Deck 9: The International Monetary System and Financial Markets

Question 1

A ___________ is an agreement to buy and sell foreign exchange at prespecified exchange rates where the buying and selling are separated in time.

A) Swap
B) Forward transaction
C) Forward-forward swap
D) None of the above

Answer 1

A

Question 2

A ________________ exchange rate is the price of one currency expressed in terms of another currency (or gold)

A) foreign
B) pegged
C) float
D) fixed

Answer 2

A

Question 3

The _____________________ refers primarily to the set of policies, institutions, practices, regulations, and mechanisms that determine foreign exchange rates.

A) International fiscal policy
B) International monetary system
C) WTO
D) None of the above

Answer 3

B

Question 4

Global foreign exchange business is concentrated in four centers, which of these is not one of them?

A) London
B) New York
C) Tokyo
D) Paris

Question 5

If the Iraq government regulates the rate at which local currency is exchanged for other countries this system is classified as a

A) fixed exchange rate system.
B) flexible exchange rate system.
C) pegged exchange rate system.
D) foreign exchange rate system.

Question 6

Firms in International Business face many opportunities as well as threats arising from___________________, which are determined at least partly by monetary systems.

A) International Money Markets
B) International Bond Markets
C) International Financial Markets
D) International Stock Market

Question 7

In most countries ______________ is by far the largest component of total international liquidity.

A) foreign currency
B) the U.S. dollar
C) international currency
D) the peso

Question 8

The national goal of international transactions is to accomplish gains from trade and investment activities, which are recorded in the______________________.

A) current account
B) national account
C) international account
D) balance of payments account

Question 9

The __________ provides a less painful adjustment mechanism to trade imbalances than do fixed exchange rates and prevents a country from having large persistent deficits.

A) flexible exchange rate system
B) foreign exchange rate system
C) nominal exchange rate system
D) unfixed exchange rate system

Question 10

In what type of system is the rate based on the government's view of an appropriate rate in the context of the country's balance of payments position, foreign exchange reserve, and rates quoted outside of the official market?

A) dirty management
B) managed float
C) independent float
D) dry float

Question 11

The peg system functions between which two systems?

A) fixed and float-rate systems
B) real and nominal-rate systems
C) independent and dependent-rate systems
D) fixed and managed-rate systems

Question 12

The United States, Japan, Germany, France, Britain, Canada, and Italy are known as

A) The International Trade Committee.
B) The Louvre Accords.
C) NAFTA.
D) The Group of Seven.

Question 13

______________are the markets where company stocks are listed and traded on foreign stock exchanges.

A) Foreign stock markets
B) International stock markets
C) Flea markets
D) National trade markets

Question 14

When a country's currency is tied or fixed to another country's currency, this is called _____________ exchange rate.

A) foreign
B) pegged
C) float
D) fixed

Question 15

A ______________ occurs between a bank and a customer (company, broker, or another bank), calling for delivery at a fixed future date, of a specified amount of foreign exchange at the fixed forward exchange rate.

A) forward transaction
B) swap
C) fixed
D) spot transaction

Question 16

A _________ is the rate at which a bank is willing to exchange one currency for another at some specified future date.

A) forward rate
B) contract rate
C) fixed rate
D) none of the above

Question 17

The _________ suggests that the exchange rate between two currencies should, in the long run, reflect purchasing power differences.

A) target-zone arrangement
B) independent float
C) fixed-rate system
D) purchase power parity

Question 18

Under which of the following, an exchange rate is allowed to adjust freely to the supply and demand of this currency for another?

A) target-zone arrangement
B) independent float
C) fixed-rate system
D) float system

Question 19

Target-zone arrangement is

A) virtually a joint float system cooperatively arranged by a group of nations sharing some common interests and goals.
B) an automatic system for revising the exchange rate, establishing a par value around which the rate can vary up to a given percentage point.
C) government through their central banks buy or sell their currencies in the foreign exchange market whenever exchange rates deviate from their stated par values.
D) none of the above.

Question 20

The __________ is an automatic system for revising the exchange rate, establishing a par value around which the rate can vary up to a given percentage point.

A) crawling peg
B) float
C) managed
D) none of the above

Question 21

Under which system, government through their central banks buy or sell their currencies in the foreign exchange market whenever exchange rates deviate from their stated par values?

A) Fixed-rate system
B) Float system
C) Appreciation
D) None of the above

Question 22

A currency is considered ____________ if it is expected to revalue or appreciate relative to major currencies.

A) hard
B) strong
C) soft
D) both a and b

Question 23

__________ means a drop in the foreign exchange value of a floating currency.

A) Depreciation
B) Devaluation
C) Appreciation
D) Revaluation

Question 24

Which of the following statements is correct?

A) Devaluation of a currency refers to a drop in the foreign exchange value of a currency that is pegged to another currency or gold.
B) Par value is reduced when currency is devaluated.
C) Par value is increased when currency is devaluated.
D) both a and b

Question 25

The _______________ exchange rate is the exchange rate before deducting an inflation factor.

A) nominal
B) real
C) fixed
D) foreign

Question 26

The ___________ exchange rate is the exchange rate after deducting an inflation factor.

A) nominal
B) real
C) fixed
D) foreign

Question 27

If the government does not interfere in the valuation of its currency, it is classified as ____________ exchange rate.

A) foreign
B) pegged
C) float
D) fixed

Question 28

_________________is the opposite of devaluation.

A) Depreciation
B) Evaluation
C) Revaluation
D) Affiliation

Question 29

The rate which a currency is fixed is called?

A) exchange value
B) par value
C) real value
D) devaluation

Question 30

____________means the money of a foreign country, including foreign currency bank balances, banknotes, checks, and drafts.

A) Floating exchange rate
B) Fixed exchange rate system
C) Foreign exchange
D) Foreign currency

Question 31

Eurodollars represent U.S. dollar deposits in non-US banks.

Question 32

In spot transactions bank notes such as currency changes for individuals are exchanged for each other instantaneously over the counter.

Question 33

Bonds placed in national bond markets are typically underwritten by a syndicate of investment banking firms.

Question 34

In the foreign exchange market, price information is readily available through computer networks. It is thus difficult to compare prices in different markets.

Question 35

When a company needs foreign exchange to be paid to foreign companies it can use either customer drafts or international wire transfers through a bank

Question 36

The interbank foreign exchange market is the second largest financial market on the Earth.

Question 37

The pair of quotes used for foreign exchange transactions between dealers in the interbank market is the spot rate and the backward rate.

Question 38

The global foreign exchange business is concentrated in four centers, which together account for about two-thirds total reported turnover.

Question 39

A bid is also known as an offer.

Question 40

Double-entry bookkeeping means every debit or credit in the account is also represented as a credit or debit somewhere else.

Question 41

The interest rate parity emphasizes the role of prices of goods and services in determining exchange rates.

Question 42

The managed float is also known as "dirty management."

Question 43

The "crashing peg" system is an automatic system for revising the exchange rate, involving establishing a par value around which the rate can vary up to a given percent.

Question 44

The foreign exchange rate is the price of one currency expressed in terms of another currency.

Question 45

Under the Smithsonian Agreement, the United States agreed to devalue the dollar to $38 per pound of gold.

Question 46

The international monetary system refers primarily to the set of policies, institutions, practices, regulations, and mechanisms that determine foreign exchange rates.

Question 47

The problem of high interest rates in Mexico due to delayed devaluation with fixed exchange rates was known as

A) "the peso problem."
B) tesobonos.
C) devaluation.
D) depreciation.

Question 48

A currency is considered hard or strong if it is expected to revalue or appreciate relative to major currencies.

Question 49

The media often use the terms devaluation and depreciation (or revaluation and appreciation) interchangeably which is correct.

Question 50

A soft or weak currency is one that is anticipated to devaluate or depreciate relative to major trading currencies.

Question 51

Appreciation means a drop in the foreign exchange value of a floating currency.

Question 52

When the par value is reduced, this is as a result of devaluation of a currency.

Question 53

Revaluation of a currency refers to a drop in the foreign exchange value of a currency that is pegged to another currency or gold.

Question 54

The nominal exchange rate is the exchange rate after deducting an inflation factor.

Question 55

The real exchange rate is the exchange rate after deducting an inflation factor.

Question 56

If the government does not interfere in the valuation of its currency, it is classified as a floating or flexible exchange rate system.

Question 57

When a country's currency is tied or fixed to another country's currency, this is called pegged exchange rate system.

Question 58

If the government of a country regulates the rate at which the local currency is exchanged for other currencies, the system is classified as a pegged exchange rate system.

Question 59

A foreign exchange rate is the price of one currency expressed in terms of another currency (or gold)

Question 60

Foreign exchange rate refers to the money of a foreign country, such as foreign currency bank balances, banknotes, checks, and drafts

Question 61

Depreciation is a drop in foreign exchange value of a floating currency.