Question 1

Quotations of foreign exchange rates in the many cities of the world are identical or nearly so because of:

Accepted Answer

The nearly identical quotations of foreign exchange rates in different cities of the world are due to arbitrage activities. This means that traders take advantage of any differences in exchange rates between cities by buying currency where it is cheaper and selling it where it is more expensive, thus ensuring that the exchange rates remain closely aligned. Central bank control, price fixing, and clearinghouse activities may also influence exchange rates, but they are not the primary reason for the uniform quotations in different cities.

Question 2

Under conditions of interest rate parity (IRP), a country with a relatively _______ higher nominal interest rate will have its currency _______ relative to a country with a relatively _______ nominal interest rate.

Accepted Answer

Under interest rate parity, a country with a higher nominal interest rate will see its currency depreciate because investors will expect the currency to weaken to offset the higher returns from the interest rate.

Question 3

The least costly form of claim in foreign exchange is a: Not in chapter

Accepted Answer

A time draft is typically less costly because it allows for payment at a future date, reducing immediate cash flow impact.

Question 4

The _______ includes ALL international transactions.

Accepted Answer

The balance of payments includes all international transactions, including trade in goods and services (current account balance) as well as capital flows (capital account balance). The balance of trade only includes trade in goods, while the current account balance is a component of the balance of payments.

Question 5

A stronger U.S.dollar generally

Accepted Answer

The answer of A stronger U.S.dollar generally
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Question 6

Under conditions of purchasing power parity (PPP), a country with a relatively _______ expected inflation rate will have its currency _______ relative to a country with a relatively _______ inflation rate.

Accepted Answer

Under purchasing power parity (PPP), a country with a higher expected inflation rate will see its currency depreciate relative to a country with a lower inflation rate. This is because higher inflation reduces a currency's purchasing power, making it less valuable compared to currencies of countries with lower inflation.

Question 7

A stronger U.S.dollar generally

Accepted Answer

A stronger U.S. dollar makes foreign goods cheaper, increasing imports (A), can worsen trade deficits as imports rise relative to exports (B), and can lower domestic inflation by reducing the cost of imported goods (C).

Question 8

Which of the following statements is false?

Accepted Answer

The answer of Which of the following statements is false?
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Question 9

Which of the following statements is false?

Accepted Answer

The answer of Which of the following statements is false?
...

Question 10

Foreign exchange markets may be described as:

Accepted Answer

Foreign exchange markets are not specific physical locations, but rather networks of financial centers connected by advanced communication systems, through which traders buy and sell currencies. These financial centers are located in major cities around the world, including New York, London, Tokyo, and Hong Kong.

Question 11

A documentary draft is accompanied, among other things, by a (n):

Accepted Answer

The answer of A documentary draft is accompanied, among other...

Question 12

A stronger U.S.dollar generally

Accepted Answer

A stronger U.S. dollar makes foreign goods cheaper, increasing imports (A), can worsen trade deficits as imports rise (B), and can help lower domestic inflation by reducing the cost of imported goods (C).

Question 13

Which of the following statements is false?

Accepted Answer

A nation with lower interest rates tends to weaken its currency because investment flows from that nation to a nation with higher interest rates. On the other hand, a nation with a lower inflation rate tends to strengthen its currency as the purchasing power parity theory suggests that the exchange rate between two currencies should be equal to the ratio of their respective price levels.

Question 14

Which of the following statements is false?

Accepted Answer

There are foreign offices of U.S. banks in foreign countries.

Question 15

A bankers' acceptance differs from a trade draft in that: Not in chapter

Accepted Answer

A bankers' acceptance is a time draft that is drawn on and guaranteed by a bank, whereas a trade draft is drawn on the importer. Therefore, option A is the correct answer. Option B is incorrect because a bankers' acceptance is not always accompanied by a bank letter of credit. Option C is also incorrect because a bankers' acceptance is guaranteed by the bank, and the importer's goodwill does not affect its acceptance. Option D is incorrect because there is a clear difference between a bankers' acceptance and a trade draft.

Question 16

Traveler's letters of credit are:

Accepted Answer

Traveler's letters of credit are issued by a bank and addressed to a list of banks in other countries. This allows the traveler to use it as a form of payment instead of carrying large amounts of cash.

Question 17

A draft that is not accompanied by any special documents and generally used when the exporter has confidence in the importer's ability to meet the draft when presented is known as:

Accepted Answer

A clean draft is a draft that is not accompanied by any special documents and is typically used when the exporter has confidence in the importer's ability to meet the draft when presented. Therefore, option B is the correct answer. Option A refers to a bill of lading that is issued to a named consignee and is typically used in cases where the buyer has already paid for the goods. Option C refers to a draft that is used when accompanying documents are required before payment can be made, such as with a letter of credit. Option D is incorrect as there is a correct answer.

Question 18

Which of the following statements is false?

Accepted Answer

All the statements provided are correct, making option D false as it claims that there is a false statement among them.

Question 19

Which of the following statements is most correct?

Accepted Answer

A stronger dollar makes foreign goods cheaper, leading to more imports, while a weaker dollar makes foreign goods more expensive, leading to fewer imports. None of the given statements accurately describe this relationship.

Question 20

Commercial letters of credit are:

Accepted Answer

The answer of Commercial letters of credit are:
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Quiz 6: International Finance and Trade

Quotations of foreign exchange rates in the many cities of the world are identical or nearly so because of:

Under conditions of interest rate parity (IRP) , a country with a relatively ___ higher nominal interest rate will have its currency _ relative to a country with a relatively _____ nominal interest rate.

The least costly form of claim in foreign exchange is a: Not in chapter

The _______ includes ALL international transactions.

A stronger U.S.dollar generally

Under conditions of purchasing power parity (PPP) , a country with a relatively ___ expected inflation rate will have its currency _ relative to a country with a relatively _____ inflation rate.

A stronger U.S.dollar generally

Which of the following statements is false?

Which of the following statements is false?

Foreign exchange markets may be described as:

A documentary draft is accompanied, among other things, by a (n) :

A stronger U.S.dollar generally

Which of the following statements is false?

Which of the following statements is false?

A bankers' acceptance differs from a trade draft in that: Not in chapter

Traveler's letters of credit are:

A draft that is not accompanied by any special documents and generally used when the exporter has confidence in the importer's ability to meet the draft when presented is known as:

Which of the following statements is false?

Which of the following statements is most correct?

Commercial letters of credit are:

Quiz 6: International Finance and Trade

Quotations of foreign exchange rates in the many cities of the world are identical or nearly so because of:

Under conditions of interest rate parity (IRP) , a country with a relatively _______ higher nominal interest rate will have its currency _______ relative to a country with a relatively _______ nominal interest rate.

The least costly form of claim in foreign exchange is a: Not in chapter

The _______ includes ALL international transactions.

A stronger U.S.dollar generally

Under conditions of purchasing power parity (PPP) , a country with a relatively _______ expected inflation rate will have its currency _______ relative to a country with a relatively _______ inflation rate.

A stronger U.S.dollar generally

Which of the following statements is false?

Which of the following statements is false?

Foreign exchange markets may be described as:

A documentary draft is accompanied, among other things, by a (n) :

A stronger U.S.dollar generally

Which of the following statements is false?

Which of the following statements is false?

A bankers' acceptance differs from a trade draft in that: Not in chapter

Traveler's letters of credit are:

A draft that is not accompanied by any special documents and generally used when the exporter has confidence in the importer's ability to meet the draft when presented is known as:

Which of the following statements is false?

Which of the following statements is most correct?

Commercial letters of credit are:

Under conditions of interest rate parity (IRP) , a country with a relatively ___ higher nominal interest rate will have its currency _ relative to a country with a relatively _____ nominal interest rate.

Under conditions of purchasing power parity (PPP) , a country with a relatively ___ expected inflation rate will have its currency _ relative to a country with a relatively _____ inflation rate.