FINA 405 International Financial Management Chapter 2 and Chapter 3 Practice Questions
FINA 405 International Financial Management Chapter 2 and Chapter 3 Practice Questions
1. Calculation Questions (20 questions)
1. The international monetary system can be defined as the institutional framework within which A. international payments are made.
B. movement of capital is accommodated.
C. exchange rates among currencies are determined.
D. all of the above
2. The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows:
(i)- Bimetallism
(ii)- Bretton Woods system
(iii)- Classical gold standard
(iv)- Flexible exchange rate regime (v)- Interwar period
The chronological order that they actually occurred is:
A. (iii), (i), (iv), (ii), and (v)
B. (i), (iii), (v), (ii), and (iv)
C. (vi), (i), (iii), (ii), and (v)
D. (v), (ii), (i), (iii), and (iv)
3. One potential drawback of the gold standard is that
A. the world economy can be subject to deflationary pressure due to the limited supply of monetary gold.
B. the world economy can be subject to inflationary pressure without changes in the supply of monetary gold.
C. gold price is volatile.
D. all of the above
4. Under the Bretton Woods system
A. there was an explicit set of rules about the conduct of international monetary policies.
B. each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary.
C. the U.S. dollar was the only currency that was fully convertible to gold.
D. all of the above
5. Special Drawing Rights (SDR) are
A. an artificial international reserve allotted to the members of the International Monetary Fund (IMF), who can then use it for transactions among themselves or with the IMF.
B. a "portfolio" of currencies, and its value tends to be more stable than the currencies that it is comprised of.
C. used in addition to gold and foreign exchanges, to make international payments.
D. all of the above
6. The Bretton Woods system ended in A. 1945.
B. 1973.
C. 1981.
D. 2001.
7. Put the following in correct date order:
A. Jamaica Agreement, Bretton Woods Agreement, Smithsonian Agreement.
B. Smithsonian Agreement, Bretton Woods Agreement, Jamaica Agreement.
C. Bretton Woods Agreement, Smithsonian Agreement, Jamaica Agreement.
D. Bretton Woods Agreement, Jamaica Agreement, Smithsonian Agreement.
8. With regard to the current exchange rate arrangement between the U.S. and the U.K., it is best characterized as
A. independent floating (market determined).
B. managed float.
C. currency board.
D. pegged exchange rate within a horizontal band.
9. Benefits from adopting a common European currency include A. reduced transaction costs.
B. elimination of exchange rate risk.
C. increased price transparency that will promote Europe-wide competition.
D. all of the above
10. The main cost of European monetary union is
A. the loss of national monetary and exchange rate policy independence.
B. increased exchange rate uncertainty.
C. lessened political integration.
D. none of the above
11. According to the "Trilemma" a country can attain only two of the following three conditions: 1) A fixed exchange rate, (2) Free international flows of capital, (3) An independent monetary policy. This difficulty is also known as
A. the incompatible trinity.
B. the Triffin Dilemma.
C. the Tobin tax.
D. all three can be had at the same time
12. Generally speaking, liberalization of financial markets when combined with a weak, underdeveloped domestic financial system tends to
A. strengthen the domestic financial system in the short run.
B. create an environment susceptible to currency and financial crises.
C. raise interest rates and lead to domestic recession.
D. none of the above
13. A "good" (or ideal) international monetary system should provide A. liquidity, elasticity, and flexibility.
B. elasticity, sensitivity, and reliability.
C. liquidity, adjustments, and confidence.
D. none of the above
14. The current account includes
A. the export and import of goods and services.
B. all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses.
C. all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs).
D. none of the above
15. The capital account includes
A. the export and import of goods and services.
B. all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses.
C. all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs).
D. none of the above
16. In 2012 the United States had a current account deficit. The current account deficit implies that the United States
A. had a surplus on legal consulting and engineering services.
B. produced more output than it consumed.
C. consumed more output than it produced.
D. none of the above
17. If the interest rate rises in the U.S. while other variables remain constant
A. capital inflows into the U.S. will increase.
B. capital inflows into the U.S. may not materialize.
C. capital will flow out of the U.S.
D. none of the above
18. When the balance-of-payments accounts are recorded correctly, the combined balance of the current account, the capital account, and the reserves account must be A. equal in magnitude to the country's national debt.
B. zero.
C. equal in magnitude to the Trade Deficit or Surplus.
D. none of the above
19. If the central banks of the world chose to diversify their foreign-exchange reserves away from the dollar and into the euro,
A. this would have the result of a strengthening of the value of the dollar.
B. this would have the result of a weakening in the value of the dollar.
C. this would not have much impact, as the information would be lost in the day-to-day volatility of exchange rates.
20. Over the last several years the U.S. has run persistent A. balance-of-payments deficits.
B. balance-of-payments surpluses.
C. current account deficits.
D. capital account deficits.
2.
.png)