1.Which of the following is NOT true regarding the subject matter of international finance?

A. International finance studies the important trade theories.

B. International finance examines the theory of balance of payments and its relationship with macroeconomic variables.

C. International finance studies exchange rate theories and the impacts of the exchange rate on the economy.

D. International finance discusses the exchange rate risks and the derivative instruments by which people use to cover the exchange rate risks and to speculate.

2.Globalization refers to _______.

A. the strengthening of existing international linkages of commerce, finance and the addition of new international linkages

B. the expansion of world governance and global society

C. the increased mobility of peoples and information

D. All of the above

3. Which of the following is NOT a characteristic of the nowadays financial markets?

A. Increasingly interdependent national financial markets

B. the global trend toward free-market economies

C. An increasingly number of cross-border partnerships, including many international merges, acquisitions, and joint ventures

D. An increasing number of cooperative linkages among securities exchange

4. A debit entry in the balance-of-payments account represents a transaction that ___( )_____.

A. a domestic resident receives a payment from abroad

B. a domestic resident makes a payment to a foreign resident

C. will improve the current account status

D. will have no affects on the nation's foreign exchange reserves

5. A balance-of-payments deficit is defined as a situation in which ______.

A. the value of payments made to the foreigners exceeds the value of receipts received from the foreigners in a given period of time

B. the government must borrow in order to meet its budget obligations

C. the value of manufactured good exports is less than the value of imported goods

D. a nation earns much in extra assets or reduced liabilities in its dealings with the rest of the world

6. If the U.S. runs current account deficits, we can expect that ________.

A. it may act as a net debtor in the rest of the world

B. its domestic saving may less than its domestic investment

C. its domestic production is less than its domestic consumption

D. all of the above

7. The trade deficit means that ________.

A. residents are importing more goods than they are exporting

B. residents are borrowing more funds than they are lending

C. residents are receiving more payments than they are making

D. residents are producing more goods than they are consuming

8.For most countries, the subcategory that typically dominates the current account is __( )______.

A. unilateral transfers

B. goods trade

C. income trade

D. services trade

9.The foreign exchange refers to the _______.

A. foreign bank notes and coins

B. demand deposits in foreign banks

C. foreign securities that can be easily cashed

D. all of the above

10.The functions of the foreign exchange market come down to ________.

A. converting the currency of one country into the currency of another

B. providing some insurance against the foreign exchange risk

C. making the foreign exchange speculation easy

D. Only A and B are true.

11. Which of the following is NOT true regarding the foreign exchange market?

A. It is the place through which people exchange one currency for another.

B. The exchange rate nowadays is mainly determined by the market forces.

C. Most foreign exchange transactions are physically completed in this market.

D. All of the above are true.

12.The world largest foreign exchange markets are ______ respectively.

A. London, New York and Tokyo

B. London, Paris and Frankfurt

C. London, Hong Kong and Singapore

D. London, Zurich and Bahrain

13. Most foreign exchange transactions are through the U.S. dollars. If the transaction is expressed as the currencies per dollar, this is known as ______ whereas __________ are expressed as dollars per currency.

A. direct quote; indirect quote

B. indirect quote; direct quote

C. European quote; American quote

D. American quote, European quote

14.Which of the following is true about the foreign exchange market?

A. It is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications system.

B. The foreign exchange market is usually located in a particular place.

C. The foreign exchange rates are usually determined by the related monetary authorities.

D. The main participants in this market are currency speculators from different countries.

15.The exchange rate system refers to _________.

A. a country's internal economic policies such as employment, inflation and interest rate levels

B. a country's monetary policies

C. a country's fiscal polices

D. a country's choice as to which exchange rate regime such as fixed or floating or between to follow

16. The international monetary system is broadly defined as __________.

A. the set of conventions, rules, procedures and institutions that govern the conduct of financial relations between nations

B. the set of rules to manage every country's central banks

C. the set of rules to solve trade disputes between countries

D. the set of rules to develop world economy

17. Under the gold standard, the exchange rate was fixed because ________.

A. each currency unit could be converted to a weight of gold

B. the gold could be exported and imported with no restrictions

C. gold coins could be freely minted

D. all of the above

18. Which of the following is true regarding the collapse of the gold standard system?

A. The World War I had many European countries suspend convertibility of their currencies into gold. D

B. The political costs of maintaining the overvalued pound were so great in the United Kingdom.

C. Nations facing 1929 - 1933 worldwide recession decided to pursue objectives such as higher employment rates and real growth rates, rather than to maintain the exchange value of their currencies.

D. All of the above are the reasons that the gold standard finally collapsed.

19. The U.S. dollar was designated as the international currency in international settlements under the Bretton Woods system. The dollar was accepted by the rest of the world because __________

A. it could be used to purchase U.S. goods and services

B. it could be converted to gold at a price of $35/ounce

C. the U.S. was the only super power at that time

D. the IMF forced the rest of the world to use dollar to settle international debts

20. If the law of one price holds for a particular good, we may conclude that _________.

A. there is no trade barriers for the good among the different nations

B. the price of the good is the same ignoring the other expenses

C. arbitrage for the good does not exist

D. all of the above are true

21.A country that regulates the rate at which its currency is exchanged for all other currencies is considered to have a ___( )_____ exchange rate system.

A. fixed or managed

B. floating or flexible

C. currency board

D. dollarization

22. If the price of a pair of Nike sneakers costs $85 in U.S, and the price of the same sneakers is 80 in Paris, the spot rate is $1.35 per euro, the euro _______.

A. is correctly valued according to PPP

B. is correctly valued according to relative PPP

C. is undervalued according to PPP

D. is overvalued according to PPP

23.An increase in the demand for French goods and services will ________.

A. induce a rightward shift in the demand for euro

B. induce a leftward shift in the demand for euro

C. result in a rightward movement along the demand curve for euro

D. result in a leftward movement along the demand curve for euro

24.If U.S. demand for Japanese goods increases and Japan's demand for U.S. products also rises at the same time, which of the following can you conclude in this situation?

A. The U.S. dollar will appreciate against the yen.

B. The U.S. dollar will depreciate against the yen.

C. The U.S. dollar will not change relative to the yen.

D. The U.S. dollar may appreciate, depreciate, or remain unchanged against the yen.

25.According to the relative PPP, if country A's inflation rate is higher than country B's inflation rate by 3%, ________.

A. country A's currency should depreciate against country B's currency by 3%

B. country A's currency should appreciate against country B's currency by 3%

C. it is hard to say whether country A's currency should appreciate or depreciate against country B's currency. The exchange rate is influenced by many factors

D. none of the above is true

26. The principal function of the International Monetary Fund (IMF) was originally to __________

A. act as a supranational regulatory agency for all countries' central banks

B. lend to member nations experiencing a shortage of foreign exchange reserves

C. finance postwar reconstruction, particularly in Europe and Japan

D. reduce trade barriers and settle disputes among countries relating to currency negotiations

27. The absolute purchasing power parity says that the exchange rate between the two currencies should be determined by the _______ .

A. relative inflation rate of the two currencies

B. relative price level of the two countries

C. relative interest rate of the two currencies

D. relative money supply of the two countries

28. Which basket of goods would be most likely to exhibit absolute purchasing power parity?

A. Highly tradable commodities, such as wheat

B. The goods in the Consumer Price index

C. Specialized luxury goods, which are subject to different tax rates across countries

D. Locally produced goods, such as transportation services, which are not easily traded

29. Since the advent of floating exchange rates in 1973 it has become evident that authorities have not always let their currency float freely but rather they have frequently intervened to influence the exchange rate. This floating exchange rate system is also called ________.

A. clean float

B. managed float

C. dirty float

D. Both B and C are correct

30.A country's balance of payments records:

A. the prices that a country pays for its imports and the prices that the country receives for its imports.

B. the flows of value between that country's residents and residents of the rest of the world during a period of time.

C. capital gains and losses on a country's international assets.

D. the value of a country's holdings of foreign assets, minus the value of foreign holdings of the country's assets.

31. A credit item in the balance of payments is:

A. an item for which the country must be paid.

B. any loan given out by the country.

C. any imported item.

D. an item that creates a monetary claim owed to a foreigner.

32. A debit item in the balance of payments is:

A. any foreign aid received by the country.

B. an item for which the country must pay.

C. any exported item.

D. an item that creates a monetary claim on a foreigner.

33.Every international exchange of value is entered into the balance-of-payments accounts _____ time(s).

A. one

B. two

C. three

D. four

34. The sum of all of the debit items in the balance of payments:

A. equals the overall balance.

B. equals the sum of all credit items.

C. equals 'compensating' transactions.

D. equals the errors and omissions.

35. _____ are money-like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them.

A. Official international reserve assets

B. Unofficial international assets

C. Official domestic assets

D. Unofficial reserve assets

36. The net value of flows of goods, services, income, and unilateral transfers is described as the:

A. capital account balance.

B. current account balance.

C. trade balance.

D. official reserve balance.

37. The net value of flows of financial assets and similar claims (excluding official international reserve asset flows) is called the:

A. financial account balance.

B. current account balance.

C. trade balance.

D. official reserve balance.

38.A deficit in the current account:

A. is accompanied by an equal amount of surplus in the financial account or in official international reserves.

B. tends to cause a deficit in the financial account.

C. does not affect the financial account or official international reserves.

D. is the result of increasing exports and decreasing imports.

39. In September 2005, exports of goods from the U.S. decreased $3.3 billion to $73.4 billion, and imports of goods increased $3.8 billion to $144.5 billion. This increased the deficit in:

A. the balance of payments.

B. the financial account.

C. the current account.

D. unilateral transfers.

40. In the balance of payments, the statistical discrepancy is used to:

A. ensure that the sum of all debits matches the sum of all credits.

B. ensure that the value of imports equals the value of exports.

C. show how a balance-of-payments deficit is funded.

D. obtain an accurate account of a balance-of-payments surplus.

41. Official reserve assets are:

A. the gold holdings in the nation's central bank.

B. money like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them.

C. government T-bills and T-bonds.

D. government holdings of SDR's.

42. Which of the following constitutes the largest component of the world's international reserve assets?

A. Gold

B. Special drawing rights

C. IMF reserve positions

D. Foreign currencies

43.A country experiencing a current account surplus:

A. needs to borrow internationally.

B. is able to lend internationally.

C. must also have had a surplus in its overall payments balance.

D. spends more than it earns on its merchandise and service trade, international income payments and receipts and international transfers.

44.A nation is considered to be a(n) _____ in the international market, if its current account is in deficit.

A. importer

B. exporter

C. borrower

D. lender

45.A country that is saving more than it is investing domestically:

A. has a current account surplus.

B. has a financial account deficit.

C. has a trade balance.

D. has a trade disequilibrium.

46.A nation is called a lender if:

A. its financial account is in deficit during a time period.

B. its current account is in surplus during a time period.

C. its current account is in deficit during a time period.

D. its net stock of foreign assets is positive.

47.A nation is called a creditor if:

A. it provided financial assets to other countries.

B. its net stock of foreign assets is positive.

C. its current account is in surplus during a time period.

D. its current account is in deficit during a time period.

48.Which of the following refers to foreign exchange?

A. The act of trading different nations' moneys

B. The holdings of foreign assets

C. The act of exchanging goods and services internationally.

D. The adoption of foreign trade policies

49. The exchange rate value of a foreign currency is _____ in the short run by a rise in the expected future spot exchange rate value.

A. raised

B. lowered

C. made volatile

D. not affected

50. A decrease in the foreign interest rate relative to the domestic interest rate _____ the exchange rate value of a foreign currency in the short run.

A. raises

B. lowers

C. does not affect

D. causes fluctuations in

51. If the domestic interest rate decreases, with the foreign interest rate and the expected future spot rate remaining unchanged, the value of the domestic currency vis--vis the foreign currency is expected to:

A. increase.

B. decrease.

C. remain unchanged.

D. converge to its PPP value.

52.Everything else remaining unchanged, an increase in interest rates in the United States is most likely to result in:

A. depreciation of the dollar.

B. outflows of capital from the United States.

C. capital inflows into the United States.

D. a decrease in the demand for dollar-denominated financial assets.

53. The law of one price works well for _____ traded commodities.

A. all

B. rarely

C. heavily

D. domestically

54. The law of one price works better if:

A. transportation costs for the product are close to zero.

B. there is incomplete information.

C. there are few buyers and sellers.

D. the governments of the trading countries implement adequate trade barriers.

55. _____ purchasing power parity states that a bundle of tradable products will have the same cost in different countries if the cost is stated in the same currency.

A. Full

B. Partial

C. Relative

D. Absolute

56._____ purchasing power parity states that the difference between changes over time in product-price levels in two countries will be offset by the change in the exchange rate over this time.

A. Full

B. Partial

C. Relative

D. Absolute

57.Suppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange rate determination suggests that:

A. the yen is overvalued.

B. the yen value is about correct.

C. the price of a Big Mac in Japan will rise.

D. the dollar will depreciate against the yen.

58. In a _____ exchange rate system the government or central bankers intervene to keep the exchange rate virtually steady.

A. fixed

B. market driven

C. managed float

D. forward

59.The U.S. dollar is called a _____ because it is often used as an intermediary to accomplish trading between two other currencies.

A. vehicle currency

B. main currency

C.common currency

D.primary currency

60. Suppose the dollar per pound exchange rate is $2 per pound while the dollar per Swiss franc exchange rate is 50 cents per franc. From the given information we can conclude that the Swiss franc per pound exchange rate is:

A. 1 franc per pound.

B. too low

C. too high

D. 4 francs per pound.

61.Shifts in demand away from French products and toward the U.S. products (caused by forces other than changes in the exchange rate) would result in extra attempts to:

A. buy both euros and dollars.

B. sell both euros and dollars.

C. sell Euros and buy dollars.

D. buy Euros and sell dollars.

62.Which of the following is true of foreign exchange markets?

A. The foreign exchange market is a single gathering place where traders shout buy and sell orders at each other.

B. Individuals' exchanges of currencies comprise the largest portion of overall foreign exchange trading.

C. The laws of demand and supply are not applicable in a foreign exchange market.

D. Most foreign exchange trading involves the exchange of U.S. dollars for other currencies.

63.As the value of the yen falls relative to the U.S. dollar in the foreign exchange market:

A. Japanese goods become more expensive to the U.S. consumers.

B. the supply of dollars will fall.

C. the demand for Japanese goods will increase in the U.S. market

D. U.S. goods become less expensive to Japanese consumers.

64.Exchange rates are equalized in different locations due to:

A. arbitrage.

B. government intervention in foreign exchange markets.

C. free trade in goods and services.

D. the actions of importers and exporters.

65.When the exchange rate is set now for a currency trade that will take place sometime more than a few days in the future is often referred to as a:

A. spot exchange rate.

B. forward exchange rate.

C. pegged exchange rate.

D. managed exchange rate.

66.The exchange rate set for an immediate trade is often referred to as a:

A. managed exchange rate.

B. pegged exchange rate.

C. forward exchange rate.

D. spot exchange rate.

67.If the price of British pounds in terms of the U.S. dollars is $1.80 per pound, then the price of U.S. dollars in terms of British pounds is:

A. 1.80 per dollar.

B. 0.555 per dollar.

C. 0.90 per dollar.

D. 3.60 per dollar.

68.How can one profit through arbitrage if the dollar per euro exchange rate in London is $2 per pound while in New York is $1.95 per pound?

A. Buy dollars in New York and sell them in London

B. Buy pounds in London and sell them in New York

C. Buy pounds in New York and sell them in London

D. Buy dollars in London and sell pounds in New York

69.A decrease in German residents' willingness to invest in dollar-denominated assets will shift the demand curve for:

A. Euros to the right.

B. Euros to the left.

C. Dollars to the right.

D. Dollars to the left.

70.Under a floating exchange rate system, everything remaining constant, an increase in European exports to Japan is most likely to result in:

A. a decrease in the demand for euro in the foreign exchange market.

B. a decrease in the supply of euro in the foreign exchange market.

C. an appreciation of the Japanese yen vis--vis the euro.

D. an appreciation of the euro vis--vis the Japanese yen.