International Economics, 7e (Husted/Melvin)



International Economics, 7e (Husted/Melvin)

Chapter 11 An Introduction to International Finance

Multiple-Choice Questions

1)

The study of trade in international financial assets is called

A)

international economics.

B)

international finance.

C)

international monetary economics.

D)

Both B and C.

Answer:

D

2)

A nation's transactions with the rest of the world are recorded in the

A)

national income accounts

B)

balance of transactions

C)

balance of payments

D)

income statement

Answer:

C

3)

A country that exports more goods than it imports has a

A)

trade surplus.

B)

trade deficit.

C)

merchandise deficit.

D)

balance of payments equilibrium.

Answer:

A

4)

A trade deficit occurs when a country

A)

exports more goods than it imports.

B)

buys more goods from the rest of the world than it sells.

C)

buys more stocks and bonds from the rest of the world than it sells.

D)

both B and C.

Answer:

B

5)

The United States has not had a balance of trade surplus since

A)

1975.

B)

1965.

C)

1980.

D)

1955.

Answer:

A

6)

The price of one money in terms of another is called

A)

the "just" price.

B)

the trade price.

C)

the exchange rate.

D)

foreign exchange.

Answer:

C

7)

The largest volume of foreign exchange trading occurs in

A)

the U.K..

B)

the U.S..

C)

Japan.

D)

Germany.

Answer:

A

8)

In order from highest to lowest, the top 3 trading locations for foreign exchange are:

A)

U.K., Japan, Germany.

B)

U.K., U.S., Japan.

C)

Japan, U.S., U.K..

D)

Japan, Hong Kong, Singapore.

Answer:

B

9)

At the last BIS survey, the average daily volume of foreign exchange trading was approximately equal to

A)

$2,000 billion

B)

$100 million

C)

$15 million

D)

$750,000

Answer:

A

10)

The most commonly traded currency in the foreign exchange market is the

A)

British pound.

B)

Japanese yen.

C)

Chinese yuan.

D)

U.S. dollar.

Answer:

D

11)

The euro is now the official currency of all of the following countries except

A)

France.

B)

Germany.

C)

Great Britain.

D)

Spain.

Answer:

C

12)

If a Big Mac hamburger sells for the same dollar value in Tokyo as in Los Angeles then

A)

exchange rates are said to be fixed.

B)

purchasing power parity holds.

C)

Japanese yen have been replaced by dollars in Tokyo.

D)

the inflation rate in each country must equal zero.

Answer:

B

13)

Interest differentials between two countries reflect

A)

expected exchange rate changes.

B)

differential risk of investing in the two countries.

C)

Both A and B.

D)

the fact that there is no link between national interest rates.

Answer:

C

14)

Suppose you open a Mexican peso bank deposit with 100 U.S. dollars when the exchange rate is 10 pesos per dollar. The peso deposit pays 20% per year interest. After one year the exchange rate equals 12 pesos per dollar. How many dollars is your peso deposit worth after one year?

A)

$100

B)

$120

C)

$180

D)

$0

Answer:

A

True or False Questions

1)

A country that exports more goods than it imports has a trade deficit.

Answer:

False

Explanation:

None Given

2)

A trade surplus occurs when goods exports exceed goods imports.

Answer:

True

Explanation:

None Given

3)

The country with the largest volume of foreign exchange trading is Japan.

Answer:

False

Explanation:

None Given

4)

The U.S. dollar is the most commonly traded currency in the world.

Answer:

True

Explanation:

None Given

5)

The U.K. is the country with the largest volume of foreign exchange trading and the British pound is the most commonly traded currency.

Answer:

False

Explanation:

None Given

6)

If a U.S. dollar will buy as much in Japan as in the United States, then purchasing power parity holds.

Answer:

True

Explanation:

None Given

7)

If the inflation differential between Germany and the United States is greater than the percentage change in the euro/dollar exchange rate then purchasing power parity holds.

Answer:

False

Explanation:

None Given

8)

If an investor can open a bank deposit in Japanese yen and earn 2% or she could open a bank deposit in U.S. dollars and earn 6%, clearly the U.S. dollar deposit is preferred.

Answer:

False

Explanation:

None Given

9)

If a Swiss franc deposit pays an interest rate of 5% and a Danish crone deposit also pays an interest rate of 5%, then investors should find both deposits equally attractive.

Answer:

False

Explanation:

None Given

10)

International finance is the study of goods and services trade among countries.

Answer:

False

Explanation:

None Given

Essay Questions

1)

What is an exchange rate? List the top 3 countries for foreign exchange trading volume in order. Which currency is most commonly traded?

Answer:

The price of one money in terms of another. UK, US, Japan. U.S. dollar

2)

Suppose an investor has the choice of buying a bond in Germany paying 5% interest in euros or else buying a similar bond in the United States paying 5% interest in U.S. dollars. If the exchange rate today is 0.87 euros per dollar, what would the exchange rate have to be at the maturity of the bonds for the investor to earn the same return from either bond?

Answer:

0.87 euro per dollar

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download