FIN 340 Final UPDATED ACTUAL Exam
Questions and CORRECT Answers
An important thing to remember about foreign exchange rate determination is that parity
conditions, asset approach, and balance of payments approaches are ________ theories rather
than ________ theories. - CORRECT ANSWER - complementary; competing
The ________ provides a means to account for international cash flows in a standardized and
systematic manner. - CORRECT ANSWER - balance of payments
The ________ approach argues that equilibrium exchange rates are achieved when the net inflow
of foreign exchange arising from current account activities is equal to the net outflow of foreign
exchange arising from financial account activities. - CORRECT ANSWER - balance of
payments
The ________ approach states that the exchange rate is determined by the supply and demand
for national currency stocks, as well as the expected future levels and rates of growth of
monetary stock. - CORRECT ANSWER - monetary
The ________ approach argues that exchange rates are determined by the supply and demand for
a wide variety of financial assets - CORRECT ANSWER - asset market
The ________ approach to the determination of spot exchange rates hypothesizes that the most
important factors are the relative real interest rate and a country's outlook for economic growth
and profitability. - CORRECT ANSWER - asset market
________ is defined as the spread of a crisis in one country to its neighboring countries and other
countries with similar characteristics. - CORRECT ANSWER - Contagion
Critics of the balance of payments approach to exchange rate determination point to the emphasis
on ________ of currency and capital rather than ________ of money or financial assets. -
CORRECT ANSWER - flows; stocks
, Which of the following versions of PPP is thought to be the most relevant to possibly explaining
what drives exchange rate values? - CORRECT ANSWER - Relative Purchasing Power
Parity
________ is the active buying and selling of the domestic currency against foreign currencies. -
CORRECT ANSWER - Direct Intervention
________ is the alteration of economic or financial fundamentals that are thought to be drivers of
capital to flow in and out of specific currencies. - CORRECT ANSWER - Indirect
Intervention
________ is the restriction of access to foreign currency by government. - CORRECT
ANSWER - Capital Controls
If the goal were to decrease the value of a country's currency − to fight an appreciation of the
domestic currency in exchange for foreign currency − the central bank would: - CORRECT
ANSWER - sell its own currency in exchange for foreign currency.
If the goal were to increase the value of a country's currency − to fight an depreciation of the
domestic currency in exchange for foreign currency − the central bank would: - CORRECT
ANSWER - buy its own currency in exchange for foreign currency.
The Asian Currency crisis appeared to begin in: - CORRECT ANSWER - Thailand.
The "tequila effect" is a slang term used to describe a form of financial panic called: -
CORRECT ANSWER - contagion.
________ exposure deals with cash flows that result from existing contractual obligations. -
CORRECT ANSWER - Transaction
Questions and CORRECT Answers
An important thing to remember about foreign exchange rate determination is that parity
conditions, asset approach, and balance of payments approaches are ________ theories rather
than ________ theories. - CORRECT ANSWER - complementary; competing
The ________ provides a means to account for international cash flows in a standardized and
systematic manner. - CORRECT ANSWER - balance of payments
The ________ approach argues that equilibrium exchange rates are achieved when the net inflow
of foreign exchange arising from current account activities is equal to the net outflow of foreign
exchange arising from financial account activities. - CORRECT ANSWER - balance of
payments
The ________ approach states that the exchange rate is determined by the supply and demand
for national currency stocks, as well as the expected future levels and rates of growth of
monetary stock. - CORRECT ANSWER - monetary
The ________ approach argues that exchange rates are determined by the supply and demand for
a wide variety of financial assets - CORRECT ANSWER - asset market
The ________ approach to the determination of spot exchange rates hypothesizes that the most
important factors are the relative real interest rate and a country's outlook for economic growth
and profitability. - CORRECT ANSWER - asset market
________ is defined as the spread of a crisis in one country to its neighboring countries and other
countries with similar characteristics. - CORRECT ANSWER - Contagion
Critics of the balance of payments approach to exchange rate determination point to the emphasis
on ________ of currency and capital rather than ________ of money or financial assets. -
CORRECT ANSWER - flows; stocks
, Which of the following versions of PPP is thought to be the most relevant to possibly explaining
what drives exchange rate values? - CORRECT ANSWER - Relative Purchasing Power
Parity
________ is the active buying and selling of the domestic currency against foreign currencies. -
CORRECT ANSWER - Direct Intervention
________ is the alteration of economic or financial fundamentals that are thought to be drivers of
capital to flow in and out of specific currencies. - CORRECT ANSWER - Indirect
Intervention
________ is the restriction of access to foreign currency by government. - CORRECT
ANSWER - Capital Controls
If the goal were to decrease the value of a country's currency − to fight an appreciation of the
domestic currency in exchange for foreign currency − the central bank would: - CORRECT
ANSWER - sell its own currency in exchange for foreign currency.
If the goal were to increase the value of a country's currency − to fight an depreciation of the
domestic currency in exchange for foreign currency − the central bank would: - CORRECT
ANSWER - buy its own currency in exchange for foreign currency.
The Asian Currency crisis appeared to begin in: - CORRECT ANSWER - Thailand.
The "tequila effect" is a slang term used to describe a form of financial panic called: -
CORRECT ANSWER - contagion.
________ exposure deals with cash flows that result from existing contractual obligations. -
CORRECT ANSWER - Transaction
