question 46

Argentina's currency woes were attributed in part to its own ______________ policy.

A)social
B)political
C)global
D)exchange
E)monetary

Question 47

In 1994, _______________ devaluation of its currency set the stage for an ongoing saga of Asian financial crisis.

A)China's
B)Japan's
C)Indonesia's
D)India's
E)Hong Kong's

Question 48

Corporate response to the recession included to "change the product mix," specifically to push relatively _________________ product lines while deemphasizing _______________ lines.

A)expensive, inexpensive
B)imported, exported
C)smaller, larger
D)inexpensive, expensive
E)high-tech, low-tech

Question 49

The external market adjustment concerns __________________ or a nation's currency and its value with respect to the currencies of other nations.

A)exchange rates
B)budget rates
C)bond rates
D)security rates
E)countertrade rates

Question 50

Increased demand for Asian _____________ has helped the region rebound quickly from the 1997 currency crisis.

A)exports
B)imports
C)commodities
D)fruit
E)cars

Question 51

The government entity which prepares the balance of payments statement in the United States is:

A)the Federal Reserve.
B)the Internal Revenue Service.
C)the Customs Department.
D)the Department of Commerce.
E)the Federal Communications Commission.

Question 52

During the Asian financial crisis, Thailand lost almost _______ percent of its baht's purchasing power in dollar terms in 1997.

A)30
B)40
C)50
D)60
E)80

Question 53

Because of the Asian financial crisis, South Korean currency lost ______ percent against the U.S.dollar in 1997.

A)30
B)40
C)50
D)60
E)80

Question 54

It is well known that the United States regularly runs a deficit in merchandise trade.In which of the following categories does the United States regularly run a surplus?

A)Services.
B)Automobiles.
C)China.
D)Fashion footwear.
E)Machine tools (such as a drill press).

Question 55

The balance of payments in goods account (also known as ____________) shows trade in currently produced goods.

A)current account balance
B)capital account
C)trade balance
D)direct investments
E)portfolio investment

Question 56

The ___________________________ refers to the movement of prices and incomes in a country.

A)external market adjustment
B)internal market adjustments
C)linear market adjustment
D)upward market adjustment
E)downward market adjustment

Question 57

___________________ are those investments in enterprises or properties that are effectively controlled by residents of another country.

A)Current account balance
B)Capital account
C)Trade balance
D)Direct investments
E)Portfolio investment

Question 58

___________________ includes all long-term investments that do not give the investors effective control over the investment.Such transactions typically involve the purchase of stocks or bonds of foreign investors for investment.

A)Current account balance
B)Capital account
C)Trade balance
D)Direct investments
E)Portfolio investment

Question 59

The balance of payments in ______________ shows trade in currently produced goods and services, as well as unilateral transfers of including private gifts and foreign aid.

A)current account
B)capital account
C)trade balance
D)direct investments
E)portfolio investment

Question 60

The EMS stands for:

A)European Monetary System.
B)European Mobile System.
C)European Market System.
D)European Management System.
E)European Manufacturing System.

Question 61

In the 1960s, the United States began to experience sequential balance of payments deficits.

Question 62

According to the text, the euro will also help companies to streamline their ___________.

A)small business chains
B)North American chains
C)quality chains
D)HR chains
E)supply chains

Question 63

The adoption of the euro in the European Union took place in 1990.

Question 64

The U.S.trade deficit has pushed the value of the U.S.dollar upward in the last 50 years.

Question 65

Special Drawing Rights (SDRs) are special account entries on the World Bank books.

Question 66

The Bretton Woods conference recommended that a monetary system was needed that would recognize that exchange rates were both a national and international concern.

Question 67

In January 1999, ________ European countries surrendered their rights to issue their own money.

A)five
B)eight
C)ten
D)eleven
E)twelve

Question 68

Each country has its own currency through which it expresses the value of its products.

Question 69

The IMF does not promote exchange stability to maintain orderly exchange arrangements among members.

Question 70

The European Monetary System (EMS) was established in the late:

A)1950s.
B)1960s.
C)1970s.
D)1980s.
E)1990s.

Question 71

The Bretton Woods conference concluded that free floating exchange rates could not work.

Question 72

The European Central Bank is headquartered in:

A)Frankfurt.
B)Paris.
C)Rome.
D)Geneva.
E)London.

Question 73

Because of its use in international commerce, the dollar has remained strong throughout the 1980s and 1990s.

Question 74

The value of SDRs is determined by a weighted average of a basket of four currencies which are: the U.S.dollar, the Japanese yen, the euro, and British pound.

Question 75

Foreign exchange is not the monetary mechanism that allows the transfer of funds from one nation to another.

Question 76

According to the text, the EMU and the euro have a strategic impact on elements of companies' operations EXCEPT:

A)price transparency.
B)supply chains.
C)hiring practices.
D)new opportunities for small and medium-sized companies.
E)intensified competitive pressures.

Question 77

By removing the costs and hassles of currency fluctuations, the text suggests that the euro provides new opportunities for __________________.

A)small and medium-sized companies.
B)large companies.
C)German companies.
D)Italian companies.
E)French companies.

Question 78

One of the functions of the International Monetary Fund (IMF) was to monitor problems that a country might experience in maintaining equilibrium in its balance of payments.By agreement, countries would need permission from the IMF to alter their peg if the initial par value was to be adjusted by more than 10%.

Question 79

The Bretton Woods conference recommended that each nation should not be at liberty to use its macroeconomic policies for full employment.

Question 80

Negotiations to establish the postwar (World War II) international monetary system took place at Bretton Woods, New Hampshire.