ECN 306 Exam 3 Study Guide 2026 | Economics Review, Practice Questions &
Test Prep
Professor Bhagwati's phrase is intended to convey the view that a policy of free international
capital mobility may not be socially optimal in contrast to a policy of free trade - ANS ✔✔True
Two nations are unable to smooth consumption across two states of nature because they lack a
global capital market. - ANS ✔✔Average consumption 50 and the variance of consumption 0
What applies to Brady Bonds? - ANS ✔✔They helped resolve the Third World debt crisis
precipitated by Mexico's default in 1982
What can lead to international financial crises? - ANS ✔✔Waves of overborrowing and
overlending, failure to hedge foreign currency liabilities, volatile global short-term lending,
contagion
What policy is likely to make financial crises less likely to occur? - ANS ✔✔A nation strives to
follow sound macroeconomic policies
What is not correct? - ANS ✔✔The crisis in Thailand, through a process of contagion, spread to
other countries
Knowing that IMF rescue packages are available leads nations to engage in riskier behavior
when borrowing, known as: - ANS ✔✔Moral hazard
What happens to U.S. GNP when capital is permitted to flow freely? - ANS ✔✔U.S. GNP rises by
area d+e+f
, What happens to U.S. GDP when capital is permitted to flow freely? - ANS ✔✔U.S. GNP rises by
g+h+a+b+c+d+e+f
What happens to World GDP when capital is permitted to flow freely? - ANS ✔✔World GDP
rises by area a+b+c+d+e+f
An investment exposed to exchange rate risk is: - ANS ✔✔Uncovered international investment
Concerning the covering of exchange market risks, assuming that depreciation of the domestic
currency is anticipated, one can say that there is an incentive for: - ANS ✔✔Importers to rush to
cover their future needs
The percent difference between the current forward exchange rate value of a currency and its
spot current value is the: - ANS ✔✔Forward premium
A small U.S. firm has sold experimental components to a Japanese firm and it will receive
payment of 1 million yen in 60 days. What is an option for hedging exchange rate risk? - ANS
✔✔The company can use the forward market, the company can borrow an amount in Japan
What means committing oneself to an uncertain future value of one's net worth in terms of
home currency? - ANS ✔✔Speculating
Assume you are a Chinese exporter and expect to receive $250,000 at the end of 60 days. You
can remove the risk of loss due to devaluation of the dollar by: - ANS ✔✔Selling dollars in the
forward market for 60-day delivery
A unique aspect of the foreign exchange market is that you can make contracts today for the
future delivery of sale of currency at a fixed price. - ANS ✔✔True
Test Prep
Professor Bhagwati's phrase is intended to convey the view that a policy of free international
capital mobility may not be socially optimal in contrast to a policy of free trade - ANS ✔✔True
Two nations are unable to smooth consumption across two states of nature because they lack a
global capital market. - ANS ✔✔Average consumption 50 and the variance of consumption 0
What applies to Brady Bonds? - ANS ✔✔They helped resolve the Third World debt crisis
precipitated by Mexico's default in 1982
What can lead to international financial crises? - ANS ✔✔Waves of overborrowing and
overlending, failure to hedge foreign currency liabilities, volatile global short-term lending,
contagion
What policy is likely to make financial crises less likely to occur? - ANS ✔✔A nation strives to
follow sound macroeconomic policies
What is not correct? - ANS ✔✔The crisis in Thailand, through a process of contagion, spread to
other countries
Knowing that IMF rescue packages are available leads nations to engage in riskier behavior
when borrowing, known as: - ANS ✔✔Moral hazard
What happens to U.S. GNP when capital is permitted to flow freely? - ANS ✔✔U.S. GNP rises by
area d+e+f
, What happens to U.S. GDP when capital is permitted to flow freely? - ANS ✔✔U.S. GNP rises by
g+h+a+b+c+d+e+f
What happens to World GDP when capital is permitted to flow freely? - ANS ✔✔World GDP
rises by area a+b+c+d+e+f
An investment exposed to exchange rate risk is: - ANS ✔✔Uncovered international investment
Concerning the covering of exchange market risks, assuming that depreciation of the domestic
currency is anticipated, one can say that there is an incentive for: - ANS ✔✔Importers to rush to
cover their future needs
The percent difference between the current forward exchange rate value of a currency and its
spot current value is the: - ANS ✔✔Forward premium
A small U.S. firm has sold experimental components to a Japanese firm and it will receive
payment of 1 million yen in 60 days. What is an option for hedging exchange rate risk? - ANS
✔✔The company can use the forward market, the company can borrow an amount in Japan
What means committing oneself to an uncertain future value of one's net worth in terms of
home currency? - ANS ✔✔Speculating
Assume you are a Chinese exporter and expect to receive $250,000 at the end of 60 days. You
can remove the risk of loss due to devaluation of the dollar by: - ANS ✔✔Selling dollars in the
forward market for 60-day delivery
A unique aspect of the foreign exchange market is that you can make contracts today for the
future delivery of sale of currency at a fixed price. - ANS ✔✔True
