Question 1

The most extreme fixed rate policy is through a currency board.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following types of exchange rate policies is apt for a pure free market economy?

Accepted Answer

A)   Dirty float
B)   Flexible float
C)   Clean float
D)   Target exchange rate

Question 3

The fixing of East and West Germany's currencies at a 1:1 ratio to each other during the German unification in 1990 is an example of a _____.

Accepted Answer

A)   managed float rate policy
B)   floating rate policy
C)   target exchange rate policy
D)   fixed exchange rate policy

Question 4

The theory of purchasing power parity suggests that in the absence of trade barriers,the price for identical products sold in different countries will be different.

Accepted Answer

A) True 
 B)False

Question 5

A weak dollar makes it more expensive for US tourists when traveling abroad.

Accepted Answer

A) True 
 B)False

Question 6

Briefly explain the cause for the fall of the Bretton Woods System.

Accepted Answer

The Bretton Woods System was at its peak...

Question 7

A country highly productive in manufacturing typically generates a merchandise trade deficit.

Accepted Answer

A) True 
 B)False

Question 8

A foreign exchange rate refers to the price of buying and selling commodities for future delivery.

Accepted Answer

A) True 
 B)False

Question 9

A _____ is the price of one currency,such as the dollar,in terms of another,such as the euro.

Accepted Answer

A)   stock exchange index
B)   securities market rate
C)   commodities exchange rate
D)   foreign exchange rate

Question 10

Floating exchange rates are less volatile than fixed rates.

Accepted Answer

A) True 
 B)False  False

Question 11

Governments adopting the floating exchange rate policy tend to set the exchange rate of a currency relative to other currencies.

Accepted Answer

A) True 
 B)False

Question 12

Currency hedging is a popular way to minimize the foreign exchange risk inherent in all nonspot transactions.

Accepted Answer

A) True 
 B)False

Question 13

Capital flight is a phenomenon in which a large number of individuals and companies exchange _____.

Accepted Answer

A)   domestic goods for gold
B)   gold for domestic goods
C)   foreign currency for a domestic currency
D)   domestic currency for a foreign currency

Question 14

In foreign exchange,a(n) _____ is said to have occurred when investors move in the same direction at the same time,like a herd.

Accepted Answer

A)   placebo effect
B)   bandwagon effect
C)   edge effect
D)   positive correlation

Question 15

Compare and contrast the advantages and disadvantages of a strong and a weak dollar.

Accepted Answer

A strong (appreciating)dollar:
Advantage...

Question 16

If the forward rate of the euro per dollar is higher than the spot rate,the euro has a _____.

Accepted Answer

A)   high spread
B)   low spread
C)   forward discount
D)   forward premium

Question 17

Which of the following characterizes a country's current account?

Accepted Answer

A)   A country's current account deficit has to be financed by both purchases and sales of assets.
B)   A country experiencing a current account deficit will see its currency appreciate.
C)   A country's current account balance consists of exports plus imports of merchandise and services minus income on the country's assets abroad.
D)   A country experiencing a current account surplus will see its currency depreciate.

Question 18

A currency board is a monetary authority that issues notes and coins convertible into a key foreign currency at a _____ exchange rate.

Accepted Answer

A)   clean floating
B)   dirty floating
C)   fixed
D)   target

Question 19

Which of the following is true of the bid rate in foreign exchange markets?

Accepted Answer

A)   It is always higher than the offer rate.
B)   It is always lower than the offer rate.
C)   It is always equal to the offer rate.
D)   It does not affect the spread of the exchange. B

Question 20

The rise of a country's productivity is usually accompanied by increased demand for its home currency.

Accepted Answer

A) True 
 B)False

Exam 7: Dealing with Foreign Exchange

The most extreme fixed rate policy is through a currency board.

Correct AnswerverifiedTrue

Which of the following types of exchange rate policies is apt for a pure free market economy?

Correct AnswerverifiedShow Answer

The fixing of East and West Germany's currencies at a 1:1 ratio to each other during the German unification in 1990 is an example of a _____.

Correct AnswerverifiedShow Answer

The theory of purchasing power parity suggests that in the absence of trade barriers,the price for identical products sold in different countries will be different.

Correct AnswerverifiedShow Answer

A weak dollar makes it more expensive for US tourists when traveling abroad.

Correct AnswerverifiedShow Answer

Briefly explain the cause for the fall of the Bretton Woods System.

Correct AnswerverifiedThe Bretton Woods System was at its peak...View AnswerShow Answer

A country highly productive in manufacturing typically generates a merchandise trade deficit.

Correct AnswerverifiedShow Answer

A foreign exchange rate refers to the price of buying and selling commodities for future delivery.

Correct AnswerverifiedShow Answer

A _____ is the price of one currency,such as the dollar,in terms of another,such as the euro.

Correct AnswerverifiedShow Answer

Floating exchange rates are less volatile than fixed rates.

Correct AnswerverifiedFalse

Governments adopting the floating exchange rate policy tend to set the exchange rate of a currency relative to other currencies.

Correct AnswerverifiedShow Answer

Currency hedging is a popular way to minimize the foreign exchange risk inherent in all nonspot transactions.

Correct AnswerverifiedShow Answer

Capital flight is a phenomenon in which a large number of individuals and companies exchange _____.

Correct AnswerverifiedShow Answer

In foreign exchange,a(n) _____ is said to have occurred when investors move in the same direction at the same time,like a herd.

Correct AnswerverifiedShow Answer

Compare and contrast the advantages and disadvantages of a strong and a weak dollar.

Correct AnswerverifiedA strong (appreciating)dollar:Advantage...View AnswerShow Answer

If the forward rate of the euro per dollar is higher than the spot rate,the euro has a _____.

Correct AnswerverifiedShow Answer

Which of the following characterizes a country's current account?

Correct AnswerverifiedShow Answer

A currency board is a monetary authority that issues notes and coins convertible into a key foreign currency at a _____ exchange rate.

Correct AnswerverifiedShow Answer

Which of the following is true of the bid rate in foreign exchange markets?

Correct AnswerverifiedB

The rise of a country's productivity is usually accompanied by increased demand for its home currency.

Correct AnswerverifiedShow Answer

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True

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The Bretton Woods System was at its peak...
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False

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A strong (appreciating)dollar:
Advantage...
View Answer

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B

Correct Answer
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