Deck 3: Financial Environment

Question 1

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.

Answer 1

C

Question 2

The IMF's SDR stands for:

A) special legal rights.
B) special financial rights.
C) special drawing rights.
D) special manufacturing rights.
E) special distribution rights.

Answer 2

C

Question 3

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

Answer 3

C

Question 4

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

A) forward
B) backward.
C) inward3
D) upward.
E) downward.

Question 5

When international transactions occur, _______________ is the monetary mechanism that allows the transfer of funds from one nation to another.

A) foreign exchange
B) regional exchange
C) international exchange
D) global exchange
E) local exchange

Question 6

Today, the global economy is increasingly dominated by three major currency blocs. They are:

A) the U.S. dollar, the French franc, and the Japanese yen.
B) the U.S. dollar, the Spanish peso, and the Japanese yen.
C) the U.S. dollar, the British pound, and the Japanese yen.
D) the U.S. dollar, the British pound, and the German mark.
E) the U.S. dollar, the Japanese yen, and the euro.

Question 7

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

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

Question 8

Currencies of many _____________________ are pegged (or fixed) to one of the major currencies or to a basket of major currencies?

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

Question 9

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 10

To an extent, the International Monetary Fund served as an _____________________.

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

Question 11

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

Question 12

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 13

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 14

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 15

______________ 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 16

_____________ 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 17

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 18

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 19

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 20

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 21

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 22

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 23

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 24

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 25

The Big Mac Index is published by:

A) The Economist
B) Business Week
C) The Wall Street Journal
D) The New York Times
E) Fortune Magazine

Question 26

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 27

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 28

The Japanese yen has increasingly become a regional transaction currency in _____________.

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

Question 29

________________ 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 30

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 31

Forward currency markets typically exist for the ______________ currencies.

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

Question 32

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 33

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 34

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 35

Protecting oneself against potential loss is called:

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

Question 36

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 37

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 38

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) hedging.
E) factoring.

Question 39

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 40

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

A) the balance of payments statement must always balance.
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 41

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 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

In 1994, _______________ devaluation of its currency triggered the Asian financial crisis.

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

Question 44

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 45

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 46

Because of 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 47

Argentina's currency woes are attributed to its own ______________ policy.

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

Question 48

In the area of "change the product mix," corporate response to the recession could be 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

___________________ 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 50

Everyone knows 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 51

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

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

Question 52

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 53

___________________ 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 54

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 55

The ERM stands for:

A) European Region Mechanism.
B) European Rate Mechanism.
C) European Research Mechanism.
D) European Railroad Mechanism.
E) none of the above.

Question 56

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

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

Question 57

The balance of payments in ______________ shows trade in currently produced goods and services, as well as unilateral transfers of merchandise.

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

Question 58

The balance of payments in goods account or ____________ shows trade in currently produced goods as well as unilateral transfers of merchandise.

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

Question 59

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 60

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 61

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

Question 62

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

Question 63

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

Question 64

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

Question 65

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

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

Question 66

Today, the global economy is increasingly dominated by three major currency
blocs which include the U.S. dollar, the Japanese yen, and the euro.

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

According to the text, EMU will have a strategic impact on companies' following 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 72

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 73

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 74

To expand services for countries in monetary difficulties, the IMF created Special
Drawing Rights (SDRs).

Question 75

The European Central Bank is headquartered in:

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

Question 76

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
_________________.

Question 77

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

Question 78

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

Question 79

According to the text, the euro will have a major boon for __________________.

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

Question 80

Another creation of the Bretton Woods Agreement was the International Bank for
Reconstruction and Development, known as: