Question 1

A ___________ is an agreement to buy and sell foreign exchange at prespecified exchange rates where the buying and selling are separated in time.

Accepted Answer

A

Question 2

A ________________ exchange rate is the price of one currency expressed in terms of another currency (or gold)

Accepted Answer

A foreign exchange rate is the price of one currency in terms of another currency. The term "foreign" indicates that the price is not in the currency of the country in which the exchange rate is being quoted. The other options are also types of exchange rates, but they refer to different ways in which exchange rates can be determined.

Question 3

The _____________________ refers primarily to the set of policies, institutions, practices, regulations, and mechanisms that determine foreign exchange rates.

Accepted Answer

The term international monetary system refers primarily to the set of policies, institutions, practices, regulations, and mechanisms that determine foreign exchange rates.

Question 4

Global foreign exchange business is concentrated in four centers, which of these is not one of them?

Accepted Answer

The four major forex trading centers are London, New York, Tokyo, and Singapore. Paris is not one of them.

Question 5

If the Iraq government regulates the rate at which local currency is exchanged for other countries this system is classified as a

Accepted Answer

In a fixed exchange rate system, the government or central bank sets and maintains the official exchange rate for the currency, often pegging it to another major currency or a basket of currencies.

Question 6

Firms in International Business face many opportunities as well as threats arising from___________________, which are determined at least partly by monetary systems.

Accepted Answer

International Financial Markets, such as foreign exchange markets, can have a significant impact on a firm's financial performance and competitiveness. Fluctuations in exchange rates can affect the cost of raw materials and goods sold, as well as the profitability of exports and imports. Interest rate differentials between countries can also impact a firm's ability to finance operations or investments. Therefore, firms need to carefully manage their exposure to currency and interest rate risks in order to capitalize on international opportunities while minimizing threats.

Question 7

In most countries ______________ is by far the largest component of total international liquidity.

Accepted Answer

The answer of In most countries ______________ is by far...

Question 8

The national goal of international transactions is to accomplish gains from trade and investment activities, which are recorded in the______________________.

Accepted Answer

The balance of payments account records all international transactions, including trade and financial transactions, and helps to measure the gains or losses from those transactions. The current account is a subset of the balance of payments account, which only records trade in goods, services, and income flows between countries. The national account is a measure of a country's overall economic activity and includes both domestic and international transactions. The international account is not a commonly used term in economics.

Question 9

The __________ provides a less painful adjustment mechanism to trade imbalances than do fixed exchange rates and prevents a country from having large persistent deficits.

Accepted Answer

A flexible exchange rate system allows for the exchange rate to adjust to trade imbalances, making it a less painful mechanism compared to fixed exchange rates. This system also prevents a country from having large persistent deficits by allowing depreciation in the exchange rate, making exports cheaper and imports more expensive.

Question 10

In what type of system is the rate based on the government's view of an appropriate rate in the context of the country's balance of payments position, foreign exchange reserve, and rates quoted outside of the official market?

Accepted Answer

The described system is a managed float, where the government still has some influence on the exchange rate but allows market forces to have some role in determining it. A dirty float involves more direct government intervention and manipulation of the exchange rate, while an independent float allows market forces to fully determine the rate without government interference. A dry float is not a commonly used term in the context of exchange rate systems.

Question 11

The peg system functions between which two systems?

Accepted Answer

The answer of The peg system functions between which two...

Question 12

The United States, Japan, Germany, France, Britain, Canada, and Italy are known as

Accepted Answer

The United States, Japan, Germany, France, Britain, Canada, and Italy are collectively known as the Group of Seven (G7). The G7 is a forum for the world's major industrialized democracies to discuss and coordinate economic policies.

Question 13

______________are the markets where company stocks are listed and traded on foreign stock exchanges.

Accepted Answer

International stock markets are the markets where company stocks are listed and traded on foreign stock exchanges.

Question 14

When a country's currency is tied or fixed to another country's currency, this is called _____________ exchange rate.

Accepted Answer

When a country's currency is tied or fixed to another country's currency, this is called a pegged exchange rate.

Question 15

A ______________ occurs between a bank and a customer (company, broker, or another bank), calling for delivery at a fixed future date, of a specified amount of foreign exchange at the fixed forward exchange rate.

Accepted Answer

A forward transaction is an agreement between two parties to exchange a specified amount of foreign currency at a fixed exchange rate at a future date. It is a common tool used to manage foreign exchange risk in international trade and investment. A swap involves the simultaneous purchase and sale of two different currencies to hedge against exchange rate fluctuations, and it is not the most accurate choice for the described scenario. "Fixed" is not a relevant choice, and a spot transaction refers to the immediate exchange of one currency for another at the current exchange rate.

Question 16

A _________ is the rate at which a bank is willing to exchange one currency for another at some specified future date.

Accepted Answer

A forward rate is a rate at which a bank is willing to exchange one currency for another at some specified future date. This rate is agreed upon at the time of the transaction and is used to hedge against potential losses due to changes in exchange rates. Contract rate refers to the rate agreed upon in a contract, which may or may not be a forward rate. Fixed rate is a rate that remains constant over a period of time and is not necessarily related to exchange rates.

Question 17

The _________ suggests that the exchange rate between two currencies should, in the long run, reflect purchasing power differences.

Accepted Answer

Purchasing power parity is the theory that suggests that in the long run, the exchange rate between two currencies should reflect the differences in their purchasing power. This means that the exchange rate should adjust so that the same basket of goods can be purchased in each country for the same price in the local currency. Target-zone arrangement and fixed-rate system are exchange rate systems, while independent float refers to a policy of allowing the exchange rate to be determined by market forces.

Question 18

Under which of the following, an exchange rate is allowed to adjust freely to the supply and demand of this currency for another?

Accepted Answer

An independent float allows the exchange rate to adjust freely to the supply and demand of one currency for another.

Question 19

Target-zone arrangement is

Accepted Answer

Target-zone arrangement is a joint float system where a group of nations cooperatively arrange to keep their exchange rates within a certain target zone or range. They may intervene in the foreign exchange market to maintain the exchange rates within this target zone. Therefore, option A is the most accurate description of target-zone arrangement.

Question 20

The __________ is an automatic system for revising the exchange rate, establishing a par value around which the rate can vary up to a given percentage point.

Accepted Answer

A crawling peg is an automatic system for revising the exchange rate, establishing a par value around which the rate can vary up to a given percentage point. This system allows for flexibility in the exchange rate while still maintaining some level of control. The other options, float and managed, do not fit the given definition.

Quiz 9: The International Monetary System and Financial Markets