Question 1

World interest rates tend to vary across a small range because:

Accepted Answer

A)   the IMF has been successful at promoting responsibility in the monetary sector.
B)   world financial markets are integrated, so we see the law of one price at work.
C)   bankers have low market appeal, given the financial crisis.
D)   the BIS has coordinated monetary policy.

Question 2

Foreign reserves are used to:

Accepted Answer

A)   help foreigners who need additional funds.
B)   provide military support to foreign operations, for example, the French legion and UN peacekeepers.
C)   cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter.
D)   support foreign operations that are branches but not subsidiaries.

Question 3

The inflation rate determines:

Accepted Answer

A)   a currency's strengthening.
B)   the real price of borrowing in capital markets.
C)   locations for outsourcing.
D)   import substitution regimes.

Question 4

If the Japanese yen is strengthening against the U.S. dollar, and the Japanese government wanted to boost exports, the central bank of Japan might well:

Accepted Answer

A)   sell U.S. dollars in large amounts in the currency markets.
B)   buy massive amounts of Japanese yen in the FX markets.
C)   sell massive amounts of Japanese yen in the FX markets.
D)   buy massive amounts of other hard currencies, such as the British pound sterling and the euro, to deflect the focus on dollars.

Question 5

With increasing inflation, borrowing becomes:

Accepted Answer

A)   more attractive because repayment can be made with cheaper money.
B)   less attractive because repayment is made with dearer money.
C)   impossible because money has lost its value.
D)   a mute issue because of liquidity issues.

Question 6

Inflated currencies tend to weaken.

Accepted Answer

A) True 
 B)False

Question 7

Arbitrage functions to:

Accepted Answer

A)   provide French markets access to other EU markets.
B)   exploit price differences between markets, so as to profit with no risk.
C)   create wealth through interest rate swaps.
D)   create increased trading in commodity markets.

Question 8

The present floating exchange rate system was:

Accepted Answer

A)   designed by the IMF and implemented flawlessly in 1973.
B)   established by the major trading nations in 19721 after Nixon closed the gold window.
C)   implemented in tandem with a reintroduction of the gold standard.
D)   established after several trials in which central bankers set rates incorrectly and speculators corrected them in the markets, and it was formalized after the fact in the IMF's Jamaica Agreement.

Question 9

In general, with regard to exchange controls, developed countries:

Accepted Answer

A)   rarely use them.
B)   use them only to discourage foreign investment.
C)   use them when needed to implement monetary policy.
D)   use them secretly.

Question 10

The international Fisher effect says that the interest rate differentials in any two currencies reflect:

Accepted Answer

A)   the ratio of their inflation rates minus COL
B)   arbitrary differences in the two economies.
C)   PPP differences in the two economies.
D)   the expected change in their exchange rates.

Question 11

Allied and Axis governments met in Bretton Woods in the final days of World War II.

Accepted Answer

A) True 
 B)False

Question 12

Brazil, India, and the United States are among the highest corporate tax locations.

Accepted Answer

A) True 
 B)False

Question 13

Global foreign currency exchange transactions total in the area of $4 trillion daily.

Accepted Answer

A) True 
 B)False

Question 14

In POB accounting, a deficit in the current account is always accompanied by a surplus in the capital account.

Accepted Answer

A) True 
 B)False

Question 15

The three major taxes governments use to generate revenue are:

Accepted Answer

A)   VAT, income tax, and withholding tax.
B)   sales tax, VAT, and income tax.
C)   property tax, VAT, and sales tax.
D)   income tax, property tax, and sales tax.

Question 16

When a business pays in dollars for an import from Turkey, the dollars that leave the United States will eventually show up as a credit on the U.S. capital account.

Accepted Answer

A) True 
 B)False

Question 17

A central reserve asset is a holding that has value that is held by private banks in case of a liquidity crisis.

Accepted Answer

A) True 
 B)False

Question 18

The law of one price is that:

Accepted Answer

A)   only one price can be charged for an item in a contract deal.
B)   in an efficient market, one price only is the permissible price.
C)   in an efficient market, like goods will have like prices.
D)   even in international markets, bait and switch is illegal.

Question 19

The balance-of-payments account is a record of:

Accepted Answer

A)   the total tangible trade flows of a country over a five-year period.
B)   a country's transactions with the rest of the world.
C)   a country's total debt service payments during a one-year period.
D)   the outstanding balance of a country's debt payments for the fiscal year.

Question 20

The United States in recent years has had a significant deficit in its current account. This means that U.S. citizens are exporting more than they are importing.

Accepted Answer

A) True 
 B)False

Exam 8: The International Monetary System and Financial Forces

The three major taxes governments use to generate revenue are:

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Brazil, India, and the United States are among the highest corporate tax locations.

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Inflated currencies tend to weaken.

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The balance-of-payments account is a record of:

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If the Japanese yen is strengthening against the U.S. dollar, and the Japanese government wanted to boost exports, the central bank of Japan might well:

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In general, with regard to exchange controls, developed countries:

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The present floating exchange rate system was:

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Allied and Axis governments met in Bretton Woods in the final days of World War II.

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The United States in recent years has had a significant deficit in its current account. This means that U.S. citizens are exporting more than they are importing.

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The inflation rate determines:

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A central reserve asset is a holding that has value that is held by private banks in case of a liquidity crisis.

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In POB accounting, a deficit in the current account is always accompanied by a surplus in the capital account.

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The international Fisher effect says that the interest rate differentials in any two currencies reflect:

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World interest rates tend to vary across a small range because:

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The law of one price is that:

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Global foreign currency exchange transactions total in the area of $4 trillion daily.

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When a business pays in dollars for an import from Turkey, the dollars that leave the United States will eventually show up as a credit on the U.S. capital account.

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With increasing inflation, borrowing becomes:

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Foreign reserves are used to:

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Arbitrage functions to:

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