Question 1

The study of international finance encompasses:
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

Accepted Answer

The study of international finance includes all the given options: exchange rate determination and volatility, the joint determination of the exchange rate and the Balance of Payments, and the financial operations of firms in the international environment.

Question 2

The term 'international operations' encompasses:
A) international trade
B) international investment and financing operations
C) carrying out production abroad
D) all of the answers given

Accepted Answer

International operations include all activities related to conducting business across borders, such as trade, investment, financing, and production.

Question 3

Which of the following statements is false?
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 markets
D )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

Accepted Answer

There is significant multilateral interaction among national stock markets, as evidenced by the rapid transmission of developments from one market to others, particularly from influential markets like those in the US. This contradicts the statement in option B, making it false.

Question 4

The term 'international business firm' refers to:
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

Accepted Answer

A firm engaged in cross border activities such as importing and exporting, without necessarily engaging in offshore production or ownership of foreign assets, is considered an international business firm.

Question 5

Which of the following statements is false?
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

Accepted Answer

The majority of observers and experts believe that excessive financial deregulation, rather than regulation, was a significant factor contributing to the global financial crisis. This deregulation led to a lack of oversight and control, which allowed risky financial practices to proliferate, ultimately contributing to the crisis.

Question 6

Which of the following issues is least likely to be a source of concern for finance managers?
A) Financial contagion
B) The rising price of coffee
C) Balance of payments difficulties
D) Fluctuations in exchange rates and interest rates

Accepted Answer

The rising price of coffee is more specific to businesses directly involved in the coffee industry or those whose operations are significantly impacted by coffee prices. Finance managers generally deal with broader financial issues that affect the entire organization, such as financial contagion, balance of payments difficulties, and fluctuations in exchange rates and interest rates, making the rising price of coffee the least likely concern among the options provided.

Question 7

Balance of payments difficulties are a source of concern for the finance manager because:
A) they affect interest rates
B) they affect exchange rates
C) they create constraints on economic policy
D) all of the answers given

Accepted Answer

Balance of payments difficulties can affect interest rates and exchange rates, and create constraints on economic policy, impacting the overall economic environment in which a finance manager operates.

Question 8

The appreciation of the domestic currency is:
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

Accepted Answer

The appreciation of the domestic currency can be either good or bad for firms with international operations, depending on various factors such as the nature of their business (e.g., exporting or importing), their cost structures, and the markets in which they operate.

Question 9

The depreciation of the domestic currency is:
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

Accepted Answer

Depreciation of the domestic currency can be either beneficial or detrimental to firms with international operations, depending on various factors such as the nature of their international transactions, cost structures, and revenue sources. For example, a weaker domestic currency can make exports cheaper and more competitive abroad but can increase the cost of importing raw materials.

Question 10

Interest and exchange rates are linked via:
A) purchasing power parity
B) uncovered interest parity
C) covered interest parity
D) the Fisher effect

Accepted Answer

Uncovered interest parity (UIP) suggests that the difference in interest rates between two countries is equal to the expected change in exchange rates between the countries' currencies.

Question 11

Studying international finance is important for the finance manager because:
A) it helps the manager decide how international events affect the firm
B) it helps the manager anticipate events and to make profitable decisions before the events occur
C) it helps the manager understand and control risks affecting the firm
D) all of the answers given

Accepted Answer

Studying international finance is crucial for a finance manager as it encompasses understanding how international events impact the firm, anticipating such events to make informed and profitable decisions, and managing the various risks associated with international financial markets. Therefore, all the given options are correct, making option D the comprehensive answer.

Question 12

The globalisation of finance has been driven by:
A) advances in information and computer technology
B) globalisation of national economies
C) liberalisation of national financial and capital markets
D) all of the answers given

Accepted Answer

The globalisation of finance has indeed been driven by advances in information and computer technology, the globalisation of national economies, and the liberalisation of national financial and capital markets. These factors collectively have facilitated the integration of financial markets around the world.

Question 13

Which of the following is the least likely indicator of the internationalisation of finance?
A) The volume of international bank lending
B) Convergence of inflation rates
C) the value of security transactions with foreigners
D) the value of daily turnover in the global foreign exchange market

Accepted Answer

Convergence of inflation rates is more directly related to macroeconomic policies and conditions rather than the specific mechanisms of financial internationalization, such as international bank lending, security transactions with foreigners, or foreign exchange market activities.

Question 14

The Eurocurrency market:
A) is a market for assets denominated in currencies other than that of the country in which they are held
B) is a market in which euro-denominated assets are bought and sold
C) is a foreign currency market based in Europe
D) includes all foreign currency trading conducted in the European Union

Accepted Answer

The Eurocurrency market refers to deposits of currency held in banks outside the country where the currency was issued. It is not limited to the Euro or European Union but includes any currency deposited outside its home country. Choices B, C, and D incorrectly define the scope and nature of the Eurocurrency market.

Question 15

The introduction of the euro as a hard currency:
A) is sufficient to create a single market for European business
B) is a necessary, but not a sufficient, step towards the creation of a single market for European business
C) is neither a necessary, nor a sufficient, step towards the creation of a single market for European business
D) is both a necessary and a sufficient step towards the creation of a single market for European business

Accepted Answer

The euro facilitates trade and investment among member countries by eliminating exchange rate fluctuations, but other measures, such as harmonizing regulations and standards, are also needed to create a fully integrated single market.

Question 16

Which of the following statements is UNTRUE?
A) The Bretton Woods Agreement was signed in 1944
B) The European Economic Community was established by the Treaty of Rome in 1950
C) The Mexican crisis of 1994-95 was the first in what has now become a long series of financial crises
D) The Asian currency crisis of 1997-98 initially began in Thailand

Accepted Answer

The European Economic Community (EEC) was actually established by the Treaty of Rome in 1957, not 1950.

Question 17

Between 1962 and 2007, the size of the US economy:
A) has increased relative to that of Europe, China and Japan
B) has decreased relative to that of Europe, China and Japan
C) has increased relative to that of Europe and decreased relative to that of both China and Japan
D) has decreased relative to that of Europe and increased relative to that of both China and Japan

Accepted Answer

Between 1962 and 2007, the US economy's relative size decreased compared to Europe, China, and Japan due to the rapid economic growth in these regions, particularly China's significant economic expansion.

Question 18

The deterioration of the US external position in the early 1970s led to the:
A) end of the Vietnam War
B) resignation of President Nixon
C) collapse of the Bretton Woods system
D) intensification of the Cold War

Accepted Answer

The deterioration of the US external position in the early 1970s, marked by persistent balance of payments deficits and the loss of confidence in the US dollar, directly contributed to the collapse of the Bretton Woods system in 1971 when President Nixon suspended the dollar's convertibility into gold. This effectively ended the fixed exchange rate regime established post-World War II.

Question 19

The twin deficit problem refers to deficits in the United States':
A) current account and budget
B) capital account and budget
C) capital account and unilateral transfers
D) budget and unilateral transfers

Accepted Answer

The twin deficit problem refers to the simultaneous occurrence of a budget deficit (government spending exceeds its revenues) and a current account deficit (a country imports more goods, services, and capital than it exports). This is often observed in the United States, where government spending and a high level of imports relative to exports can lead to these dual deficits.

Question 20

The effect of changes in oil prices:
A) depends on the policy response
B) is to increase inflation
C) is to increase interest rates
D) is to reduce output

Accepted Answer

The effect of changes in oil prices on an economy indeed depends on the policy response of the government or central bank. For example, if oil prices rise, a central bank might raise interest rates to combat potential inflation, but this is not an automatic outcome; it's a policy choice. Similarly, the impact on inflation, interest rates, and output can vary based on how policymakers respond to the initial change in oil prices.

Quiz 1: An Overview

The study of international finance encompasses:

The term 'international operations' encompasses:

Which of the following statements is false?

The term 'international business firm' refers to:

Which of the following statements is false?

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

Balance of payments difficulties are a source of concern for the finance manager because:

The appreciation of the domestic currency is:

The depreciation of the domestic currency is:

Interest and exchange rates are linked via:

Studying international finance is important for the finance manager because:

The globalisation of finance has been driven by:

Which of the following is the least likely indicator of the internationalisation of finance?

The Eurocurrency market:

The introduction of the euro as a hard currency:

Which of the following statements is UNTRUE?

Between 1962 and 2007, the size of the US economy:

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

The twin deficit problem refers to deficits in the United States':

The effect of changes in oil prices: