Deck 18: Financial Strategies: Financing and Currencies

Question 1

The financing needs of the seller and buyer are usually the same

Answer 1

False

Question 2

MNCs with presence in developing economies have significantly higher market values than MNCs that operate only in advanced economies

Answer 2

True

Question 3

In Asia, there is still too much dependence on bank financing

Answer 3

True

Question 4

Stocks have historically played a relatively minor role in corporate financing in many European countries

Question 5

Microcredit involves makings small unsecured loans to poor people

Question 6

Factoring houses buy accounts receivable

Question 7

Unlike factors, forfaiters tend to work with medium-term receivables rather than short-term receivables

Question 8

A hard currency is hard because of its gold backing

Question 9

For a currency to become an international currency, the issuing country must possess financial markets that are substantially free of controls

Question 10

A currency becomes hard or international when the issuing country passes a law for this purpose

Question 11

A global currency is impossible

Question 12

Inflation makes it impossible to have a global currency

Question 13

The foreign exchange market has a central trading floor where buyers and sellers meet

Question 14

Business firms do not need to hedge their currency exposure because losses from currency fluctuation are offset by windfall profit in the long run

Question 15

The spot rate is irrelevant for the preparation of price quotations

Question 16

The foreign exchange rate is simply a price

Question 17

Inflation discourages lending but encourages borrowing

Question 18

A currency's tendency to get out of equilibrium is caused by trade deficits but not trade surpluses

Question 19

When the US dollar declines in value, American exporters find it more difficult to export

Question 20

When the US dollar rises in value, it maximizes US consumer welfare but adversely affects US exports and employment

Question 21

Dollar devaluation makes US products competitive abroad but does not maximize American consumers' welfare

Question 22

The J Curve phenomenon explains why the trade deficit may get worse after devaluation before recovering later

Question 23

Devaluation may aggravate inflation

Question 24

The price-specie-flow mechanism explains that imports will lead to less gold at home, resulting in less money supply

Question 25

The IMF discourages any use of multiple exchange rates

Question 26

Dirty floating means that central banks are not willing or able to intervene to support their currencies

Question 27

Central banks' combined resources are not adequate to reverse a fundamental trend in the foreign exchange market

Question 28

There is evidence that countries have moved away from intermediate exchange rate regimes toward floating

Question 29

The IMF requires all member countries to use the same exchange rate regime

Question 30

The IMF allows member countries to pick their own exchange rate regime

Question 31

The fixed rate system provides speculators a one-way, no-lose bet

Question 32

Floating rates do not work well during recessions

Question 33

Floating rates create a high degree of short-term volatility and the large medium-term swings in exchange rates

Question 34

Developing countries have realized more benefits than problems from floating exchange rates

Question 35

Experience has shown that fixed rates work well for a prolonged period

Question 36

Other systems have just as much, if not more of the same flaws, as the floating system

Question 37

The financial crises were experienced by many emerging markets that maintained soft pegs

Question 38

The IMF has a -variable macroeconomic model to serve as an early warning system for a currency in trouble

Question 39

Regarding foreign exchange management products, the first-generation product (ie, forward contracts) is more popular among users than the second-generation (eg, options) and third-generation products (eg, warrants)

Question 40

ETFs (exchange traded funds) allow stock indices and currencies to be traded as if they were stocks

Question 41

ETNs (exchange traded notes) allow investors to hedge their assets denominated in US dollars

Question 42

Multinationals may be able to employ a natural hedge by matching resources and costs in the same currency

Question 43

There is no relationship between a country's inflation rate and the value of its currency

Question 44

When both the buyer and the seller are in soft currencies, they should consider a third currency for invoicing

Question 45

Globalization offers some protection from currency fluctuations

Question 46

The local (overseas) manufacturing market-entry strategy does not reduce currency risk