Davidson; Management - 3rd Australasian Edition



1.
Differences in real interest rates between countries produce the following type of capital flows.
A.
investment capital flows.
B.
political capital flows
C.
speculative capital flows
D.
capital flight


2.
Bill of lading is:
A.
a receipt for import payments.
B.
a receipt issued to the exporter by a common carrier that acknowledges possession of the goods described on the face of the bill..
C.
provide low cost financing for export industries.
D.
a similar to banker acceptance.


3.
If a country experiences inflation, generally
A.
its forward exchange rate will fall relative to countries with lower inflation
B.
its exports will increase significantly.
C.
its interest rates will fall.
D.
the forward exchange rate will fall relative to all other countries.


4.
When a commercial bank issues a payment guarantee on behalf of an importer, that guarantee is
A.
a sight draft.
B.
a time draft.
C.
a letter of credit.
D.
a documented transfer.


5.
If a Canadian dollar costs $0.84 in U.S. dollars today and traded for $0.86 last year, the U.S. dollar
A.
has appreciated against the Canadian dollar.
B.
has depreciated against the Canadian dollar.
C.
has more buying power in England.
D.
none of the above


6.
The Eurocurrency market serves as a place to store excess liquidity for multinational corporations, countries and individuals because of all of the following except:
A.
Lack of regulation allows investors to hold debt securities in bearer form.
B.
The presence of a withholding of tax.
C.
Investments earn higher returns.
D.
Eurocurrency deposits are highly liquid because of very short maturities with nearly 90 percent of deposits being less than 180 days.


7.
Capital flight is a process
A.
in which owners of capital transfer their wealth out of the country. In
B.
in which banks respond to changes in the country's political situation
C.
in which owners of capital change investment
D.
in which arbitragers trade


8.
When a Balance of Payments trade balance is in a surplus position
A.
another trade or service account must balance it.
B.
the entire balance of payments will be in a surplus position.
C.
other accounts, or capital movements offset the surplus to provide a balance.
D.
a shift of capital must balance the trade surplus.


9.
An importer who must pay yen in 60 days may hedge the foreign exchange risk
A.
in the forward market.
B.
in the spot market today.
C.
in the spot market 60 days from now.
D.
all of the above


10.
Foreign exchange rates are best described as
A.
the cost of a unit of foreign currency.
B.
the current interest rates of varying countries.
C.
the cost of a unit of foreign currency in terms of another currency.
D.
the expected change in prices of international goods.


11.
If the cost of yen per dollar changes from 100 to 110 yen per dollar,
A.
The yen has appreciated against the dollar.
B.
The dollar has depreciated against the yen.
C.
The dollar has appreciated against the yen.
D.
the cost of a yen has increased in terms of dollars.


12.
Significant trade deficits, imports exceeding exports, should have what effect on a country's exchange rate?
A.
Trade levels do not affect exchange rates.
B.
The country's currency should appreciate in value relative to their major trading countries.
C.
The country's currency should depreciate in value relative to their major trading countries.
D.
None of the above are correct.


13.
If purchasing power parity existed in foreign exchange rates,
A.
foreign exchange rate will remain constant.
B.
the prices of goods and services will cost the same in terms of dollars everywhere in the world.
C.
the prices of goods and services will cost the same in each local currency.
D.
the prices of foreign exchange will be the same any where in the world markets.


14.
If an item costs $5.00 in the U.S. and 525 yen in Japan, if purchasing power parity holds, what the yen/dollar exchange rate?
A.
105 yen/dollar
B.
525 yen/dollar
C.
100 yen/dollar
D.
.0095 yen/dollar


15.
A Mexican importer of computer parts from Canada would take which action in the foreign exchange markets?
A.
supply Canadian dollars
B.
demand pesos
C.
demand Canadian dollars
D.
none of the above


16.
A major reason that exchange rates do not adjust so purchasing power parity holds precisely is that
A.
investors are using forward contracts when trading.
B.
financial or capital flows may affect foreign exchange rates.
C.
consumers and businesses of each country are not concerned about the cost of goods in other countries.
D.
purchasing power parity is only a theory.


17.
If the rate of inflation in the U.S. is twice the rate in Japan,
A.
purchasing power parity will not be attained.
B.
the yen/dollar exchange rate is likely to decrease.
C.
the yen/dollar exchange rate is likely to increase.
D.
the exchange rate will not change because inflation has no effect on exchange rates.


18.
Investment flows from one country to another occur based on the investors'
A.
nominal rate of return on the foreign investment
B.
the expected real rate of return on the foreign investment.
C.
spot exchange rate when making the investment.
D.
the realized real rate of return on the foreign investment.


19.
Which of the following is true about Eurobonds?
A.
They are underwritten by a multinational syndicate of investment banks.
B.
Eurobonds are bearer bonds and do not have to be registered which makes them more marketable.
C.
Interest or coupon payments are annual and are calculated on a 360-day year.
D.
all of the above.


20.
Eurodollars are best associated with
A.
the use of dollar currency ($100 bills) in less-developed countries in Europe.
B.
the financing of Europeans by domestic U.S. banks.
C.
the holding of a dollar denominated bank deposit outside the U. S.
d.     the development of a common currency in Europe.


STOP This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.