IBUS 401 FINAL EXAM USC
BULLINGTON CORRECT 100%
Imperfect Markets Theory - ANSWER Which of the following theories identifies the non-
transferability of resources as a reason for international business?
True - ANSWER (T/F) Licensing is the process by which a firm provides it's technology
(copyrights, patents, trademarks, or trade names) in exchange for fees or some other
specified benefits
True - ANSWER (T/F) The Sarbanes-Oxley Act (SOX) was enacted in 2002 required
MNCs and other firms to implement an internal reporting process that could be easily
monitored by executives and the board of directors
False - ANSWER (T/F) A centralized management style, where major decisions about a
foreign subsidiary are made by the parent company, results in an increase in agency
costs
Balance of Trade - ANSWER The primary component of the current account is the:
It could attempt to reduce its home currency value - ANSWER Which of the following is
mentioned in the text as a possible means by which a government may attempt to
improve its balance of trade position (increase its exports or reduce its imports)
True - ANSWER (T/F) A balance of trade deficit indicates an excess of imports over
exports
False - ANSWER (T/F) A weakening of the U.S dollar with respect to the British pound
would likely reduce U.S. exports to the U.K. and increase U.S. imports from the U.K.
About 4.26% - ANSWER Assume that a bank's bid rate on Swiss francs is $0.45 and its
ask rate is $0.47. Its bid-ask percentage spread is:
Order Costs
Inventory Costs
Volume - ANSWER ______________ is a factor that affects the bid/ask spread.
Obtain a 90-day forward purchase contract on Canadian dollars - ANSWER If a U.S.
firm desires to avoid risk from exchange rate fluctuations, and it will need C$200,000 in
90 days to make a payment on imports from Canada, it could:
False - ANSWER (T/F) A put option is the amount or percentage by which the existing
spot rate exceeds the forward rate
, Sold on an exchange; offered by commercial banks - ANSWER Futures contracts are
typically ______________; forward contracts are typically _____________.
False - ANSWER (T/F) In general, when speculating on exchange rate movements, the
speculator will borrow the currency that is expected to appreciate and invest in the
country whose currency is expected to depreciate.
The Swiss demand for dollars to increase and the dollar will appreciate against the
Swiss franc. - ANSWER Assume that Swiss investors have francs available to invest in
securities, and they initially view U.S. and British interest rates as equally attractive.
Now assume that the U.S. interest rates increase while the British interest rates stay the
same. This would likely cause:
Nonsterilized intervention - ANSWER Assume a central bank exchanges its currency for
other foreign currencies in the foreign exchange market, but does not adjust for the
resulting change in the money supply. This is an example of:
Exchanging dollars for foreign currency - ANSWER Which of the following is an
example of direct intervention in foreign exchange markets?
Monetary - ANSWER Countries that have adopted the euro must agree on a single
______________ policy
Buy dollars with foreign currency - ANSWER It has been argued that the exchange rate
can be used as a policy tool. Assume that the U.S. government would like to reduce
inflation. Which of the following is an appropriate action given this scenario?
Locational arbitrage - ANSWER Due to __________, market forces should realign the
spot rate of a currency among banks.
Triangular Arbitrage - ANSWER Due to _______, market forces should realign cross
exchange rates between two foreign currencies based on the spot exchange rates of
the two currencies against the U.S. dollar.
Covered Interest Arbitrage - ANSWER If interest rate parity exists, then _________ is
not feasible.
Covered Interest Arbitrage - ANSWER * Due to __________, market forces should
realign the relationship between the interest rate differential of two currencies and the
forward premium (or discount) on the forward exchange rate between two currencies.
If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will
weaken - ANSWER Assume a two-country world: Country A and Country B. Which of
the following is correct about purchasing power parity (PPP) as related to these two
countries?
BULLINGTON CORRECT 100%
Imperfect Markets Theory - ANSWER Which of the following theories identifies the non-
transferability of resources as a reason for international business?
True - ANSWER (T/F) Licensing is the process by which a firm provides it's technology
(copyrights, patents, trademarks, or trade names) in exchange for fees or some other
specified benefits
True - ANSWER (T/F) The Sarbanes-Oxley Act (SOX) was enacted in 2002 required
MNCs and other firms to implement an internal reporting process that could be easily
monitored by executives and the board of directors
False - ANSWER (T/F) A centralized management style, where major decisions about a
foreign subsidiary are made by the parent company, results in an increase in agency
costs
Balance of Trade - ANSWER The primary component of the current account is the:
It could attempt to reduce its home currency value - ANSWER Which of the following is
mentioned in the text as a possible means by which a government may attempt to
improve its balance of trade position (increase its exports or reduce its imports)
True - ANSWER (T/F) A balance of trade deficit indicates an excess of imports over
exports
False - ANSWER (T/F) A weakening of the U.S dollar with respect to the British pound
would likely reduce U.S. exports to the U.K. and increase U.S. imports from the U.K.
About 4.26% - ANSWER Assume that a bank's bid rate on Swiss francs is $0.45 and its
ask rate is $0.47. Its bid-ask percentage spread is:
Order Costs
Inventory Costs
Volume - ANSWER ______________ is a factor that affects the bid/ask spread.
Obtain a 90-day forward purchase contract on Canadian dollars - ANSWER If a U.S.
firm desires to avoid risk from exchange rate fluctuations, and it will need C$200,000 in
90 days to make a payment on imports from Canada, it could:
False - ANSWER (T/F) A put option is the amount or percentage by which the existing
spot rate exceeds the forward rate
, Sold on an exchange; offered by commercial banks - ANSWER Futures contracts are
typically ______________; forward contracts are typically _____________.
False - ANSWER (T/F) In general, when speculating on exchange rate movements, the
speculator will borrow the currency that is expected to appreciate and invest in the
country whose currency is expected to depreciate.
The Swiss demand for dollars to increase and the dollar will appreciate against the
Swiss franc. - ANSWER Assume that Swiss investors have francs available to invest in
securities, and they initially view U.S. and British interest rates as equally attractive.
Now assume that the U.S. interest rates increase while the British interest rates stay the
same. This would likely cause:
Nonsterilized intervention - ANSWER Assume a central bank exchanges its currency for
other foreign currencies in the foreign exchange market, but does not adjust for the
resulting change in the money supply. This is an example of:
Exchanging dollars for foreign currency - ANSWER Which of the following is an
example of direct intervention in foreign exchange markets?
Monetary - ANSWER Countries that have adopted the euro must agree on a single
______________ policy
Buy dollars with foreign currency - ANSWER It has been argued that the exchange rate
can be used as a policy tool. Assume that the U.S. government would like to reduce
inflation. Which of the following is an appropriate action given this scenario?
Locational arbitrage - ANSWER Due to __________, market forces should realign the
spot rate of a currency among banks.
Triangular Arbitrage - ANSWER Due to _______, market forces should realign cross
exchange rates between two foreign currencies based on the spot exchange rates of
the two currencies against the U.S. dollar.
Covered Interest Arbitrage - ANSWER If interest rate parity exists, then _________ is
not feasible.
Covered Interest Arbitrage - ANSWER * Due to __________, market forces should
realign the relationship between the interest rate differential of two currencies and the
forward premium (or discount) on the forward exchange rate between two currencies.
If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will
weaken - ANSWER Assume a two-country world: Country A and Country B. Which of
the following is correct about purchasing power parity (PPP) as related to these two
countries?
