GBE Final Questions and Verified Answers
Balance of Payments Correct Answer: a system of recording all of a country's economic transactions
with the rest of the world over a period of one year. MEASURED IN MONEY
Current Account Correct Answer: A category of balance of payments transactions that measures the
exchange of merchandise, the exchange of services, and unilateral transfers. MEASURED IN GOODS
Financial Account Correct Answer: Foreign direct investment, and the net financial derivatives.
Money in = Debit
Money out = Credit
Spot Market Price Correct Answer: Today's currency value and exchange rate.
Spot Market Discount Correct Answer: Selling a currency at a spot rate less than the exchange rate.
Spot Market Premium Correct Answer: Selling a currency at a spot rate greater than the ex rate.
Spot Rate Correct Answer: Amount of foreign currency needed to buy a US dollar
( P$=S[FC:$] )
Swap Rate Correct Answer: A fixed rate; selected so present value of the floating-rate is equal to the
fixed-rate, making the swap value 0 to both parties
Cross Rate Correct Answer: The exchange rate for two different currencies
Smithsonian Agreement Correct Answer: 1971 decision to allow US to devalue the dollar against other
currencies
Jamaica Agreement Correct Answer: 1976 international monetary order, allowed countries to adopt
different exchange rates systems (including floating)
Problems with PPP? Correct Answer: no good in short-term; doesn't explain rates with similar inflation
rates. Affected by transport costs, trade barriers, and government intervention, MNEs with pricing
power, market expectations, related goods
Balance of Payments Correct Answer: a system of recording all of a country's economic transactions
with the rest of the world over a period of one year. MEASURED IN MONEY
Current Account Correct Answer: A category of balance of payments transactions that measures the
exchange of merchandise, the exchange of services, and unilateral transfers. MEASURED IN GOODS
Financial Account Correct Answer: Foreign direct investment, and the net financial derivatives.
Money in = Debit
Money out = Credit
Spot Market Price Correct Answer: Today's currency value and exchange rate.
Spot Market Discount Correct Answer: Selling a currency at a spot rate less than the exchange rate.
Spot Market Premium Correct Answer: Selling a currency at a spot rate greater than the ex rate.
Spot Rate Correct Answer: Amount of foreign currency needed to buy a US dollar
( P$=S[FC:$] )
Swap Rate Correct Answer: A fixed rate; selected so present value of the floating-rate is equal to the
fixed-rate, making the swap value 0 to both parties
Cross Rate Correct Answer: The exchange rate for two different currencies
Smithsonian Agreement Correct Answer: 1971 decision to allow US to devalue the dollar against other
currencies
Jamaica Agreement Correct Answer: 1976 international monetary order, allowed countries to adopt
different exchange rates systems (including floating)
Problems with PPP? Correct Answer: no good in short-term; doesn't explain rates with similar inflation
rates. Affected by transport costs, trade barriers, and government intervention, MNEs with pricing
power, market expectations, related goods
