Question 1

Which of the following statements is true about currencies?

Accepted Answer

Convertible currencies can be readily exchanged for other currencies, making them highly attractive for international trade and investment. Examples of convertible currencies include the US dollar, euro, Japanese yen, and Swiss franc. Nonconvertible currencies, on the other hand, are those that cannot be easily exchanged for foreign currencies due to government restrictions or market limitations. The British pound is not an example of a nonconvertible currency. Hard currencies refer to currencies that are widely accepted internationally and are perceived as stable and reliable, such as the US dollar or euro.

Question 2

Central banks are categorized at the international organization level of the global monetary and financial system.

Accepted Answer

Central banks, such as the Federal Reserve in the US or the European Central Bank in the EU, are a key component of the global monetary and financial system and operate at the international organization level.

Question 3

The global financial system establishes the rules and procedures for exchanging national currencies in international business transactions.

Accepted Answer

The answer of The global financial system establishes the rules...

Question 4

Currency risk can best be defined as the risk that occurs when ________.

Accepted Answer

Currency risk is the risk that occurs due to the fluctuation of one currency in relation to another currency. This risk is faced by individuals, companies, and countries who conduct international transactions, investments, or business operations. If the value of a currency changes against another currency, it can impact the cost of goods or services, profitability, and the overall financial performance of the parties involved in the transaction.

Question 5

The IMF and the World Bank seldom work together.

Accepted Answer

The IMF and the World Bank often work together on various issues, although they have different objectives and focus areas. They were both established at the Bretton Woods Conference in 1944 and have since collaborated on a number of initiatives, including debt relief for impoverished countries and financial support for countries in crisis.

Question 6

Which of the following is an example of a country that has experienced dollarization?

Accepted Answer

Dollarization is the process of adopting the US dollar as the official currency of a country instead of having its own currency. Ecuador is an example of a country that has experienced dollarization.

Question 7

The U.S. dollar is an example of ________.

Accepted Answer

The U.S. dollar is a convertible currency, which means it can be easily exchanged for another currency or commodity at a fixed rate. It is widely accepted and used in international trade and finance.

Question 8

Which of the following statements is true regarding the value of national currencies?

Accepted Answer

National currencies fluctuate constantly based on various factors such as economic and political conditions, interest rates, and global events.

Question 9

Investment banks underwrite (guarantee the sale of) stock and bond issues and advise on mergers.

Accepted Answer

Investment banks do underwrite stock and bond issues and provide advice on mergers.

Question 10

Which of the following should an international manager keep in mind about the constantly fluctuating exchange rates?

Accepted Answer

The constantly fluctuating exchange rates can heavily impact a firm's financials if the time taken between placement and delivery of an order is long. This can cost or earn the firm money depending on the direction and magnitude of the exchange rate fluctuations. Hence, an international manager should keep in mind the potential impact of exchange rate fluctuations during the time taken to fulfill an order. The other options are not entirely accurate, as it is usually better to quote prices in the local currency of the market being served, and it may be possible to agree on a fixed exchange rate for transactions between a firm and its customers. Additionally, changes in exchange rates can affect the cost of purchasing goods from suppliers in different ways depending on the circumstances, so it is not always true that an appreciating currency will lead to lower costs for the buyer.

Question 11

Merchant banks provide capital to firms in the form of shares rather than loans.

Accepted Answer

Merchant banks do provide capital to firms, but it is typically in the form of shares rather than loans. They may also provide other services such as underwriting, mergers and acquisitions, and financial advice.

Question 12

The International Monetary Fund is part of the global financial system.

Accepted Answer

The International Monetary Fund (IMF) is an international organization that is part of the global financial system. It works to promote international economic cooperation and provides loans and technical assistance to member countries experiencing economic difficulties.

Question 13

The integration of international financial and monetary activity can be attributed to the growing role of single-currency systems, such as the euro.

Accepted Answer

The creation of single-currency systems such as the euro has led to increased integration of international financial and monetary activities. This is because a single currency simplifies transactions and eliminates the need for currency conversions, making international trade and financial activities more efficient.

Question 14

Which of the following terms refers to the type of currency used only for domestic business transactions?

Accepted Answer

Nonconvertible currency is a type of currency that is not traded on international foreign exchange markets and is used only for domestic business transactions. Hard currency refers to stable and widely accepted currencies such as US dollar, Euro, etc. Convertible currency can be easily exchanged into other currencies and used in international trade. Alternative currency refers to non-traditional forms of currency such as cryptocurrencies, which may or may not be used for domestic business transactions.

Question 15

A U.S. company buys from a supplier whose currency is increasing against the dollar. Which of the following will the company most likely have to do if the purchasing price is expressed in the supplier's currency?

Accepted Answer

If the supplier's currency is increasing against the dollar, then the purchasing price expressed in the supplier's currency will also increase. This means that the U.S. company will have to pay more in dollars than originally expected.

Question 16

The largest proportion of government debt results from national pension and healthcare programs.

Accepted Answer

National pension and healthcare programs, such as Social Security and Medicare in the United States, often have large unfunded liabilities that contribute significantly to government debt.

Question 17

Which of the following terms refers to the price of one currency expressed in terms of another?

Accepted Answer

The exchange rate refers to the price of one currency expressed in terms of another. Countertrade refers to the exchange of goods or services instead of currency. Monetization refers to the process of converting an asset or object into money. Credit derivative refers to a financial instrument that transfers credit risk from one party to another.

Question 18

Which of the following is an example of a currency risk?

Accepted Answer

The answer of Which of the following is an example...

Question 19

A French company sells goods to a foreign customer whose currency is depreciating against the euro. Which of the following will the company most likely experience when completing the sale?

Accepted Answer

If the foreign customer's currency is depreciating against the euro, then the euro is becoming relatively stronger. If the sales price was expressed in the buyer's currency, then the company will receive fewer euros because the value of the buyer's currency has decreased.

Question 20

The Indian rupee is one of the currencies upon which the value of the SDR is based.

Accepted Answer

The value of the Special Drawing Rights (SDR) is based on a basket of five major currencies: the US dollar, euro, Chinese renminbi, Japanese yen, and British pound sterling. The Indian rupee is not included in this basket.

Quiz 11: The International Monetary and Financial Environment