are most commonly classified as a direct foreign investment.

a

Foreign acquisitions

b

Purchases of international stocks

c

Licensing agreements

d

Exporting transactions

A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n)..........in Mexican demand for U.S. goods, and the Mexican peso should...........

a

increase; appreciate

b

increase; depreciate

c

decrease; depreciate

d

decrease; appreciate

To force the value of the British pound to depreciate against the dollar, the Federal Reserve should:

a

sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.

b

b. sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.

c

sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.

d

sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.

Which of the following is not true regarding the eurozone?

a

Members cannot set unique monetary policy individually.

b

Members cannot apply their own fiscal policies.

c

Members have to agree on the ideal monetary policy.

d

Its creation allowed for greater political union among its members.

Which of the following is indicated by research regarding purchasing power parity (PPP)?

a

PPP clearly holds in the short run.

b

Deviations from PPP are reduced in the long run.

c

PPP clearly holds in the long run.

d

There is no relationship between inflation differentials and exchange rate movements in the short run or long run.

To force the value of the British pound to depreciate against the dollar, the Federal Reserve should:

a

sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.

b

sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.

c

sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.

d

sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.

Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency depreciates against B, then A's exports to C should __, and A's imports from C should __.

a

decrease; increase

b

decrease; decrease

c

increase; decrease

d

increase; increase

Which of the following forecasting techniques would best represent the sole use of the pattern of historical currency values of the euro to predict the euro's future currency value?

a

fundamental forecasting.

b

market-based forecasting.

c

technical forecasting.

d

mixed forecasting.

If a foreign country's interest rate is similar to the U.S. rate, the forward rate premium or discount will be .........., meaning that the forward rate and spot rate will provide..........forecasts.

a

substantial; similar

b

substantial; very different

c

close to zero; similar

d

close to zero; very different

"An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries." True or False