"Call market" and "crowd trading" take place on: a non-continuous exchange trading system.

"Yankee" stock offerings are: dollar-denominated shares in foreign companies originally sold to
U.S investors.

___________ are a recent category of multinationals that seek out and invest in lower cost
production sites overseas.: Cost minimizers

A "call market": features an agent of the exchange that accumulates a batch of orders that are
periodically executed by written or verbal auction throughout the day.

A "Eurobond" issue is: all of the options

A "global bond" issue: is a very large international bond offering by a single borrower that is
simultaneously sold in several national

A "good" (or ideal) international monetary system should provide: liquidity, adjustments, and
confidence.

A "primary" stock market is: a market where corporations issue new shares to initial investors.

A "specialist": all of the above

A __________-__________ bond is a straight fixed-rate bond issued in one currency that pays
coupon interest in that same currency, then at maturity, the principal is repaid in another
currency.: dual-currency

A balance of trade deficit results in a current account: Deficit

A bank may establish a multinational operation for the reason of low marginal costs. The
underlying rationale being that: managerial and marketing knowledge developed at home can be
used abroad with low marginal costs.

A booming economy with a fixed or stable nominal exchange rate: inevitably brings about an
appreciation of the real exchange rate.

A central bank can fix an exchange rate: only for as long as the market believes that it has the
political will to do so.

A corporation that can source its products in one country, sell them in another country, and raise
the funds in a third country: is a multinational corporation.

A correspondent bank relationship is established when: two banks maintain deposits with one
another.
A country experiencing a significant balance-of-payments surplus would be likely to: Both a and
b (expand imports, offering …, refrain from imposing foreign …)

A country that gives foreign aid to another country can be viewed as: importing goodwill from
the latter.

A country with a current account surplus: acquires IOUs from foreigners, thereby increasing its
net foreign wealth

A country's international transactions can be grouped into the following three main types: current
account, capital account, and official reserve account.

A crowd of floor traders on the NYSE: may arrive at a more favorable price for their clients
"inside" the specialist's bid and ask quotes.

A currency board arrangement is: a monetary regime based on an explicit legislative

commitment to exchange domestic currency for a specified foreign currency at a fixed exchange
rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal
obligation.

A currency depreciation will begin to improve the trade balance immediately: If the demand for
imports and exports are elastic.

A dealer in British pounds who thinks that the pound is about to appreciate: May want to lower
his ask price

A dealer in pounds who thinks that the exchange rate is about to increase in volatility: may want
to widen his bid-ask spread.

A depreciation will begin to improve the trade balance immediately if: imports and exports are
responsive to the exchange rate changes.

A European option is different from an American option in that: European options can only be
exercised at maturity; American options can be exercised prior to maturity.

A financial subsidiary used for centralizing exposure management functions is also referred to as
a(an): reinvoice center

A firm may cross-list its share to: all of the above

A firm with concentrated ownership : tends to exist overseas but not in the U.S

A foreign branch bank: operates like a local bank, but legally is a part of the parent bank.

A higher U.S. interest rate (i$ ) will result in: a stronger dollar.
A limit as to how much the settlement price an increase or decrease from the previous day's
settlement describes a?: daily price limit

A limit order: all of the above

A liquid stock market: is one in which investors can buy and sell stocks quickly at close to the
current quoted prices.

A market order: is an instruction from a customer to a broker to buy or sell at the best price
available when the order is received (immediately).

A market-value index: is calculated such that the proportion of the index a stock represents is
determined by its proportion of the total market capitalization of all stocks in the index.

A measure of liquidity for a stock market is the turnover ratio; defined as: the ratio of stock
market transactions over a period of time divided by the size, or market capitalization, of the
stock market.

A MNC can: all of the above

A MNC may gain from its global presence by: all of the above are potential gains

A multinational firm can be defined as a firm that: incorporated in one country that has
production and sales operations in several other countries

A purely domestic firm sources its products, sells its products, and raises its funds domestically:
all of the above are true

A real appreciation will tend to cause: a reduction in demand for domestic goods.

A recent survey of U.S. foreign exchange traders measured traders … takes place within: one
minute

A representative office: is a small service facility staffed by parent bank personnel that is
designed to assist MNC clients of the parent bank in dealings with the bank's correspondents.

A specialist on the NYSE: is obliged to fill limit orders if they are more favorable than the
specialist's posted bid and ask quotes.

A stop order is an order to buy or sell a stock … The advantage of a stop order is: you don't have
to monitor how a stock is performing on a daily basis.

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified
price, known as the stop price. When the specified price is reached, your stop order becomes: a
market order.
A stop order is an order to buy or sell a stock once the price of the stock reaches a specified
price, known as: the stop price.

A stop-limit order is an order to buy or sell a stock that combines … Which of the following are
true?: In addition, your broker-dealer may not allow you to place a stop limit order on some
securities or accept a stop limit order for OTC stocks.

A subsidiary bank is: a locally incorporated bank that is wholly (or majority) owned by a foreign
parent.

A true MNC, with operations in dozens of different countries: must effectively manage foreign
exchange risk.

A type of noncontinuous exchange trading system is crowd trading: Unlike a call market in
which there is a common price for all trades, several bilateral trades may take place at different
prices in crowd trading.

A U.S.-based multinational bank: would not have to provide deposit insurance and meet reserve
requirements on foreign currency deposits.

Academic studies tend to discredit the validity of technical analysis. Which of the following is
true?: It can be rational for …

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: the incompatible trinity

According to the technical approach, what matters in exchange rate determination: is the past
behavior of exchange rates.

According to the theory of optimum currency areas,: the relevant criterion for identifying and
designing a common currency zone is the degree of factor (i.e. capital and labor) mobility within
the zone

ADR trades: clear in three days, just like trades in U.S shares.

ADRs: all of the above

Advantages of a fixed exchange rate include: all of the above

Advantages of a flexible exchange rates include: All of the above

Although IRP tends to hold, it may not hold precisely all the time: both a and c (due to
transactions costs, like the bid ask spread , due to capital controls imposed by governments.)
Although the world economy is much more integrated today than was the case 10 or 20 years
ago, a variety of barriers still hamper free movements of people, goods, services, and capital
across national boundaries. These barriers include: all of the above

An "international" gold standard can be said to exist when: all of the above

An "option" is: a contract giving the owner (buyer) of the option the right, but not the obligation,
to buy (call) or sell (put) a given quantity of an asset at a specified price at some time in the
future.

An affiliate bank is: a locally incorporated bank that is partially owned (but not controlled) by a
foreign parent.

An all-or-none order is a limit order either to buy or to sell a security in which the broker is
directed to attempt to fill the entire amount of the order or none of it. An all-or-none order differs
from a fill-or-kill order in that: with an all-or-none order immediate execution is not required

An arbitrage is best defined as: the act of simultaneously buying and selling the same or
equivalent assets or commodities for the purpose of making certain guaranteed profits.

An example of a political risk is: both a and b (expropriation of assets, adverse change in tax
rules)

An exchange-traded fund (ETF) is: a portfolio of financial assets in which shares representing
fractional ownership of the fund trade on an organized exchange.

An increase in the real exchange rate will cause: an increase in the quantity of imports.

An offshore banking center is: a country whose banking system is organized to permit external
accounts beyond the normal economic activity of the country.

Another name for the incompatible trinity is the: Triffin Paradox.

As a measure of "liquidity",: generally, the higher the turnover, the greater the liquidity of a
secondary stock market.

As a rule, when the interest rate of the foreign currency is greater than the interest rate of the
quoting currency,: the outright forward rate is less than the spot exchange rate

As capital markets are becoming more integrated, the goal of shareholder wealth maximization:
Has been given increasing importance by managers in Europe

As of 2018, gold accounted for: less than one percent of the total reserve assets held by IMF
member countries
As the economy moves up and to the left along the IS curve, which of the following will occur
when exchange rates are flexible?: all of the above

Assume that a country is on the gold standard. In order to support unrestricted convertibility into
gold, banknotes need to be backed by a gold reserve of some minimum stated ratio. In addition,:
the domestic money stock should rise and fall as gold flows in and out of the country

Assume that the balance-of-payments accounts for a country are recorded correctly. Balance on
the current account = BCA = $130 billion. Balance on the capital account = BKA = −$86 billion.
Balance on the reserves account = BRA =?. In a pure flexible exchange rate regime, a country's
central banks will not need to maintain official reserves. Under this regime: -bca=bka

Assume that the balance-of-payments accounts for a country are recorded correctly. Balance on
the current account = BCA = $130 billion. Balance on the capital account = BKA = −$86 billion.
Balance on the reserves account = BRA =?: -44billion; bka+bca+bra=0

Assume that the balance-of-payments accounts for a country are recorded correctly. Balance on
the current account = BCA = $130 billion. Balance on the capital account = BKA = −$86 billion.
Balance on the reserves account = BRA =? The balance on the reserves account (BRA), under
the pure flexible exchange regime is: none of the options

Assume that the price levels in two countries are constant. In this situation, we know that: the
real and nominal exchange rate must move together, changing by the same percentage.

At the outbreak of World War I: major countries such as Great Britain, France, Germany and
Russia imposed embargoes on the export of gold

At the wholesale level: Most trading flows over Reuters and EBS platforms

Balance of payments: All of the above

Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask
forward prices in terms of forward points. This is convenient because: In swap transactions
where the trader is attempting to minimize currency exposure the actual spot and outright
forward rates are often of no consequence.

BCA stands for: the balance on the current account.

Benefits from adopting a common European currency include: All of the above

BKA stands for: the balance on the capital account.

C
Call markets and crowd trading offer advantages for __________ because they mitigate the
possibility of sparse order flow over short time periods.: thinly traded issues

Changes in exchange rates: all of the above

Companies domiciled in countries with weak investor protection can reduce agency costs
between shareholders and management: by listing their stocks in countries with strong investor
protection.

Comparative advantage: all of the above

Comparing "forward" and "futures" exchange contracts, we can say that: their major difference is
in the way the underlying asset … : futures settle daily and forwards settle at maturity, and a
futures contract is negotiated …

Continued U.S. trade deficits coupled with foreigners' desire to diversify their currency holdings
away from U.S. dollars: all of the above

Corporations today are operating in an environment in which exchange rate changes may
adversely affect their competitive positions in the marketplace. This situation, in turn, makes it
necessary for many firms to: both a) and b)

Covered Interest Arbitrage (CIA) activities will result in: restoring equilibrium prices quickly.

Credit entries in the U.S. balance of payments: both a and c (result from foreign sales of U.S.
goods …, give rise to the demand for dollars.)

Cross-correlations among major stock markets and exchange markets are: relatively low.

Corporate scandals at firms such as Enron, WorldCom and the Italian firm Parmalat: show that
managers might be tempted to pursue their own private interests at the expense of
shareholders

Currently, international reserve assets are comprised of: gold, foreign exchanges, special drawing
rights (SDRs), and reserve positions in the International Monetary Fund (IMF).

Dealers in an OTC market: all of the above

Decision-making for multinational corporations formulating international sourcing, production,

financing, and marketing strategies depends, primarily, on: forecasting exchange rates as
accurately as possible.
Deregulated financial markets and heightened competition in financial services provided an
environment for financial innovations that resulted in the introduction of various instruments.
Examples of these innovative instruments include: all of the above

Deregulation of world financial markets: all of the above

During the 1980s,cross-border equity investment was largely confined: to the equity markets of
developed countries.

During the 1990s there: were three major currency crises.

During the period between World War I and World War II, many central banks followed a policy
of sterilization of gold: by matching inflows and outflows of gold respectively with reductions
and increases in domestic money and credit.

During the period between World War I and World War II, the political reality was characterized
by: panicky flights of capital across borders.

During the period between World War I and World War II,: the U.S. dollar emerged as the
dominant world currency, gradually replacing the British pound for the role.

During the period of the classical gold standard (1875-1914) there were: stable exchange rates.

Ecuador does not have its own national currency, circulating the U.S. dollar instead. About how
many countries do not have their own national currency?: 40

Euro credits: short- to medium-term loans of Euro currency extended by Euro banks to
corporations, sovereign governments, non prime banks, or international organizations.

Eurocurrency: is a time deposit of money in an international bank located in a country different

from the country that issued the currency.

Eurodollars refers to dollar deposits when the depository bank is located: outside the United
States.

Examples of a political risk are

-expropriation of assets
-adverse change in tax rules

F
Factor income: income (interest and dividend payments) received by investors on foreign
investments in financial assets (securities)

Factors affecting international equity returns are: all of the above

FDI occurs when a firm: when an investor acquires a measure of control of a foreign business
and when there is an acquisition, by a foreign entity in the U.S., of 10 percent or more of the
voting shares of a business.

Following the demise of the Bretton Woods system, the IMF: created a new role for itself,
providing loans to countries facing balance-of-payments and exchange rate difficulties.

Following the introduction of the euro, the national central banks of the euro-12 nations: b and c
are correct (formed the ESCB …, continue to perform important …)

For a U.S. trader working in American quotes, if the forward price is higher than the spot price:
The currency is trading at a premium in the forward market

Foreign direct investment (FDI) occurs: both a and b (when an investor acquires …, when there
is an acquisition …)

Foreign-owned manufacturing companies in the world's most highly developed countries:

generally are more productive and pay their workers more than do comparable locally-owned
businesses.

Forward parity states that: any forward premium or discount is equal to the expected change in
the exchange rate.

Forward rate agreements can be used for speculative purposes. If one believes rates will be less
than the agreement rate,: the sale of a FRA is the suitable position.

Generally speaking, a country would be more prone to asymmetric shocks: the less diversified
and more trade-dependent its economy is.

Generally speaking, any transaction that results in a payment to foreigners: will be recorded as a
debit, with a negative sign, in the U.S. balance of payments.

Generally speaking, any transaction that results in a receipt from foreigners: will be recorded as
a credit, with a positive sign, in the U.S. balance of payments.

Generally speaking, liberalization of financial markets when combined with a weak,

underdeveloped domestic financial system tends to: create an environment susceptible to
currency and financial crises.
Generally unfavorable evidence on PPP suggests that: all of the above

Generally,the higher the turnover ratio,: the more liquid the secondary stock market, indicating
ease in trading.

Generally,the lower the turnover ratio,: the less liquid the secondary stock market, indicating
difficulty in trading.

Generating exchange rate forecasts with the fundamental approach involves: both b and c
(estimation of a structural model, substituting the estimated values …)

Global Registered Shares: all of the above

Gold was officially abandoned as an international reserve asset: in the January 1976 Jamaica
Agreement.

Good, inexpensive, and fairly reliable predictors of future exchange rates include: both a and b
(today's exchange rate, current forward exchange rates …)

Government controlled investment funds, known as sovereign wealth funds,: are mostly
domiciled in Asian and Middle Eastern countries.

Governments sometimes restrict capital flows, inbound and/or outbound. They achieve this
objective by means of: all of the options

Gresham's Law states that: bad money drives good money out of circulation

If a country is grappling with a major balance-of-payment difficulty, it may not be able to

expand imports from the outside world. Instead, the country may be tempted to: Both a and b

If a country must make a net payment to foreigners because of a balance-of-payments deficit, the
country should: either run down its official reserve assets or borrow anew from foreigners.

If a currency futures contract (direct quote) is priced below the price implied by Interest Rate
Parity (IRP), arbitrageurs could take advantage of the mispricing by simultaneously: going long
in the futures contract, borrowing in the foreign currency, and going long in the domestic
currency, investing the proceeds at the local rate of interest.

If a foreign county experiences a hyperinflation,: its currency will depreciate against stable
currencies.

If a nation's income exceeds its spending, then which of the following would NOT result?:
savings will equal domestic investment
If for a particular country an increase in the interest rate is more or less matched by an expected
depreciation in the local currency,: the interest rate increase per se will not be enough to spark
capital flow into the country.

If interest rate rises in US while other variables remain constant: capital inflows into the US will
increase

If IRP fails to hold,: all of the options

If Japan exports more than it imports, then: one can infer that the yen would be likely to
appreciate against other currencies.

If one country is twice the size of another country and is better at making almost everything than
the benighted citizens of the smaller county,: The bigger county enjoys an absolute advantage

If one has agreed to buy foreign exchange forward: You have a long position in the forward
contract

If PPP holds for tradable and the relative prices between tradable and nontradables are
maintained, then: PPP can hold in its relative version

If the central banks of the world chose to diversify their foreign-exchange reserves away from
the dollar and into the euro,: this have the result of a weakening in the value of the dollar.

If the central banks of the world chose to diversify their foreign exchange reserves away from the
dollar and into the euro,: could further diminish the position of the U.S. dollar as the dominant
reserve currency

If the difference between a country's savings and investment is negative, it implies that: a
country's domestic savings is insufficient to finance domestic investment.

If the difference between tax revenue and government expenditures is negative, it implies that:
all of the options

If the exchange rate follows a random walk: the future exchange rate is expected to be the same
as the current exchange rate, St = E(St+1).

If the interest rate rises in the U.S. while other variables remain constant: Capital inflows into the
U.S. will increase

If the United States imports more than it exports, then: A and B (the supply of dollars is likely to
exceed the demand in the foreign exchange market, ceteris paribus ; one can infer that the U.S.
dollar would be under pressure to depreciate against other currencies.)

If you can make a good at a low opportunity cost,: you would be well served to produce that
good and trade for other goods.
If you could accurately and consistently forecast exchange rates: all of the above

If you think that the dollar is going to appreciate against the euro, you should: buy call options
on the euro.

In 1963, President John Kennedy imposed the Interest Equalization Tax (IET) on U.S. purchases
of foreign securities. The IET was designed to: increase the cost of foreign borrowing in the U.S.
bond market.

In 2007 the United States had a current account deficit. The current account deficit implies that
the United States: Consumed more output than it produced

In 2012, the United States had a current account deficit. The current account deficit implies that
the United States: consumed more output than it produced

In an agency market, the broker takes the client's order through the agent, who matches it with
another public order. The agent can be viewed as: a broker's broker.

In an agency market, the broker takes the client's order through the agent, who matches it with
another public order. Names for the agent are: all of the above

In an open economy under flexible exchange rates, a reduction in the interest rate will cause a
reduction in which of the following?: the exchange rate, E

In an open economy, we know that individuals must choose between which of the following?:
domestic and foreign bonds

In contrast to many domestic bonds, which make __________ coupon payments, coupon interest
on Eurobonds is: semiannual; annually

In countries like France and Germany,: managers have often viewed shareholders as one of the
"stakeholders" of the firm, others being employees, customers, suppliers, banks and so forth

In David Ricardo's theory of comparative advantage: liberalization of international trade will

enhance the welfare of the world's citizens

In evaluating the pros and cons of corporate risk management, "market imperfections" refer to:
information asymmetry, differential transaction costs, default costs, and progressive corporate
taxes.

In general if an investment: both a and b

In general, Standard & Poor's Emerging Markets Data Base classified a stock market as
"emerging" if: either a or b
In modern times, it is not a country per se but rather a controller of capital and know-how that
gives the country in which it is domiciled a comparative advantage over another country. These
controllers of capital and technology are: the multinational corporations (MNCs).

In mutual funds, investment in emerging foreign equity markets: represents less than one percent
of investments in U.S.-based mutual funds.

In order for an individual to be indifferent between holding foreign or domestic bonds,: the
interest parity condition must hold.

In reference to the futures market, a "speculator": attempts to profit from a change in the futures
price.

In the 1850s the French franc was valued by both gold and silver, under the official French ratio
which equated a gold franc to a silver franc 15½ times as heavy. At the same time, the gold from
newly discovered mines in California poured into the market, depressing the value of gold. As a
result,: the franc effectively became a gold currency.

In the EU, there is a: low degree of fiscal integration among EU countries.

In the latter half of the 1980s, with a strong yen, Japanese firms: all of the above

In the long run, both exports and imports tend to be: responsive to changes in exchange rates.

In the short run a currency depreciation can make a trade balance worse if: there is no domestic
producer of an import.

In the United States, bimetallism was adopted by the Coinage Act of 1792 and remained a legal
standard until 1873,: when Congress dropped the silver dollar from the list of coins to be minted.

In the years leading to the collapse of the Bretton Woods system: it became clear that the dollar
was overvalued.

In view of the fact that PPP is the manifestation of the law of one price applied to a standard
commodity basket,: it will hold only if the prices of the constituent commodities … is the same
across countries.

In which market does a clearinghouse serve as a third party to all transactions?: Futures

In which type of market can liquidity "dry up"? : A financial panic

In which type of policy actions by the Fed can liquidity "dry up"? Tight money

Indirect exchange rate quotations from the U.S. perspective are: the price of one U.S. dollar in
the foreign currency.
Interest Rate Parity (IRP) is best defined as: an arbitrage condition that must hold when
international financial markets are in equilibrium.

International ________ can reduce the volatility of an investment portfolio because national
financial markets tend to move independently of each other.: diversification

International portfolio investments have boomed in recent years, as a result of: the general
relaxation of capital controls and regulation in many countries.

International reserve assets include "foreign exchanges". These are: foreign currency held by a
country's central bank.

International reserve assets include "foreign exchanges". These are: foreign currency held by a
bank

International trade is: an "increasing-sum" game at which all players become winners.

Intervention in the foreign exchange market is the process of: a central bank buying or selling its
currency in order to influence its value.

Investment in foreign equity markets: all of the above

Invisible trade refers to: legal, consulting, and engineering services.

iShares MSCI are: exchange traded funds that are subject to U.S.SEC and IRS diversification
requirements.

It is common practice among currency traders worldwide to both price and trade currencies
against the U.S. dollar. In fact, 2007 BIS statistics indicate that about ____ percent of currency
trading in the world involves the U.S. dollar on one side of the transaction: 86 percent

It is common practice among currency traders worldwide to both price and trade currencies
against the U.S. dollar. In fact, BIS statistics indicate that about __ percent of currency trading
in the world involves the U.S. dollar on one side of the transaction: 90 percent

Japan has experienced large trade surpluses. Japanese investors have responded to this by:
investing heavily in U.S. and other foreign financial markets

Macroeconomic factors affecting international equity returns include: all of the above

Major distinguishing features between domestic banks and international banks are: all of the
options
Many of the larger emerging equity markets (e.g.Korea,India): have high turnover ratios.

Many of the small foreign equity markets (e.g.Chile,Sri Lanka): have poor liquidity at present.

Market microstructure refers to: The basic mechanics of how a marketplace operates

MNC stands for: Multinational Corporation

MNCs can use their global presence to: all of the above

Monetary policy for the countries using the euro as a currency is now conducted by: European
Central Bank.

More important than the absolute size of a country's balance of payment disequilibrium: is nature
and cause of disequilibrium

Most foreign exchange transactions are for: Interbank trades between international banks or
nonbank dealers

Most governments at least try to make it difficult for people to cross their borders illegally. This
barrier to the free movement of labor is an example of: a market imperfection

Most Interbank trades are: Speculative or arbitrage transactions

Nondollar currency transactions: Are priced by looking at the price that must exist to eliminate
arbitrage.

Nestlé, a well-known Swiss corporation: at one time placed restrictions on foreign ownership
of its stock. When it relaxed these restrictions, there was a major transfer of wealth from
foreign shareholders to Swiss shareholders

On average, worldwide daily trading of foreign exchange is: $1.88 trillion

On January 1, 1999, an epochal event took place in the arena of international finance when:
eleven of 15 EU countries adopted a common currency called the euro.

On the NYSE, limit order prices receive preference in establishing the posted bid and ask prices
if they are more favorable than the specialist's. Therefore: specialists must fill a limit order, if
possible, from the flow of public orders before trading for his own account.
Once capital markets are integrated, it is difficult for a country to maintain a fixed exchange rate.
Why?: The market forces may be stronger than the exchange rate intervention that the
government can muster.

Once the changeover to the euro was completed by July 1, 2002, the legal-tender status of
national currencies in the euro zone: was canceled, leaving the euro as the sole legal tender in the
euro zone countries.

One implication of the random walk hypothesis is: given the efficiency of foreign exchange
markets … the current exchange rate.

One lesson from the credit crunch is that: bankers seem not to scrutinize credit risk as closely
when they serve only as mortgage originators and then pass it on to MBS investors rather than
hold the paper themselves.

One potential drawback of the gold standard is that: the world economy can be subject to
deflationary pressure due to the limited supply of monetary gold

Only in the _______ did world investors start to invest sizable amounts in the emerging equity
markets,as the economic growth and prospects of the developing countries improved: 1990s

Open interest in currency futures contracts: tends to be greatest for the near-term contracts, and
typically decreases with the term to maturity of most futures contracts.

Over half of all dollar bills in circulation are held outside American's borders.: true

Over the last few years, turnover ratios in many emerging markets remained low and market
concentration ratios remained high, indicating: that investment opportunities in these markets
have not been improving.

Over the last several years the U.S. has run persistent: current Account deficits.

Price discovery in the secondary stock markets: occurs due to the competitive trading between
buyers and sellers, just like on eBay.

Primary income: consists largely of payments and receipts of interest, dividends, and other
income on foreign investments.

Prior to the Argentine Peso Crisis: weakening of the U.S. dollar led the Argentine government to
abandon dollarization

Prior to the peso crisis, Mexico depended on foreign portfolio capital to finance its economic
development. This foreign capital influx: a and b are correct (caused higher domestic …, led to
an overvalued peso.)
Private placement bond issues: do not have to meet the strict information disclosure requirements
of publicly traded issues.

Privatization is often seen as a cure for bureaucratic inefficiency and waste; some economists
estimate that privatization improves efficiency and reduces operating costs by as much as: 20
percent

Privatization refers to process of: a country divesting itself of the ownership and operation of a
business venture by turning it over to the free market system.

Privatization: has spurred a tremendous increase in cross-border investment.

goods and services has become globalized to a large extent as a result of: multinational
corporations' efforts to source inputs and locate production anywhere where costs are lower and
profits higher

Purchasing Power Parity (PPP) theory states that: the exchange rate between currencies of two
countries should be equal to the ratio of the countries' price levels, and as the purchasing power
of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable
currencies.

Put the following in correct date order: Bretton Woods Agreement, Smithsonian Agreement,
Jamaica Agreement

Put the following in correct date order: Jamaica Agreement, Plaza Agreement, Louvre Accord.

Recently, financial markets have become highly integrated. This development: allows investors
to diversify their portfolios internationally

Regarding the statistical discrepancy in the balance-of-payments accounts,: here is some

evidence that financial transactions may be mainly responsible for the discrepancy … magnitude

Relative to the spot price the forward price will be: Usually less than or more than the spot price
more often than it is equal to the spot price.

Relative to the spot price, the forward price: usually less than or more than the spot price more
often than it is equal to the spot price.

Researchers have found that the fundamental approach to exchange rate forecasting: fails to
more accurately forecast exchange rates than either the random walk model or the forward rate
model.
Restrictions or impediments to free trade include such things as: all of the above

Robert A. Mundell won the Nobel Memorial Prize in Economic Science. He was: one of the
intellectual fathers of both the new European common currency and Reagan-era Keynesian
economics.

S&P Global Ratings has, for years, provided credit ratings on international bonds.: Their ratings
reflect the creditworthiness of the borrower and not exchange rate uncertainty.

Securities sold in the United States to public investors must be registered with the SEC… raise
U.S. dollars to use: the Eurobond market.

Since its inception the euro has brought about revolutionary changes in European finance. For
example,: by redenominating corporate bonds and stocks from 12 different currencies into one
common currency, the euro has precipitated the emergence of continent wide capital markets in
Europe that are comparable to U.S. markets in depth and liquidity.

Since security returns tend to have low correlations among countries,: investors can reduce risk
more effectively if they diversify their portfolio holdings internationally rather than purely
domestically.

Since the balance of payments is presented as a system of double-entry bookkeeping,: every

credit in the account is balanced by a matching debit and every debit in the account is balanced
by a matching credit.

Since the end of the fixed exchange rate system of the Smithsonian agreement: exchange rates
have been allowed to float.

Since the end of World War I, the dominant global currency has been the: U.S. dollar.

Since the end of World War I, the U.S. dollar has played the role of the dominant global
currency, displacing the: British pound.

Since the SDR is a "portfolio" of currencies: its value tends to be more stable than the value of
any of the individual currencies included in the SDR.

So-called subprime mortgages were typically: mortgages granted to borrowers with less-than-
perfect credit.

So-called subprime mortgages were typically: mortgages granted to borrowers with less-than-
perfect credit.

Some commodities never enter into international trade. Examples include: all of the options
Special Drawing Rights (SDR) are: all of the above

Spot foreign exchange trading: accounts for about 70 percent of all foreign exchange trading

Statistical discrepancy in balance of payments accounts: all of the options

Statistical discrepancy, which by definition represents errors and omissions: all of the options

Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.: a and b
but not c (c. The bank would sell the British pounds directly for Swiss francs.)

Suppose a country is currently experiencing a trade deficit. In the long run, this could be self-
correcting if: the deficit exists because of the import demand for capital goods.

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso
appreciates drastically against the U.S. dollar. This means: both b and c are correct (b. your firm
will be able to charge more…, c. your domestic competitors will enjoy…)

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso
depreciates drastically against the U.S. dollar, as it did in December 1994. This means that : your
company's products can be priced out of the Mexican market, as the peso price of American
imports will rise following the peso's fall

Suppose that country A and country B are both on a bimetallic standard. In country A the ratio is
15 to one (i.e. an ounce of gold is worth 15 times as much as an ounce of silver in that currency),
while in country B the ratio is ten to one. If the free flow of capital is allowed between countries
A and B is this a sustainable framework?: No

Suppose that Great Britain is a major export market for your firm, a U.S.-based MNC. If the
British pound depreciates against the U.S. dollar: both b and c are correct (b. your firm may be
priced out…, c. to protect U.K. market share…)

Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35
per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange
rate is $1.80 per pound, how would you take advantage of this situation? Hint: assume that you
have $350 available for investment.: Start with $350. Buy 10 ounces of gold with dollars at
$35 per ounce. Convert the gold to £200 at £20 per ounce. Exchange the £200 for dollars at
the current rate of $1.80 per pound to get $360.

Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35
per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange
rate is $1.60 per pound, how would you take advantage of this situation? Hint: assume that you
have $350 available for investment. : Start with $350. Exchange the dollars for pounds at the
current rate of $1.60 per pound. Buy gold with pounds at £20 per ounce. Convert the gold
to dollars at $35 per ounce.
Suppose that the United States is on a bimetallic standard at $30 to one ounce of gold and $2 for
one ounce of silver. If new silver mines open and flood the market with silver,: Only the silver
currency will circulate.

Suppose that you are a U.S. producer of a commodity good competing with foreign producers.
Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S.
currency depreciates against the currencies of our trading partners,: your competitive position is
likely improved

Suppose that your country officially defines gold as ten times more valuable than silver (i.e. the
central bank stands ready to redeem the currency in gold and silver and the official price of gold
is ten times the official price of silver). If the market price of gold is only eight times as much as
silver.: The central bank could go broke if enough arbitrageurs attempt to take advantage of the
pricing disparity.

Suppose the futures price is below the price predicted by IRP. What steps would assure an
arbitrage profit?: Go short in the spot market, go long in the futures contract.

Suppose the InBev Corporation (a non-U.S. MNC) buys the Anheuser-Busch Corporation,
paying the U.S. shareholders cash.: Payment by InBev will be recorded as a credit.

Suppose the McDonalds Corporation imports Canadian beef, paying for it by transferring the
funds to a New York bank account kept by the Canadian beef producer.: Payment by McDonalds
will be recorded as a debit.

Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year
later, the stock rises to £60. You are happy with your 20 percent return on the stock, but when
you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has fallen
to £1 = $0.75. This loss of value is an example of: political risk

Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is $1.25 =
€1.00. One year later the exchange rate is the same, but the Italian government has expropriated
your firm's assets paying only €80,000 in compensation. This is an example of: political risk

Swap transactions: Involve the simultaneous sale (or purchase) of spot foreign exchange against
a forward purchase (or sale) of approximately an equal amount of the foreign currency.

The "J-curve effect" shows: the initial deterioration and the eventual improvement of a country's
trade balance following a currency depreciation

The "one word that haunts the dollar" is: (Central bank) diversification.

The "open interest" shown in currency futures quotations is: the total number of long or short
contracts outstanding for the particular delivery month.
The account that records imports and exports of goods, services, income, and current unilateral
transfers is known as the: current account

The advantages of a market order include the fact that: both a and b (you are pretty much
guaranteed that your order will be executed …, a market order typically has lower
commissions…)

The advent of the euro marks the first time that sovereign countries have voluntarily given up
their: Monetary independence to foster economic integration

The ascendance of the dollar the dominant global currency reflects several key factors such as:
the mature and open capital markets of the U.S. economy.

The Asian crisis: followed a period of economic expansion in the region financed by record
private capital inflows

The Asian Currency Crisis: turned out to be far more serious than the Mexican peso crisis in
terms of the extent of contagion

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity for
a country with a pure flexible exchange rate regime: BCA = -BKA

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity to
solve for the statistical discrepancy.: the statistical discrepancy=BCA+BKA+BRA

The balance of payments records: not only international trade, (exports and imports) but also
cross-border investments.

The benefit to forecasting exchange rates: accrue to, and are a vital concern for, MNCs
formulating international sourcing, production, financing, and marketing strategies.

The bid price: is the price that a dealer stands ready to pay.

The Bretton Woods agreement resulted in the creation of: the World Bank.

The Bretton Woods system ended in: 1973

The Bretton Woods system was named after: Bretton Woods, New Hampshire, where the
Articles of Agreement of the International Monetary Fund (IMF) were hammered out.

The capital account includes: all purchases and sales of assets such as stocks, bonds, bank
accounts, real estate, and businesses

The capital account is divided into three subcategories: direct investment, portfolio investment,
and other investment. Direct investment involves: acquisitions of controlling interests in foreign
businesses.
The capital account is divided into three subcategories: direct investment, portfolio investment,
and other investment. Portfolio investment involves: investments in foreign stocks and bonds
that do not involve acquisitions of control.

The capital account is divided into three subcategories: direct investment, portfolio investment,
and other investment. "Other" investment involves: bank deposits, currency investment, trade
credit, and the like.

The capital account may be divided into three categories: direct investment, portfolio investment,
and other investment.

The capital account measures: the difference between U.S. sales of assets to foreigners and U.S.
purchases of foreign assets.

The central bank of the United States is: the Federal Reserve System.

The choice between a forward market hedge and a money market hedge often comes down to:
interest rate parity.

The choice between the alternative exchange rate regimes (fixed or floating) is likely to involve a
trade-off between: national monetary policy autonomy and international economic integration.

The common monetary policy for the euro zone is now formulated by: the European Central
Bank.

The comparative advantage argument in free trade: ignores the cost of readjustment.

The core of the Bretton Woods system was the: World Bank.

The current account balance, which is the difference between a country's exports and imports, is
a component of the country's GNP. Other components of GNP include: consumption and
investment and government expenditure.

The current account includes: the export and import of goods and services.

The current account is divided into four finer categories: merchandise trade, services, factor
income, and unilateral transfers.

The difference between a broker and a dealer is: Brokers bring together buyers and sellers, but
carry no inventory. Dealers stand ready to buy and sell from their inventory.

The difference between Foreign Direct Investment and Portfolio Investment is that: Portfolio
Investment mostly represents the sale and purchase of foreign financial assets such as stocks and
bonds that do not involve a transfer of control.
The economic theory of mercantilism holds that: a continuing trade surplus should be a
government's major policy goal.

The Efficient Markets Hypothesis states: current asset prices (e.g. exchange rates) fully reflect all
the available and relevant information.

The emergence of global financial markets is due in no small part to: advances in computer and
telecommunications technology

The entries in the "current account" and the "capital account", combined together, can be
outlined (in alphabetic order) as: (i)- direct investment (ii)- factor income (iii)- merchandise (iv)-
official transfer (v)- other capital (vi)- portfolio investment (vii)- private transfer (viii)- services
Current account includes: (ii), (iii), and (vii)

The entries in the "current account" and the "capital account", combined together, can be
outlined (in alphabetic order) as: (i)- direct investment (ii)- factor income (iii)- merchandise (iv)-
official transfer (v)- other capital (vi)- portfolio investment (vii)- private transfer (viii)- services
Capital account includes: (i), (v), and (vi)

The euro zone is remarkably comparable to the United States in terms of: population size.

The euro: all of the above

The Eurocurrency market: is an external banking system that runs parallel to the domestic
banking system of the country that issued the currency.

The European Monetary System (EMS) has the chief objective(s): all of the above

The Exchange Rate Mechanism (ERM) is: a and b

The first full-fledged gold standard: was not established until 1821 in Great Britain, when notes
from the Bank of England were made fully redeemable for gold.

The Fisher effect states that: an increase (decrease) in the expected inflation rate in a country will
cause a proportionate increase (decrease) in the interest rate in the country.

The foreign exchange market closes: never

The forward market: Involves contracting today for the future purchase of sale of foreign
exchange at a price agreed upon today.

The G-7 is composed of: Canada, France, Japan, Germany, Italy, the U.K., and the United States.

The gains from trade: are likely realized in the long run when workers and firms have had the
time to adjust to the new competitive environment.
The goal of shareholder wealth maximization: means that all business decisions and investments
that a firm makes are done for the purpose of making the owners of the firm better off
financially.

The gold standard still has ardent supporters who believe that it provides: an effective hedge
against price inflation

The growth of the Eurodollar market, which is a transnational, unregulated fund market: was
encouraged by U.S. legislation designed to stem the outflow of dollars from the U.S

The interest parity condition indicates that the domestic interest rate must be equal to: none of
the above

The interest rate at which the arbitrager borrows tends to be higher than the rate at which he
lends, reflecting the: bid-ask spread.

The International Fisher Effect suggests that: the nominal interest rate differential reflects the
expected change in the exchange rate.

The international monetary system can be defined as the institutional framework within which:
all of the above

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: (i), (iii), (v), (ii), and (iv)

The Japanese automobile company Honda decided to establish production facilities in Ohio,
mainly to: circumvent trade barriers

The J-curve effect received wide attention when: the British trade balance worsened after a
devaluation of the pound in 1967.

The large exchange markets in the United States are: agency/auction markets.

The largest and most active financial market in the world is: The FX market

The law of one price (LOP) is referring to: the same or equivalent things trading at the same
price across different locations or markets, precluding profitable arbitrage opportunities.

The Maastricht Treaty: all of the above

The main approaches to forecasting exchange rates are: Efficient market, Fundamental, and
Technical approaches.
The main cost of European monetary union is: the loss of national monetary and exchange rate
policy independence.

The majority of countries got off gold in 1914 when: World War I broke out

The market capitalization of the developed world: is about 80 percent of the market
capitalization of the entire world.

The massive privatization that is currently taking place in formerly socialist countries, will
likely: all of the above

The Mexican peso crisis is significant in that: all of the above.

The Mexican Peso Crisis was touched off by: An unexpected announcement by the Mexican
government to devalue to peso against the dollar by 14 percent.

The monetary system of bimetallism is unstable. Due to the fluctuation of the commercial value
of the metals,: the metal with a commercial value higher than the currency value tends to be used
as metal and is withdrawn from circulation as money (Gresham's Law).

The more concentrated a national stock market is: the less opportunity a global investor has to
include shares from that county in an internationally diversified portfolio.

The most direct and popular way of hedging transaction exposure is by: currency forward
contracts.

The most important international reserve asset, comprising 94 percent of the total reserve assets
held by IMF member countries is: Foreign Exchanges

The most popular way for a U.S. bank to expand overseas is: branch banks.

The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is: the
Eurodollar contract.

The multinational financial system does NOT enable companies to: avoid exchange rate risk

The notation is Y = GDP = national income, C = consumption, I = private investment, G =

government spending, X = exports, M = imports, T = taxes. National income, or Gross
Domestic Product is given by: GDP ≡ Y ≡ C + I + G + X - M

The notation is Y = GDP = national income, C = consumption, I = private investment, G =

government spending, X = exports, M = imports, T = taxes. The current account balance is
given by: X – M

The Nestlé Corporation, a well-known Swiss MNC, used to issue two different classes of
common stock, bearer shares and registered shares, and foreigners were allowed to hold only :
bearer shares.
The official reserve account includes: all purchases and sales of international reserve assets such
as dollars, foreign exchanges, gold, and special drawing rights (SDRs).

The one word that haunts the dollar is: central bank diversification

The OTC market: both b and c (does not accept credit-the dealers "only take cash", is a dealer
market.)

The over-the-counter (OTC)market is a dealer … which is a computer-linked system that shows:

the bid (buy) and ask (sell) prices of all dealers in a security.

The owners of a business are the: shareholders

The primary activities of offshore banks: is to seek deposits and grant loans in currencies other
than the currency of the host government.

The random walk hypothesis suggests that: the best predictor of the future exchange rate is the
current exchange rate.

The role of an underwriter is to: all of the options

The sale of new common stock by corporations to initial investors occurs in: the primary market.

The sale of previously issued common stock traded between investors occurs in: the secondary
market.

The secondary equity markets of the world serve two major purposes. They provide:
marketability and share valuation.

The secondary stock markets: all of the above

The single European currency, the euro, was adopted by 11 member nations on January 1 of
what year?: 1999

The smaller the concentration percentage,: the more concentrated a market is in a few stock
issues.

The spot market: Involves the almost-immediate purchase or sale of foreign exchange

The theory of comparative advantage: Claims that economic well-being is enhanced if each
country's citizens produce that which they have a comparative advantage in producing relative to
the citizens of other countries, and then trade production

The Toronto Stock exchange: all of the above

The Triffin paradox: all of the above are correct

The two main reasons that IRP may not hold precisely at all time, especially over short periods
is: transaction costs and capital controls.

The U.S. Trade Deficit: Is both a capital account surplus and a current account deficit

The ultimate guardians of shareholder interest in a corporation, are the: boards of directors

The United States adopted the gold standard in: 1879.

The United States is considered: a net debtor nation

The vast majority of the foreign-exchange reserves held by central banks are denominated in:
U.S. Dollars

The World Trade Organization, WTO,: has the power to enforce the rules of international trade.

The world's largest debtor nation and creditor nation, respectively, are: us and japan

The world's largest foreign exchange trading center is: London

The theory of comparative advantage states that economic well-being is enhanced if

countries produce those goods for which they have an absolute advantage: False
Three major dimensions that separate international finance from domestic finance
-Foreign exchange risk and political risk
-Market imperfections
-Expanded opportunity set

The theory of comparative advantage :claims that economic well-being is enhanced if each
country's citizens produce that which they have a comparative advantage in producing relative to
the citizens of other countries, and then trade production

To avoid buying a stock at a price higher than your intention, you need to place ________ rather
than a market order.: a limit order

To avoid currency crisis in the face of fully integrated capital markets, a country can have a: a
and b (floating exchange rate, fixed ____)

To hedge a foreign currency receivable,: buy put options on the foreign currency with a strike in
the domestic currency.

To pave the way for the European Monetary Union, the member countries of the European
Monetary System agreed to achieve a convergence of their economies. Which of the following is
NOT a condition of convergence: maintain its currency at a fixed exchange rate to the ERM.
Today for a MNC to produce merchandise in one country on capital equipment financed by
funds raised in a number of different currencies through issuing securities to investors in many
countries and then selling the finished product to customers in yet other countries is: not
uncommon.

Transactions in currency, bank deposits and so forth: tend to be sensitive to both changes in
relative interest rates and the anticipated change in exchange rate

Transactions in shares of the iShares Funds will typically generate tax consequences. This is
because: iShares Funds are obliged to distribute portfolio gains to shareholders

Under a flexible exchange rate regime, governments can retain monetary policy independence
because the external balance will be achieved by: the exchange rate adjustments.

Under a gold standard, if Britain exported more to France than France exported to Great Britain,:
All of the above

Under a purely flexible exchange rate system: supply and demand set the exchange rates.

Under the Bretton Woods system each country established a par value for its currency in relation
to the dollar. And the U.S. dollar was pegged to gold at: $35 per ounce.

Under the Bretton Woods system, 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.

Under the Bretton Woods system,: the U.S. dollar was the only currency that was fully
convertible to gold; other currencies were not directly convertible to gold.

Under the Bretton Woods system: All of the above

Under the fixed exchange regime: the combined balance on the current and capital accounts will
be equal in size, but opposite in sign, to the change in the official reserves.

Under the gold standard, international imbalances of payment will be corrected automatically
under the: Price-specie-flow mechanism.

Under the pure flexible exchange rate regime: the balance on the current and capital accounts
will be equal in size, but opposite in sign.

Under the theory of comparative advantage, liberalization of international trade will: enhance the
welfare of the world's citizens.

Underlying the theory of comparative advantage are assumptions regarding: a and b (free trade
between nations, that the factors of production …)
Undoubtedly, we are now living in a world where all the major economic functions—
consumption, production, and investment: are highly globalized

What is another name for gifts and grants overseas?: Unilateral transfers

What major dimension sets apart international finance from domestic finance?: All of the above

What paradigm is used to define the futures price?: IRP

What theory holds that a country's trade deficit worsens just after its currency depreciates
because price effects will dominate the effect on volume of imports in the short run?: J-curve
theory

When a country must make a net payment to foreigners because of a balance-of-payments

deficit, the central bank of the country: either b or c will work. (should run down its …, should
borrow anew …)

When a country's currency depreciates against the currencies of major trading partners,: the
country's exports tend to rise and imports fall.

When a currency trades at a discount in the forward market: The forward rate is less than the
spot rate

When a currency trades at a premium in the forward market: The forward rate is more than the
spot rate.

When corporate governance breaks down: all of the above

When Honda, a Japanese auto maker, built a factory in Ohio,: it was engaged in foreign direct
investment.

When individual investors become aware of overseas investment opportunities and are willing to
diversify their portfolios internationally, : they benefit from an expanded opportunity set.

When Interest Rate Parity (IRP) does not hold: there are opportunities for covered interest
arbitrage.

When money can move freely across borders, policy makers must choose between: exchange-
rate stability and an independent monetary policy.

When Nestlé, a Swiss firm, bought the American firm Carnation, it engaged in foreign direct
investment. If Nestlé had only bought a non-controlling number of shares of the firm,: Nestlé
would have been engaged in portfolio investment.
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: zero

Which country is NOT using the euro?: Sweden

Which factors are related to the collapse of the Argentine currency board system and ensuing
economic crisis?: All of the above

Which investment is likely to be the Least liquid?: A house in a nice part of town.

Which investment is likely to be the Most liquid?: A share of publicly traded company trading
on the NYSE.

Which is growing at a faster rate, foreign direct investment by MNCs or international trade?: FDI
by MNCs

Which is used to hedge future receivables?: Currency put option

Which of the following are principles of sound banking behavior?: all of the options

Which of the following are reasons why a bank may establish a multinational operation?: all of
the options

Which of the following are true?: Unless you give your broker specific instructions to the
contrary, orders to buy or sell a stock are day orders.

Which of the following does describe a forward contract?: Traded by bank dealers via a network
of telephones and computerized dealing systems.

Which of the following is a true statement?: While researchers found it difficult to reject the
random walk hypothesis for exchange rates on empirical grounds, there is no theoretical reason
why exchange rates should follow a pure random walk.

Which of the following is correct?: American options can be exercised early.

Which of the following is generally a licensing rather that an exporting opportunity for a
multinational looking to expand globally?: The firm is seeking to market a specific product or
process technology that can be written down and transmitted objectively.

Which of the following is most indicative of the pressure that a country's currency faces for
depreciation or appreciation?: official settlement balance

Which of the following is significant because it indicates a country’s international payment gap
that must be accommodated with a government’s official reserve transactions?: The official
settlement balance
Which of the following issues are difficulties for the fundamental approach to exchange rate
forecasting?: All of the above

Which of the following statements is true?: Bid/ask spread is smaller if the competition is more
intense.

Which of the following statements is true?: If a currency's direct exchange rate is rising over
time, then its indirect exchange rate must be declining over time (and vice versa).

Which of the following would not count as a foreign-exchange reserve held by a central bank?:
The local currency

Which of the followings describe the strategy of joint venture to enter foreign markets?: It is a
partnership between two firms or people. Between them, there is a legal agreement.

Which provides the right to buy a specific currency at a specific price within a specific period of
time?: Currency call option

Which type of trading system is desirable for actively traded issues?: Continuous trading systems

While the corporate governance problem is not confined to the United States,: It can be a much
more serious problem in many other parts of the world, where legal protection of shareholders is
weak or nonexistent.

Willem Duisenberg, the first president of the European Central Bank, defined "price stability" as
an annual inflation rate of: "less than but close to 2 percent."

With currency futures options the underlying asset is: a futures contract on the foreign currency.

With regard to fundamental forecasting versus technical forecasting of exchange rates: none of
the above

With regard to the capital account: all of the above

With regard to the current exchange rate arrangement between Italy and Germany, it is best
characterized as: an exchange arrangement with no separate legal tender.

With regard to the current exchange rate arrangement between the U.S. and the U.K., it is best
characterized as: independent floating (market determined).

With regard to trading costs,: futures contracts involve the bid-ask spread plus the broker's
commission.

With regard to trading location,: futures contracts are traded competitively on organized
exchanges.
With respect to information asymmetry,: management knows about the firm's exposure position
much better than stockholders, and therefore should be the ones to manage exchange exposure.