Question 1

Financial globalization has not resulted in:  A) an increase in quantity and speed in the flow of capital across the world. B) uniform ways of ownership, control, and governance across the world. C) capital markets less open and a decrease in the availability of capital for many organizations. D) continuing imbalances of balance of payments.

Accepted Answer

B

Question 2

A well-established, large U.S.-based MNE will probably NOT be able to overcome which of the following obstacles to maximizing firm value?  A) high quality strategic management  B) an open market place C) access to capital  D) none of the above

Accepted Answer

D

Question 3

A well-established, large China-based MNE will probably be most adversely affected by which of the following elements of firm value?  A) an open marketplace  B) access to qualified labor pool C) high-quality strategic management  D) access to capital

Accepted Answer

A

Question 4

A well-established, large, Brazil-based MNE will probably be most adversely affected by which of the following elements of firm value?  A) access to qualified labor pool  B) access to capital C) an open marketplace  D) high-quality strategic management

Accepted Answer

B

Question 5

A major cost avoided in the eurocurrency markets is the payment of deposit insurance fees, such as:  A) International Monetary Fund - IMF B) World Bank - WB C) Office of the Comptroller of the Currency - OCC D) Federal Deposit Insurance Corporation - FDIC

Accepted Answer

D

Question 6

The modern eurocurrency market was born shortly after:  A) World War I  B) Bosnian War  C) Korean War  D) World War II

Accepted Answer

D

Question 7

The reference rate of interest in the eurocurrency market is the:  A) Federal funds rate  B) Treasury rate C) Prima rate  D) London Interbank Offered Rate

Accepted Answer

D

Question 8

Interest spreads in the eurocurrency market are small for many reasons EXCEPT:  A) Eurocurrency deposits and loans are made in amounts of $500,000 or more on an unsecured basis. B) Eurocurrency loans are secured loans. C) The eurocurrency is a wholesale market. D) Borrowers are usually large corporations or government entities.

Accepted Answer

B

Question 9

The theory that suggests specialization by country can increase worldwide production is:  A) the international Fisher effect.  B) the theory of working capital management. C) the theory of comparative advantage.  D) the theory of foreign direct investment.

Accepted Answer

C

Question 10

Which of the following is NOT a reason governments interfere with comparative advantage?  A) national self-sufficiency in defense-related industries B) Governments attempt to achieve full employment. C) Governments promote economic development. D) All are reasons governments interfere with comparative advantage.

Accepted Answer

D

Question 11

Which of the following factors of production DO NOT flow freely between countries?  A) financial capital B) raw materials C) (non-military) technology D) All of the above factors of production flow freely among countries.

Accepted Answer

B

Question 12

Which of the following would NOT be a way to implement comparative advantage?  A) Water of the greatest purity is obtained from wells in Oregon, bottled, and exported worldwide. B) IBM exports computers to Egypt. C) Computer hardware is designed in the United States but manufactured and assembled in Korea. D) All of the above are examples of ways to implement comparative advantage.

Accepted Answer

D

Question 13

Of the following, which would NOT be considered a way that government interferes with comparative advantage? A) tariffs  B) quotas C) managerial skills  D) other non-tariff restrictions

Accepted Answer

C

Question 14

The concept of absolute comparative advantage\'s origins lie in:  A) On the Principles of Political Economy and Taxation book, published in 1817 B) Adam Smith\'s work of 1776 C) David Ricardo\'s work of 1776 D) The Wealth of Nations book, published in 1887

Accepted Answer

B

Question 15

The concept of relative comparative advantage\'s origins lie in:  A) David Ricardo\'s work of 1776 B) The Wealth of Nations book, published in 1887 C) On the Principles of Political Economy and Taxation book, published in 1817 D) Adam Smith\'s work of 1776

Accepted Answer

C

Question 16

Which of the following domestic financial instruments have NOT been modified for use in international financial management?  A) currency options and futures B) letters of credit C) interest rate and currency swaps D) All of the above are domestic financial instruments that have also been modified for use in international financial markets.

Accepted Answer

D

Question 17

Which of the following is not always understood by MNE management?  A) Political risk  B) Financial instruments C) Culture, history, and institutions D) Foreign exchange risk

Accepted Answer

C

Question 18

In determining why a firm becomes multinational there are many reasons. One reason is that the firm is a market seeker. Which of the following is NOT a reason why market-seeking firms produce in foreign countries?  A) political safety and small likelihood of government expropriation of assets B) satisfaction of local demand in the foreign country C) satisfaction of local demand in the domestic markets D) All of the above are market-seeking activities.

Accepted Answer

A

Question 19

________ investments are designed to promote and enhance the growth and profitability of the firm. ________ investments are designed to deny those same opportunities to the firm\'s competitors.  A) Proactive; Defensive  B) Defensive; Proactive C) Conservative; Aggressive  D) Aggressive; Proactive

Accepted Answer

A

Question 20

In determining why a firm becomes multinational there are many reasons. One reason is that the firm is a raw material seeker. Which of the following is NOT a reason why raw material seeker extract raw materials in foreign countries?  A) They extract raw materials wherever they can be found for sale in the host country. B) They extract raw materials wherever they can be found for further processing in the host country. C) They extract raw materials wherever they can be found to export from the host country. D) All of the above.

Accepted Answer

D

Question 21

The phase of the globalization process characterized by imports from foreign suppliers and exports to foreign buyers is called the:  A) multinational phase.  B) import-export banking phase. C) domestic phase.  D) international trade phase.

Accepted Answer

D

Question 22

The authors describe the multinational phase of globalization for a firm as one characterized by the:  A) potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated in dollars. B) ownership of assets and enterprises in foreign countries. C) requirement that all employees be multilingual. D) imports from foreign suppliers and exports to foreign buyers.

Accepted Answer

B

Question 23

A firm in the International Trade Phase of Globalization:  A) makes all foreign payments in foreign currency units and all foreign receipts in domestic currency units. B) bears direct foreign exchange risk. C) receives all foreign receipts in foreign currency units and makes all foreign payments in domestic currency units. D) none of the above

Accepted Answer

B

Question 24

Of the following, which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalization by the firm?  A) evaluation of the credit quality of foreign buyers and sellers B) credit risk management C) evaluation of foreign exchange risk D) foreign consumer method of payment preferences

Accepted Answer

D

Question 25

The twin agency problems limiting financial globalization are caused by these two groups acting in their own self-interests rather than the interests of the firm.  A) corporate insiders and rulers of sovereign states B) rulers of sovereign states and unsavory customs officials C) attorneys and unsavory customs officials D) corporate insiders and attorneys

Accepted Answer

A

Question 26

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and Â£4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was:  A) Â£4.8665/$. B) Â£0.2055/$. C) always changing because the price of gold was always changing. D) unknown because there is not enough information to answer this question.

Accepted Answer

B

Question 27

World War I caused the suspension of the gold standard for fixed international exchange rates because the war:  A) used gold as the main ingredient in armament plating. B) interrupted the free movement of gold. C) cost too much money. D) lasted too long.

Accepted Answer

B

Question 28

The post WWII international monetary agreement that was developed in 1944 is known as the:  A) Bretton Woods Agreement.  B) Yalta Agreement. C) League of Nations.  D) United Nations.

Accepted Answer

A

Question 29

Another name for the International Bank for Reconstruction and Development is:  A) the Marshall Plan.  B) the World Bank. C) the Recon Bank.  D) the European Monetary System.

Accepted Answer

B

Question 30

The International Monetary Fund (IMF):  A) in recent years has provided large loans to Russia, South Korea, and Brazil. B) aids countries with balance of payment and exchange rate problems. C) was created as a result of the Bretton Woods Agreement. D) is all of the above.

Accepted Answer

D

Question 31

One of the innovations introduced by Bretton Woods was the creation of the Special Drawing Right or SDR. The SDR is an international reserve asset created by the:  A) International Monetary Fund (IMF) B) International Bank of Reconstruction and Development (IBRD) C) U.S. Department of the Treasury D) World Bank (WB)

Accepted Answer

A

Question 32

Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?  A) several unexpected economic shocks to member nations B) differential rates of inflation across member nations C) widely divergent national monetary and fiscal policies among member nations D) all of the above

Accepted Answer

D

Question 33

Which of the following statements is NOT true?  A) The Gold Standard Era was characterized by growing openness in trade, but limited capital mobility. B) The Bretton Woods Era (post WWII) realized the increasing benefits of open economies. Furthermore, trade was increasingly dominated by capital. C) Since March 1973, exchange rates have become much more volatile and less predictable than previous periods. D) The time period between world wars 1 and 2 (the inter war years) witnessed significant reductions in trade barriers and a rapid acceleration in international trade.

Accepted Answer

D

Question 34

A review of the evolution of the Global Monetary System shows that capital flows dominate trade in which of the following eras EXCEPT:  A) Fixed Exchange Rates, 1945-1973 B) The Emerging Era, 1997-Present C) The Floating Era, 1973-1997  D) Classical Gold Standard

Accepted Answer

D

Question 35

Since 2009 the IMF\'s exchange rate regime classification system uses a \"de facto classification\" methodology. Under this system, a country that has given up their own sovereignty over monetary policy is considered to have:  A) a residual agreement.  B) floating arrangements. C) soft pegs.  D) hard pegs.

Accepted Answer

D

Question 36

Since 2009 the IMF\'s exchange rate regime classification system uses a \"de facto classification\" methodology. Under this system, countries with \"fixed exchange rates\" are considered to have:  A) floating arrangements.  B) soft pegs. C) hard pegs.  D) a residual agreement.

Accepted Answer

B

Question 37

A small economy country whose GDP is heavily dependent on trade with the United States could use a(n) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.  A) managed float  B) pegged exchange rate with the United States C) independent floating  D) pegged exchange rate with the Euro

Accepted Answer

B

Question 38

Since 2009 the IMF\'s exchange rate regime classification system uses a \"de facto classification\" methodology. Under this system, currencies that are predominantly market-driven are considered to be:  A) a residual agreement.  B) floating arrangements. C) hard pegs.  D) soft pegs.

Accepted Answer

B

Question 39

Among IMF member countries since 2010 the dominating exchange rate regime has been:  A) floating arrangements.  B) residual agreement. C) hard peg.  D) soft peg.

Accepted Answer

D

Question 40

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?  A) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies. B) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate. C) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses. D) Fixed rates provide stability in international prices for the conduct of trade.

Accepted Answer

A

Question 41

Which of the following is NOT an attribute of the \"ideal\" currency?  A) full financial integration  B) exchange rate stability C) monetary independence  D) All are attributes of an ideal currency.

Accepted Answer

D

Question 42

The authors discuss the concept of the \"Impossible Trinity\" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?  A) exchange rate stability and full financial integration B) monetary independence and exchange rate stability C) full financial integration and monetary independence D) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

Accepted Answer

C

Question 43

China today is a clear example of a nation that has chosen the following policies EXCEPT:  A) restrict the flow of capital into and out of the country B) conduct an independent monetary policy C) full financial integration in an attempt to stimulate its domestic economy D) control and manage the value of its currency

Accepted Answer

C

Question 44

According to the terminology associated with changes in currency values, which of the following choices is the case when a currency\'s value relative to other currencies is changed by a government?  A) devaluation and revaluation  B) depreciation and appreciation C) depreciation and revaluation  D) devaluation and appreciation

Accepted Answer

A

Question 45

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?  A) Government debt should be no more than 60% of GDP. B) Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. C) National birthrates must be at 2.0 or lower per person. D) The fiscal deficit should be no more than 3% of GDP.

Accepted Answer

C

Question 46

According to the authors, what is the single most important mandate of the European Central Bank?  A) Promote international trade for countries within the European Union. B) Promote price stability within the European Union. C) Establish an EMU trade surplus with the United States. D) Price, in euros, all products for sale in the European Union.

Accepted Answer

B

Question 47

Which of the following is a way in which the euro affects markets?  A) Consumers and business enjoy price transparency and increased price-based competition. B) Countries within the Euro zone enjoy cheaper transaction costs. C) Currency risks and costs related to exchange rate uncertainty are reduced. D) all of the above

Accepted Answer

D

Question 48

For the three years from early 2002 to early 2005, the euro maintained a strong and steady rise in value against the U.S. dollar (USD). After a brief respite in 2005, the euro continued its climb against the USD into 2008. Which of the following were NOT a contributing factor in the assent of the euro and the decline in the dollar?  A) a general weakening of the dollar after the attacks of September 11, 2001 B) severe U.S. balance of payments deficits C) large U.S. balance of payment surpluses D) All of the above were contributing factors.

Accepted Answer

C

Question 49

The countries that use the euro as their currency have:  A) agreed to use a single currency (exchange rate stability), allow individual control of their own money supply (monetary independence), but give up the free movement of capital in and out of their economies (financial integration). B) gained control over their own money supply (monetary independence), allowed the free movement of capital in and out of their economies (financial integration), but give up exchange rate stability. C) agreed to use a single currency (exchange rate stability), allow the free movement of capital in and out of their economies (financial integration), but give up individual control of their own money supply (monetary independence). D) none of the above

Accepted Answer

C

Question 50

Beginning in 1991 Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because:  A) the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar. B) the United States required the action as a prerequisite to finalizing a free trade zone with all of North, South, and Central America. C) the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy. D) all of the above

Accepted Answer

A

Question 51

In January 2002, the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$, thus, the Argentine Peso ________ against the U.S. dollar.  A) remained neutral  B) strengthened  C) weakened  D) all of the above

Accepted Answer

C

Question 52

In January 2000 Ecuador officially replaced its national currency, the Ecuadorian sucre, with the U.S. dollar. This practice is known as:  A) securitization  B) dollarization.  C) a Yankee bailout.  D) bi-currencyism.

Accepted Answer

B

Question 53

You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?  A) dollarization B) an exchange rate pegged to the U.S. dollar C) an internationally floating exchange rate D) an exchange rate with a fixed price per ounce of gold

Accepted Answer

A

Question 54

Which of the following is NOT an argument against dollarization?  A) Dollarization removes currency volatility against the dollar. B) Dollarization causes a loss of sovereignty over domestic monetary policy. C) Dollarization causes the country to lose the power of seignorage. D) The central bank of the dollarized country loses the role of lender of last resort.

Accepted Answer

A

Question 55

The ability of a country to profit from its ability to print money is known as:  A) dollarization.  B) inflation.  C) profiteering.  D) seignorage.

Accepted Answer

D

Question 56

Which of the following factors make it difficult for emerging market economies to choose a specific currency regime?  A) weak fiscal, financial, and monetary institutions B) the emerging market\'s vulnerability to sudden stoppages of outside capital flows C) the tendency for commerce to allow currency substitution and the denomination of liabilities in dollars D) all of the above

Accepted Answer

D

Question 57

Of the following, which is NOT a trade-off that must be dealt with in any exchange rate regime?  A) dollars vs pounds  B) rules vs discretionary action C) cooperation vs independence  D) All of the above are rate regime trade-offs.

Accepted Answer

A

Question 58

The following are examples of degrees of internationalization of an international currency EXCEPT:  A) First degree of internationalization is when an international currency becomes readily accessible for trade. B) A third degree of internationalization is when an international currency takes the role of a reserve currency. C) A third degree of internationalization is when an international currency is used for international investment. D) A second degree of internationalization is when an international currency is used for international investment.

Accepted Answer

C

Question 59

Which of the following is NOT true regarding the market for foreign exchange?  A) Foreign exchange transactions are physically completed in the foreign exchange market. B) The market provides the physical and institutional structure through which the money of one country is exchanged for another. C) The rate of exchange is determined in the market. D) All of the above are true.

Accepted Answer

D

Question 60

A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.  A) foreign exchange transaction  B) import/export exchange C) Eurodollar transaction  D) interbank market transaction

Accepted Answer

A

Question 61

The ________ is the mechanism by which participants transfer purchasing power between countries, obtain or provide credit for international trade transactions, and minimize exposure to the risks of exchange rate changes.  A) LIBOR  B) federal open market C) foreign exchange market  D) futures market

Accepted Answer

C

Question 62

Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market?  A) obtaining or providing credit for international trade transactions B) the transfer of purchasing power between countries C) minimizing the risks of exchange rate changes D) All of the above were identified as functions of the foreign exchange market.

Accepted Answer

D

Question 63

While trading in foreign exchange takes place worldwide, the major currency trading centers are located in:  A) Los Angeles, New York, and London.  B) London, New York, and Tokyo. C) New York, Zurich, and Bahrain.  D) Paris, Frankfurt, and London.

Accepted Answer

B

Question 64

The authors identify two tiers of foreign exchange markets:  A) commercial and investment transactions.  B) interbank and client markets. C) client and retail market.  D) bank and nonbank foreign exchange.

Accepted Answer

B

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