Deck 11: An Introduction to International Finance

Question 1

The United States has not had a balance of trade surplus since

A) 1975.
B) 1965.
C) 1980.
D) 1955.

Answer 1

A

Question 2

The most commonly traded currency in the foreign exchange market is the

A) British pound.
B) Japanese yen.
C) Chinese yuan.
D) U.S. dollar.

Answer 2

D

Question 3

Suppose you open a Mexican peso bank deposit with 100 U.S. dollars when the exchange rate is 10 pesos per dollar. The peso deposit pays 20% per year interest. After one year the exchange rate equals 12 pesos per dollar. How many dollars is your peso deposit worth after one year?

A) $100
B) $120
C) $180
D) $0

Answer 3

A

Question 4

A nation's transactions with the rest of the world are recorded in the

A) national income accounts.
B) balance of transactions.
C) balance of payments.
D) income statement.

Question 5

A country that exports more goods than it imports has a trade deficit.

Question 6

In order from highest to lowest, the top 3 trading locations for foreign exchange are:

A) U.K., Japan, Germany.
B) U.K., U.S., Japan.
C) Japan, U.S., U.K.
D) Japan, Hong Kong, Singapore.

Question 7

Most transactions in the global foreign exchange market occur with this currency on one side of the transaction.

A) the U.S. dollar.
B) the British pound.
C) the euro.
D) the Japanese yen.

Question 8

A trade surplus occurs when goods exports exceed goods imports.

Question 9

The study of trade in international financial assets is called

A) international economics.
B) international finance.
C) international monetary economics.
D) Both B and C.

Question 10

If a Big Mac hamburger sells for the same dollar value in Tokyo as in Los Angeles then

A) exchange rates are said to be fixed.
B) purchasing power parity holds.
C) Japanese yen have been replaced by dollars in Tokyo.
D) the inflation rate in each country must equal zero.

Question 11

The largest volume of foreign exchange trading occurs in

A) the U.K.
B) the U.S.
C) Japan.
D) Germany.

Question 12

Approximately what percentage of the volume of all foreign exchange transactions in the world involve trading the U.S. dollar for another currency?

A) 10 percent.
B) 22 percent.
C) 55 percent.
D) 86 percent

Question 13

A country that exports more goods than it imports has a

A) trade surplus.
B) trade deficit.
C) merchandise deficit.
D) balance of payments equilibrium.

Question 14

Interest differentials between two countries reflect

A) expected exchange rate changes.
B) differential risk of investing in the two countries.
C) Both A and B.
D) the fact that there is no link between national interest rates.

Question 15

A trade deficit occurs when a country

A) exports more goods than it imports.
B) buys more goods from the rest of the world than it sells.
C) buys more stocks and bonds from the rest of the world than it sells.
D) both B and C.

Question 16

The average daily volume of foreign exchange trading in all locations was approximately equal to

A) $4,000 billion.
B) $100 million.
C) $15 million.
D) $750,000 .

Question 17

The country with the largest volume of foreign exchange trading is Japan.

Question 18

The price of one money in terms of another is called

A) the "just" price.
B) the trade price.
C) the exchange rate.
D) foreign exchange.

Question 19

The euro is now the official currency of all of the following countries except

A) France.
B) Germany.
C) Great Britain.
D) Spain.

Question 20

Which of the following is a likely reason why London is the location with most foreign exchange trading?

A) That most trades are negotiated in English.
B) That London has no market restrictions.
C) That the trading hours of Great Britain overlap with those of Asia and of North America.
D) All of the above.

Question 21

If a U.S. dollar will buy as much in Japan as in the United States, then purchasing power parity holds.

Question 22

The U.K. is the country with the largest volume of foreign exchange trading and the British pound is the most commonly traded currency.

Question 23

If an investor can open a bank deposit in Japanese yen and earn 2% or she could open a bank deposit in U.S. dollars and earn 6%, clearly the U.S. dollar deposit is preferred.

Question 24

The "Big Mac Index" measures the percentage of components in a Big Mac that are produced locally.

Question 25

The U.S. dollar is the most commonly traded currency in the world.

Question 26

International finance is the study of goods and services trade among countries.

Question 27

If the inflation differential between Germany and the United States is greater than the percentage change in the euro/dollar exchange rate then purchasing power parity holds.

Question 28

The main reason why London is the most important foreign exchange trading location is the lax tax system of the United Kingdom.

Question 29

How are exchange rates and interest rates related?

Question 30

What is an exchange rate? List the top 3 countries for foreign exchange trading volume in order. Which currency is most commonly traded?

Question 31

If a Swiss franc deposit pays an interest rate of 5% and a Danish crone deposit also pays an interest rate of 5%, then investors should find both deposits equally attractive.

Question 32

About 86 percent of the volume of foreign exchange transactions involve the U.S. dollar.