INTERNATIONAL FINANCE Recently, the U.S. experienced an annual balance of trade representing a ____. deficit A high home inflation rate relative to other countries would ____ the home country''s current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home country''s current account balance, other things equal. decrease; decrease If a country''s government imposes a tariff on imported goods, that country''s current account balance will likely ____ (assuming no retaliation by other governments). increase ____ purchases more U.S. exports than the other countries listed here. Canada An increase in the current account deficit will place ____ pressure on the home currency value, other things equal. downward If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same). reduce The International Financial Corporation was established to: enhance economic development of the private sector through investment in stock of corporations. The World Bank was established to: enhance economic development through non-subsidized loans (at market interest rates). The International Development Association was established to: enhance economic development through low-interest rate loans (below-market rates). Which of the following would likely have the least direct influence on a country’s current account? A tax on income earned from foreign stocks. The "J curve" effect describes: the short-run tendency for a country''s balance of trade to deteriorate even while its currency is depreciating. An increase in the use of quotas is expected to: increase the country’s current account balance, if other governments do not retaliate. The U.S. typically has a balance of trade surplus in its trade with
TRẮC NGHIỆM MƠN TÀI CHÍNH QUỐC TẾ INTERNATIONAL FINANCE Recently, the U.S experienced an annual balance of trade representing a deficit A high home inflation rate relative to other countries would the home country's current account balance, other things equal A high growth in the home income level relative to other countries would the home country's current account balance, other things equal decrease; decrease If a country's government imposes a tariff on imported goods, that country's current account balance will likely (assuming no retaliation by other governments) increase purchases more U.S exports than the other countries listed here Canada An increase in the current account deficit will place pressure on the home currency value, other things equal downward If the home currency begins to appreciate against other currencies, this should the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same) reduce The International Financial Corporation was established to: enhance economic development of the private sector through investment in stock of corporations The World Bank was established to: enhance economic development through non-subsidized loans (at market interest rates) The International Development Association was established to: enhance economic development through low-interest rate loans (below-market rates) Which of the following would likely have the least direct influence on a country’s current account? A tax on income earned from foreign stocks The "J curve" effect describes: the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating An increase in the use of quotas is expected to: increase the country’s current account balance, if other governments not retaliate The U.S typically has a balance of trade surplus in its trade with none of the above The North American Free Trade Agreement (NAFTA) increased restrictions on: none of the above According to the text, international trade (exports plus imports combined) as a percentage of GDP is: lower in the U.S than in European countries The direct foreign investment positions by U.S firms have generally over time Restrictions by governments on direct foreign investment have generally _ over time Increased; decreased Which of the following countries purchases the largest amount of exports by U.S firms? Canada The primary component of the current account is the: balance of trade As a result of the European Union, restrictions on exports between were reduced or eliminated Member countries Over the last several years, international trade has generally: increased for most major countries Which is not a concern about the North American Free Trade Agreement (NAFTA)? Its impact on U.S inflation A General Agreement on Tariffs and Trade (GATT) accord in 1993 called for: lower trade restrictions around the world Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports) It could attempt to reduce its home currency’s value The demand for U.S exports tends to increase when: the currencies of foreign countries strengthen against the dollar “Dumping” is used in the text to represent the: exporting of goods at prices below cost is (are) income received by investors on foreign investments in financial assets (securities) Factor income A weak home currency may not be a perfect solution to correct a balance of trade deficit because: foreign companies may reduce the prices of their products to stay competitive Intracompany trade makes up approximately percent of all international trade 50 Like the International Monetary Fund (IMF), the is composed of a collection of nations as members However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives International Financial Corporation (IFC) The World Bank’s Multilateral Investment Guarantee Agency (MIGA): offers various forms of political risk insurance Also known as the "central banks' central bank," the attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis Bank for International Settlements (BIS) Direct foreign investment into the U.S represents a capital inflow A country’s net outflow of funds affect its interest rates, and affect its economic conditions Does, does In recent years, the U.S has had a relatively (compared to other countries) balance of trade with China large, deficit Assume the U.S has a balance of trade surplus with the country of Thor When individuals in Thor manufacture CDs and DVDs that look almost exactly like the original product produced in the U.S and other countries, they the U.S balance of trade surplus with Thor This activity is called Reduce; pirating Japan's annual interest rate has been relatively compared to other countries for several years, because the supply of funds in its credit market has been very low, large Without the international capital flows, there would be funding available in the U.S across all risk levels, and the cost of funding would be regardless of the firm's risk level less; higher The is the difference between exports and imports Balance of trade Which of the following will probably not result in an increase in a country’s current account balance (assuming everything else constant)? An appreciation of the country’s currency Which of the following factors probably does not directly affect a country's capital account and its components? Inflation The , an accord among 117 nations, called for lower tariffs around the world General Agreement on Tariffs and Trade (GATT) Which of the following is not likely to represent a strategy by the government of Country X to reduce its balance of trade deficit with Country Y? The government of Country X removes a tariff on goods imported from Country Y Which of the following statements is not true? Exporters commonly complain that they are being mistreated because the currency of their country is too weak Which of the following would increase the current account of Country X? Country Y is Country X’s sole trading partner The central banks of Country X and Country Y reduce the money supply to increase interest rates represent aid, grants, and gifts from one country to another Transfer payments Which of the following is not a goal of the International Monetary Fund (IMF)? To enhance a country’s long-term economic growth via the extension of structural adjustment loans According to the "J curve effect," a weakening of the U.S dollar relative to its trading partners' currencies would result in an initial in the current account balance, followed by a subsequent in the current account balance decrease; increase A balance of trade surplus indicates an excess of imports over exports F The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations F The World Bank frequently enters into cofinancing agreements Under these agreements, financing is provided by the World Bank and/or official aid agencies, export credit agencies, or commercial banks T The balance of payments is a measurement of all transactions between domestic and foreign residents over a specified period of time T Changes in country ownership of long-term and short-term assets are measured in the balance of payments with the capital account T Portfolio investment represents transactions involving long-term financial assets (such as stocks and bonds) between countries that not affect the transfer of control T The current account represents the investment in fixed assets in foreign countries that can be used to conduct business operations F Exporting of products by one country to other countries at prices below cost is called elasticity F Direct foreign investment by U.S.-based MNCs occurs primarily in the Bahamas and Brazil F The J curve effect is the initial worsening of the U.S trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before the U.S trade balance is improved T Intracompany trade represents the exporting of products by one country to other countries below cost F A tariff is a maximum limit on imports F The sale of patent rights by a U.S firm to a Russian firm reflects a credit to the U.S balance of payments account T A U.S purchase of patent rights from a firm in Mexico reflects a credit to the U.S balance of payments account F A Vietnamese purchase of patent rights from a firm in Thailand reflects a dedit to the Vietnamses balance of payments account True Regarding the U.S balance of payments, capital account items are relatively minor compared to the financial account items T The Central American Trade Agreement (CAFTA) is intended to raise tariffs and regulations between the U.S., the Dominican Republic, and Central American countries F U.S government officials would likely prefer that China devalue the yuan against the dollar F The equilibrium state in which covered interest arbitrage is no longer possible is called purchasing power parity (PPP) False Assume that some U.S firms will purchase supplies from either China or from U.S firms If the Chinese yuan appreciates against the dollar, it should reduce the U.S balance of trade deficit with China T The primary component of the capital account is the balance of trade F A balance of trade surplus indicates an excess of merchandise imports over merchandise exports F An American tourist visiting Germany and spending money there (for lodging, food, etc.) will reduce the U.S current account deficit and reduce Germany’s current account balance F The value of the British pound would often appreciate against the dollar The existing spot rate of the Canadian dollar is $0.82 The premium on a Canadian dollar call option is $0.04 The exercise price is $0.81 The option will be exercised on the expiration date if at althl If the spot rate on the expiration date is $0.87, the profit as a percent of the initial investment (the premium paid) is: 50 percent Assume that a bank’s bid rate on Swiss francs is $.45 and its ask rate is $.47 Its bid-ask percentage spread is: About 4.26% An American multinational enterprise buys insurance from a London insurance broker A debit to the services part of the U.S current account; a credit to the services part of the British current account A London insurance firm pays for losses incurred in the United States because of an international terrorist attack A debit to the services part of the British current account; a credit to the services part of the U.S current account Cathay Pacific Airlines buys jet fuel at Los Angeles International Airport so it can fly the return segment of a flight back to Hong Kong Hong Kong keeps its balance of payments separate from those of the People's Republic of China Hence a debit to the goods part of Hong Kong's current account; a credit to the goods part of the U.S current account The U.S army buys food for its troops in South Asia from vendors in Thailand A debit to the goods part of the U.S current account; a credit to the goods part of the Thai current account A Yale graduate gets a job with the International Committee of the Red Cross working in Bosnia and is paid in Swiss francs A debit to the income part of the Swiss current account; a credit to the income part of the Bosnia current account This assumes the Yale graduate spends her earnings within Bosnia; should she deposit the sum in the United States, then the credit would be to the income part of the U.S current account The Russian government hires a Dutch salvage firm to raise a sunken submarine A debit to the service part of Russia's current account; a credit to the service part of the Netherlands's current account A German automobile firm pays the salary of its executive working for a subsidiary in Detroit Germany would record a debit in the income payments/receipts in its current account; the U.S would record a credit in the income payments/receipts in its current account An American tourist pays for a hotel in Paris with his American Express card A debit would be recorded in the services part of the U.S current account; a credit would be recorded in the services part of the French current account A French tourist from the provinces pays for a hotel in Paris with his American Express card A French resident most likely has a French-issued credit card, issued by the French subsidiary of American Express In this instance, no entry would appear in either country's balance of payments If, later, the French subsidiary of American Express paid a dividend back to the United States, that would be recorded in the income part of the current accounts A U.S resident purchases a euro-denominated bond from a German company Debit to U.S portfolio part of financial account; credit to German portfolio of financial account A London-based insurance company buys U.S corporate bonds for its investment portfolio A debit to the portfolio investment section of the British financial accounts; a credit to the portfolio investment section of the U.S balance of payments A California-based mutual fund buys shares of stock on the Tokyo and London stock exchanges A debit to the portfolio investment section of the U.S financial account; a credit to the portfolio investment section of the Japanese and British financial accounts A high income inflation rate relative to other countries would _ the home country's current account balance other things equal A high growth in the home income level relative to other countries would the home country's current account balance other things equal decrease, decrease Represents aid, grants, and gifts from one country to another transfer payments Portfolio investments represent transactions involving long-term financial assets between countries that not affect the transfer of control True The summary of transactions between domestic and foreign residents for a specific country over a specific period of time balance of payments which one of these organizations primary objective is to make loans to countries to enhance economic development world bank provides a forum for multilateral trade negotiations and settling trade disputes related to GATT accord World Trade Organization provides temporary funds to member countries and promotes stability in exchange rates international monetary fund Assume that a bank's bid rate on Japanese yen is $.0041 and its ask rate is $.0043 Its bidask percentage spread is: about 4.65% If a U.S firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could: obtain a 90-day forward sale contract on euros forward contract can be used to lock in the of a specified currency for a future point in time a purchase price b sale price c A or B d none of the above Which of the following is not true regarding ADRs? ADRs are denominated in the currency of the stock's home country The interest rate on the syndicated loan depends on the: a currency denominating the loan b maturity of the loan c creditworthiness of the borrower d interbank lending rate e all of the above The main participants in the international money market are: large corporations A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900 What is the value of the yen in Fijian dollars (i.e., how many Fijian dollars you need to buy a yen)? 0.014 Assume that the bank's bid quote of Mexican peso is $.126 and ask price is $.129 If you have Mexican pesos, what is the amount of pesos that you need to purchase $100,000? 793,651 An obligation to purchase a specific amount of currency at a future point in time is called a: Forward contract Assume that $1 is equal to 85 Euros and 98 yen The value of yen in euros is 0.0087 A quotation representing the value of a foreign currency in dollars is referred to as a(n) quotation; a quotation representing the number of units of a foreign currency per dollar is referred to as a(n) quotation direct; indirect You observe a quotation of the Japanese yen (¥) of $0.007 You are, however, interested in the number of yen per dollar Thus, you calculate the quotation of ¥/$ indirect; 142.86 The bid/ask spread for small retail transactions is commonly in the range of percent to Which of the following is not true with respect to spot market liquidity? If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate Forward markets for currencies of developing countries are less liquid than markets for developed countries A forward contract can be used to lock in the of a specified currency for a future point in time purchase price AND sale price The international money market primarily concentrates on: short-term lending (one year or less) The international credit market primarily concentrates on: medium-term lending The international money market is primarily served by: several large banks that accept deposits and provide loans in various currencies International money market transactions normally represent: the equivalent of $1 million or more From 1944 to 1971, the exchange rate between any two currencies was typically: fixed within narrow boundaries As a result of the Smithsonian Agreement, the U.S dollar was: devalued relative to major currencies According to the text, the average foreign exchange trading around the world per day exceeds $1 trillion Assume a Japanese firm invoices exports to the U.S in U.S dollars Assume that the forward rate and spot rate of the Japanese yen are equal If the Japanese firm expects the U.S dollar to against the yen, it would likely wish to hedge It could hedge by dollars forward depreciate; selling The bid-ask spread on an exchange rate can be used to directly determine: the transaction cost of foreign exchange Futures contracts are typically ; forward contracts are typically sold on an exchange; offered by commercial banks Eurobonds are usually issued in bearer form Which of the following is true U.S firms may desire to issue bonds in the non-U.S markets due to less regulations in nonU.S countries Assume a U.S firm has to pay for Korean imports in 60 days It expects that Korean won will depreciate, but it still wants to hedge its risk What type of hedging is more appropriate in this situation: Purchase call option An MNC's short-term financing decisions are satisfied in the market, while its medium debt financing decisions are satisfied in the market international money; international credit The forward market: does not exist for some currencies Which of the following is probably not appropriate for an MNC wishing to reduce its exposure to British pound payables? Buy a pound put option The strike price on a currency option is also known as the exercise price True The bid/ask spreads quoted on more liquid, heavily traded currencies are larger than the spreads on less liquid, less traded currencies False Which currency is used the most to denominate Eurobonds? the U.S dollar The Fisher effect states that real risk-free interest rates contain a nominal rate of return and anticipated inflation False Assume a statistical test is run, where actual exchange rate changes are regressed on the hypothesized exchange rate changes according to the IFE The hypothesized values of the intercept and coefficient are 0.0 and 1.0, respectively True If nominal Canadian interest rates are 2% and nominal U.S interest rates are 6%, then the Canadian dollar (C$) is expected to by about %, according to the international Fisher effect (IFE) Appreciate; 3.92 The absolute form of purchasing power parity (PPP) states that the rate of change in the prices of products should be similar (but not identical) when measured in a common currency False Assume that U.S and Argentine investors require a real return of percent If the U.S nominal interest rate is percent, and Argentina's nominral interest rate is percent, then according to the IFE, the Argentine inflation rate is expected to be about the U.S inflation rate, and the Argentine peso is expected to percentage points above; depreciate by about percent Which of the following is not a reason for devaluation of a currency? high inflation Which of the following is the most likely reason for revaluation of a currency? To reduce inflation To weaken the dollar using sterilized intervention, the Fed will U.S dollars and simultaneously Treasury securities sell; sell A strong dollar places pressure on U.S inflation, which in turn places pressure on U.S interest rates, which in turn place pressure on U.S bond prices downward; downward; upward The currency of Country X is pegged to the currency of Country Y Assume that Country Y's currency appreciates against the currency of Country Z It is likely that Country X will export to Country Z and import from Country Z less; more The currency of Country X is pegged to the currency of Country Y Assume that Country Y's currency depreciates against the currency of Country Z It is likely that Country X will export to Country Z and import from Country Z more; less When using indirect intervention, a central bank is likely to focus on: interest rates Which one is not a disadvantage of a freely floating exchange rate system? The government may intervene to change the value of a given currency Margin requirements are deposits placed by investors in futures contracts with their respective brokerage firms when they take their position They are intended to minimize credit risk associated with futures contracts True Banks charge smaller bid/ask spreads than they would on more liquid, more traded currencies True When receiving quotations on a currency;s exchange rate, the bank’s ask quote is the rate at which the bank is willing to sell currency False A straddle can only be achieved if the exercise prices of put and call options are the same True You purchase a put option on Swiss francs for a premium of $.02, with an exercise price of $.61 The option will not be exercised until the expiration date, if at all If the spot rate on the expiration date is $.58, your net profit per unit is: Net profit per unit = $.61 − $.58 − $.02 = $.01 European currency options can be exercised ; American currency options can be exercised only on the expiration date; any time up to the expiration date A call option on Australian dollars has a strike (exercise) price of $.56 The present exchange rate is $.59 This call option can be referred to as: in the money A U.S corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable The premium is $.01 and the exercise price of the option is $.75 If the spot rate at the time of maturity is $.85, what is the net amount received by the corporation if it acts rationally? $84,000 Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit A pound option represents 31,250 units Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date The highest net profit possible for the speculator based on the information above is: −$1,562.50 Frank is an option speculator He anticipates the Danish kroner to appreciate from its current level of $.19 to $.21 Currently, kroner call options are available with an exercise price of $.18 and a premium of $.02 Should Frank attempt to buy this option? If the future spot rate of the Danish kroner is indeed $.21, what is his profit or loss per unit? yes; $0.01 You are a speculator who sells a call option on Swiss francs for a premium of $.06, with an exercise price of $.64 The option will not be exercised until the expiration date, if at all If the spot rate of the Swiss franc is $.69 on the expiration date, your net profit per unit, assuming that you have to buy Swiss francs in the market to fulfill your obligation, is: $.01 Which of the following would result in a profit of a euro futures contract when the euro depreciates? sell a euro futures contract; buy a futures contract after the euro has depreciated As mentioned in the text, the most common maturities for forward rates are: one, three, six, and twelve months The shorter the time to the expiration date for a currency, the will be the premium of a call option, and the will be the premium of a put option, other things equal lower; lower Futures and options are available for crossrates True Forward contracts: contain a commitment to the owner, and can be tailored to the desire of the owner Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option True Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35 The value of the Peruvian Sol in Canadian dollars is: about 3977 Canadian dollars ... Options are only traded over-the-counter b Speculators sell at-the-money put options when they expect that the currency's value will rise c Speculators purchase at-the-money call options when they... of pound= $1.30 90-day forward rate of pound= $1.28 3-month deposit rate in U.S.= 3% 3-month deposit rate in Great Britain= 4% If you use covered interest arbitrage for a 90-day investment, what... rate of pound = $1.60 90-day forward rate of pound = $1.57 3-month deposit rate in U.S = 3% 3-month deposit rate in U.K = 4% If you use covered interest arbitrage for a 90-day investment, what