International Finance - Final Exam
Which of the following markets typically has the narrowest bid-ask spread?
Interbank eurocurrency lending
Commercial loan lending
Stock market trading - ANSWER...-Interbank eurocurrency lending
Assume that a country is experiencing a balance of trade deficit and then suffers a rapid
depreciation of its currency. J-curve theory suggests that the trade balance will adjust in
three distinct periods in the following order:
Pass-through; quantity adjustment; currency contraction
Currency contraction; pass-through; quantity adjustment
Quantity adjustment; pass-through; currency contraction - ANSWER...-Currency
contraction; pass-through; quantity adjustment
Assume that a country would generally prefer a stable, fixed exchange rate. In that
case, which of the following statements is NOT true?
Fixed rates are inherently inflationary in that they require the country to follow loose
monetary and fiscal policies.
Fixed exchange rate regimes require that central banks maintain large quantities of
international reserves for use in the occasional defense of the fixed rate.
Stable prices aid in the growth of international trade and lessen exchange rate risks for
businesses. - ANSWER...-Fixed rates are inherently inflationary in that they require the
country to follow loose monetary and fiscal policies.
According to the international Fisher effect, if an investor buys a 5-year US bond with an
annual interest rate of 5% rather than a comparable British bond with an interest rate of
6%, then the investor must be expecting the ___ to ___ at a rate of at least 1% per year
over the next 5 years.
British pound; appreciate
Forward exchange rate; increase
US dollar; appreciate - ANSWER...-US dollar; appreciate
In January 2002, the Argentine peso was officially valued at a rate of Peso 1.40/USD.
More recently the exchange rate was Peso 3.10/USD. Thus, the Argentine peso ___
against the U.S. dollar.
Was fixed
, Weakened
Strengthened - ANSWER...-Weakened
Which of the following is NOT an attribute of the ideal currency?
Convertibility into gold
Monetary independence
Full financial integration - ANSWER...-Full financial integration
Which of the following is not a primary method to increase the value of a firm?
Decrease the cost of capital
Minimize current operating expenses
Increase expected future cash flow - ANSWER...-Minimize current operating expenses
If a currency dealer offers a quote of $1.25/EUR - $1.27/EUR, at what rate would the
bank be willing to buy USD?
$1.26/EUR
$1.27/EUR
$1.25/EUR - ANSWER...-$1.27/EUR
Which of the following is a cross exchange rate?
1.03 USD/EUR
2.46 GBP/EUR
1.52 USD/GBP - ANSWER...-2.46 GBP/EUR
Which of the following is NOT part of the current account of the balance of payments?
Remittances
Net portfolio investment
Net export/import of goods - ANSWER...-Net portfolio investment
If a US-based company signs a contract promising to buy supplies from a German
company, what is the associated currency position and risk?
Short the euro, with losses if the euro strengthens
Long the euro, with losses if the euro strengthens
Long the euro, with losses if the euro weakens - ANSWER...-Short the euro, with losses
if the euro strengthens
The role of official reserves is ___ under a ___ exchange rate regime.
More important; fixed
Less important; floating
More important; floating - ANSWER...-More important; fixed
Which of the following markets typically has the narrowest bid-ask spread?
Interbank eurocurrency lending
Commercial loan lending
Stock market trading - ANSWER...-Interbank eurocurrency lending
Assume that a country is experiencing a balance of trade deficit and then suffers a rapid
depreciation of its currency. J-curve theory suggests that the trade balance will adjust in
three distinct periods in the following order:
Pass-through; quantity adjustment; currency contraction
Currency contraction; pass-through; quantity adjustment
Quantity adjustment; pass-through; currency contraction - ANSWER...-Currency
contraction; pass-through; quantity adjustment
Assume that a country would generally prefer a stable, fixed exchange rate. In that
case, which of the following statements is NOT true?
Fixed rates are inherently inflationary in that they require the country to follow loose
monetary and fiscal policies.
Fixed exchange rate regimes require that central banks maintain large quantities of
international reserves for use in the occasional defense of the fixed rate.
Stable prices aid in the growth of international trade and lessen exchange rate risks for
businesses. - ANSWER...-Fixed rates are inherently inflationary in that they require the
country to follow loose monetary and fiscal policies.
According to the international Fisher effect, if an investor buys a 5-year US bond with an
annual interest rate of 5% rather than a comparable British bond with an interest rate of
6%, then the investor must be expecting the ___ to ___ at a rate of at least 1% per year
over the next 5 years.
British pound; appreciate
Forward exchange rate; increase
US dollar; appreciate - ANSWER...-US dollar; appreciate
In January 2002, the Argentine peso was officially valued at a rate of Peso 1.40/USD.
More recently the exchange rate was Peso 3.10/USD. Thus, the Argentine peso ___
against the U.S. dollar.
Was fixed
, Weakened
Strengthened - ANSWER...-Weakened
Which of the following is NOT an attribute of the ideal currency?
Convertibility into gold
Monetary independence
Full financial integration - ANSWER...-Full financial integration
Which of the following is not a primary method to increase the value of a firm?
Decrease the cost of capital
Minimize current operating expenses
Increase expected future cash flow - ANSWER...-Minimize current operating expenses
If a currency dealer offers a quote of $1.25/EUR - $1.27/EUR, at what rate would the
bank be willing to buy USD?
$1.26/EUR
$1.27/EUR
$1.25/EUR - ANSWER...-$1.27/EUR
Which of the following is a cross exchange rate?
1.03 USD/EUR
2.46 GBP/EUR
1.52 USD/GBP - ANSWER...-2.46 GBP/EUR
Which of the following is NOT part of the current account of the balance of payments?
Remittances
Net portfolio investment
Net export/import of goods - ANSWER...-Net portfolio investment
If a US-based company signs a contract promising to buy supplies from a German
company, what is the associated currency position and risk?
Short the euro, with losses if the euro strengthens
Long the euro, with losses if the euro strengthens
Long the euro, with losses if the euro weakens - ANSWER...-Short the euro, with losses
if the euro strengthens
The role of official reserves is ___ under a ___ exchange rate regime.
More important; fixed
Less important; floating
More important; floating - ANSWER...-More important; fixed
