BUSA 3000 CHAPTER 11 EXAM QUESTIONS WELL ANSWERED LATEST UPDATE 2026
CURRENCIES AND EXCHANGE RATES IN INTERNATIONAL BUSINESS
1. Companies have a tendency to prefer handling international business transactions with their own
currency rather than with the currency of another country. - Answers True
2. The most universally accepted currencies for international business transactions are the euro,
dollar, yen, and peso, which are all considered hard currencies - Answers False
3. The foreign-exchange market has locations in Switzerland, Japan, and the United States. - Answers
False
HOW EXCHANGE RATES ARE DETERMINED
4. The greater the demand for a currency, the lower its price; the lower the demand for a currency,
the higher its price. - Answers False
5. In most high-inflation nations, interest rates are increasing while the purchasing power of the
national currency is plummeting. - Answers True
6. An increase in a nation's rate of inflation leads to an oversupply of money and eventually to a
decrease in the value of the nation's currency. - Answers True
DEVELOPMENT OF THE MODERN EXCHANGE RATE SYSTEM
7. The Bretton Woods Agreement was enacted in the late 1960s when the U.S. needed to finance
government programs and the Vietnam War. - Answers FAlse
8. The International Monetary Fund was created through the Bretton Woods Agreement as a way to
monitor the foreign exchange systems and help stabilize the currencies of member nations. -
Answers True
9. The official price of gold is used to determine the value of all major currencies in the exchange rate
system used for international trade today. - Answers False
10. The fixed exchange rate system was the prevalent system used by nations immediately after
World War II in the global attempt to revitalize international business. - Answers True
THE INTERNATIONAL MONETARY AND FINANCIAL SYSTEMS
11. The global financial system establishes the rules and procedures for exchanging national
currencies in international business transactions. - Answers False
12. The integration of international financial and monetary activity creates more opportunities for
contagions. - Answers True
KEY PLAYERS IN THE MONETARY AND FINANCIAL SYSTEMS
13. Central banks are the only participants on the national government level of the global monetary
and financial system. - Answers True
14. Wire transfers are commonly used by individuals in advanced economies to transfer money to
family members in emerging markets such as India and Mexico. - Answers True
15. Merchant banks are typically located in jurisdictions with low taxation and regulations, such as
Switzerland and the British Virgin Islands. - Answers False
CURRENCIES AND EXCHANGE RATES IN INTERNATIONAL BUSINESS
16. Approximately how many currencies are used in business transactions around the world?
a. 25
b. 75
c. 125
d. 175 - Answers d
17. Currency risk can best be defined as the risk that occurs when ________.
a. two currencies remain at the same constant rate
b. one currency changes in relation to another currency
c. buyers and sellers disagree over which currency to use
d. fluctuations in the stock market affect exchange rates - Answers b
18. Which of the following is an example of a currency risk?
a. purchasing products from a nation with appreciating currency
, b. purchasing products from a country with depreciating currency
c. selling products to a country with appreciating currency
d. selling products to a nation with a constant currency rate - Answers a
19. Which of the following most likely faces a high degree of currency risk?
a. exporters
b. franchisors
c. licensors
d. foreign direct investors - Answers a
20. Which of the following characterizes hard currencies?
a. flexible and safe
b. regulated and steady
c. sound and variable
d. strong and stable - Answers d
21. The type of currency used only for domestic business transactions is known by which of the
following terms?
a. hard
b. convertible
c. nonconvertible
d. local - Answers c
22. Capital flight has which of the following effects on a nation?
a. increases need for investment holdings
b. decreases ability to pay for imports
c. reduces harmful currency restrictions
d. preserves supply of hard currencies - Answers b
23. Currency complications which occur in international business transactions are resolved by which
of the following?
a. foreign exchange
b. SWIFT
c. stocks and bonds - Answers a
24. If last year one dollar equaled one euro, and then the exchange rate shifted so that today one
dollar equals two euros, which of the following would most likely not occur?
a. European firms pay more for raw materials imported from the United States
b. European consumers purchase fewer U.S. products and services.
c. Fewer Europeans travel to the U.S. or study at U.S. universities.
d. European firms lower their prices on goods made with U.S. parts. - Answers d
25. What does the central bank do in order to accommodate a nation's economic growth?
a. decrease the nation's money supply
b. increase the nation's money supply
c. increase the nation's demand
d. lower the rate of interest - Answers b
26. When high inflation occurs in a country, interest rates most likely increase because ________.
a. banks want to offset their losses
b. of the high demand of consumers
c. consumers need credits - Answers a
27. Momentum trading is characterized by which of the following?
a. investors buy stocks as prices fall
b. investors sell stocks when others sell
c. investors buy stocks as prices rise
d. investors buy and sell stocks quickly - Answers c
28. A trade surplus occurs as a result of which of the following?
a. a steep national currency depreciation
b. an imbalance in currency exchange rates
c. a nation's imports exceed its exports
d. a nation's exports exceed its imports - Answers d
CURRENCIES AND EXCHANGE RATES IN INTERNATIONAL BUSINESS
1. Companies have a tendency to prefer handling international business transactions with their own
currency rather than with the currency of another country. - Answers True
2. The most universally accepted currencies for international business transactions are the euro,
dollar, yen, and peso, which are all considered hard currencies - Answers False
3. The foreign-exchange market has locations in Switzerland, Japan, and the United States. - Answers
False
HOW EXCHANGE RATES ARE DETERMINED
4. The greater the demand for a currency, the lower its price; the lower the demand for a currency,
the higher its price. - Answers False
5. In most high-inflation nations, interest rates are increasing while the purchasing power of the
national currency is plummeting. - Answers True
6. An increase in a nation's rate of inflation leads to an oversupply of money and eventually to a
decrease in the value of the nation's currency. - Answers True
DEVELOPMENT OF THE MODERN EXCHANGE RATE SYSTEM
7. The Bretton Woods Agreement was enacted in the late 1960s when the U.S. needed to finance
government programs and the Vietnam War. - Answers FAlse
8. The International Monetary Fund was created through the Bretton Woods Agreement as a way to
monitor the foreign exchange systems and help stabilize the currencies of member nations. -
Answers True
9. The official price of gold is used to determine the value of all major currencies in the exchange rate
system used for international trade today. - Answers False
10. The fixed exchange rate system was the prevalent system used by nations immediately after
World War II in the global attempt to revitalize international business. - Answers True
THE INTERNATIONAL MONETARY AND FINANCIAL SYSTEMS
11. The global financial system establishes the rules and procedures for exchanging national
currencies in international business transactions. - Answers False
12. The integration of international financial and monetary activity creates more opportunities for
contagions. - Answers True
KEY PLAYERS IN THE MONETARY AND FINANCIAL SYSTEMS
13. Central banks are the only participants on the national government level of the global monetary
and financial system. - Answers True
14. Wire transfers are commonly used by individuals in advanced economies to transfer money to
family members in emerging markets such as India and Mexico. - Answers True
15. Merchant banks are typically located in jurisdictions with low taxation and regulations, such as
Switzerland and the British Virgin Islands. - Answers False
CURRENCIES AND EXCHANGE RATES IN INTERNATIONAL BUSINESS
16. Approximately how many currencies are used in business transactions around the world?
a. 25
b. 75
c. 125
d. 175 - Answers d
17. Currency risk can best be defined as the risk that occurs when ________.
a. two currencies remain at the same constant rate
b. one currency changes in relation to another currency
c. buyers and sellers disagree over which currency to use
d. fluctuations in the stock market affect exchange rates - Answers b
18. Which of the following is an example of a currency risk?
a. purchasing products from a nation with appreciating currency
, b. purchasing products from a country with depreciating currency
c. selling products to a country with appreciating currency
d. selling products to a nation with a constant currency rate - Answers a
19. Which of the following most likely faces a high degree of currency risk?
a. exporters
b. franchisors
c. licensors
d. foreign direct investors - Answers a
20. Which of the following characterizes hard currencies?
a. flexible and safe
b. regulated and steady
c. sound and variable
d. strong and stable - Answers d
21. The type of currency used only for domestic business transactions is known by which of the
following terms?
a. hard
b. convertible
c. nonconvertible
d. local - Answers c
22. Capital flight has which of the following effects on a nation?
a. increases need for investment holdings
b. decreases ability to pay for imports
c. reduces harmful currency restrictions
d. preserves supply of hard currencies - Answers b
23. Currency complications which occur in international business transactions are resolved by which
of the following?
a. foreign exchange
b. SWIFT
c. stocks and bonds - Answers a
24. If last year one dollar equaled one euro, and then the exchange rate shifted so that today one
dollar equals two euros, which of the following would most likely not occur?
a. European firms pay more for raw materials imported from the United States
b. European consumers purchase fewer U.S. products and services.
c. Fewer Europeans travel to the U.S. or study at U.S. universities.
d. European firms lower their prices on goods made with U.S. parts. - Answers d
25. What does the central bank do in order to accommodate a nation's economic growth?
a. decrease the nation's money supply
b. increase the nation's money supply
c. increase the nation's demand
d. lower the rate of interest - Answers b
26. When high inflation occurs in a country, interest rates most likely increase because ________.
a. banks want to offset their losses
b. of the high demand of consumers
c. consumers need credits - Answers a
27. Momentum trading is characterized by which of the following?
a. investors buy stocks as prices fall
b. investors sell stocks when others sell
c. investors buy stocks as prices rise
d. investors buy and sell stocks quickly - Answers c
28. A trade surplus occurs as a result of which of the following?
a. a steep national currency depreciation
b. an imbalance in currency exchange rates
c. a nation's imports exceed its exports
d. a nation's exports exceed its imports - Answers d
