Testbank international finance chapter 6 practice PDF

Preview

Summary

Test Bank International Financial Management 12th Edition JeffMaduraTest Bank International Financial Management 12e 12th Edition JeffMadura. Completed Download:testbankarea/download/international-financial-management-12th-edition-jeff-madura-test-bank/Solutions Manual International Financial Manage...

Description

Test Bank International Financial Management 12th Edition Jeff Madura Test Bank International Financial Management 12e 12th Edition Jeff Madura. Completed Download: https://testbankarea.com/download/international-financial-management-12th-edi tion-jeff-madura-test-bank/ Solutions Manual International Financial Management 12th edition Jeff Madura. Complete download: https://testbankarea.com/download/international-financial-management-12th-edi tion-jeff-madura-solutions-manual/ Chapter 6—Government Influence on Exchange Rates 1. To force the value of the pound to appreciate against the dollar, the Federal Reserve should: a. sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market. b. sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market. c. sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should not intervene. d. sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell pounds for dollars in the foreign exchange market. ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

2. A weak dollar is normally expected to cause: a. high unemployment and high inflation in the U.S. b. high unemployment and low inflation in the U.S. c. low unemployment and low inflation in the U.S. d. low unemployment and high inflation in the U.S. ANS: D PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.04 STA: DISC.INFM.MADU.15.02

3. A strong dollar is normally expected to cause: a. high unemployment and high inflation in the U.S. b. high unemployment and low inflation in the U.S. c. low unemployment and low inflation in the U.S. d. low unemployment and high inflation in the U.S. ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.04 STA: DISC.INFM.MADU.15.02

4. 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. ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Moderate OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

5. Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the ____ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the ____ system. a. floating rate; fixed rate b. floating rate; floating rate c. fixed rate; fixed rate d. fixed rate; floating rate ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Moderate OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

6. A primary result of the Bretton Woods Agreement was: a. the establishment of the European Monetary System (EMS). b. establishing specific rules for when tariffs and quotas could be imposed by governments. c. establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values. d. establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary). ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Moderate OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

7. A primary result of the Smithsonian Agreement was: a. the establishment of the European Monetary System (EMS). b. establishing that exchange rates of most major countries were to be allowed to fluctuate 2.25% above or below their initially set values. c. establishing specific rules for when tariffs and quotas could be imposed by governments. d. establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary). ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

8. Under a fixed exchange rate system: a. a foreign exchange market does not exist.

b. central bank intervention in the foreign exchange market is not necessary. c. central bank intervention in the foreign exchange market is often necessary. d. central bank intervention in the foreign exchange market is not allowed. ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

9. Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar's value should ____ the U.S. demand for products produced by major foreign countries. a. weakening; increase b. weakening; decrease c. strengthening; increase d. strengthening; decrease ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

10. The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a: a. pegged system. b. fixed system. c. managed float system. d. crawling peg system. ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

11. The interest rate of a country with a currency board: a. is less stable than it would be without a currency board. b. is typically below the interest rate of the currency to which it is tied. c. will move in tandem with the interest rate of the currency to which it is tied. d. is completely independent of the interest rate of the currency to which it is tied. ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

12. The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency depreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z. a. more; more b. less; less c. more; less d. less; more ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Moderate OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

13. 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 ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Moderate OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

14. Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of: a. pegged intervention. b. indirect intervention. c. nonsterilized intervention. d. sterilized intervention. e. A and D ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Moderate OBJ: INFM.MADU.15.06.03 STA: DISC.INFM.MADU.15.02

15. If the Fed desires to weaken the dollar without affecting the dollar money supply, it should: a. exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. b. exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. c. exchange dollars for foreign currencies, and buy existing Treasury securities with dollars. d. exchange foreign currencies for dollars, and buy existing Treasury securities with dollars. ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Moderate OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

16. Which of the following is an example of direct intervention in foreign exchange markets? a. lowering interest rates. b. increasing the inflation rate. c. exchanging dollars for foreign currency. d. imposing barriers on international trade. ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.03 STA: DISC.INFM.MADU.15.02

17. A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar. a. upward; upward b. downward; upward c. upward; downward d. downward; downward ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

KEY: Bloom's: Comprehension 18. The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to: a. remain stable. b. strengthen. c. weaken. d. none of the above will have an impact on inflation. ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

19. A weaker dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which places ____ pressure on U.S. bond prices. a. upward; downward; upward b. upward; downward; downward c. upward; upward; downward d. downward; upward; upward e. downward; downward; upward ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

20. The euro is the currency: a. adopted in all western European countries as of 1999. b. adopted in all eastern European countries as of 1999. c. adopted in all European countries as of 1999. d. none of the above ANS: D PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

21. The euro has not been adopted by: a. Slovenia. b. the U.K. c. Germany. d. France. ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

22. The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries. a. Latin American b. European c. Asian d. North American ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

23. Countries that have adopted the euro must agree on a single ____ policy. a. monetary b. fiscal c. worker compensation d. foreign relations ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

24. Countries that have adopted the euro tend to have very similar ____. a. interest rates b. inflation rates c. income tax rates d. budget deficits ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

25. The risk-free interest rates among countries that have adopted the euro should: a. not necessarily be similar to risk-free rates in other countries. b. equal the U.S. risk-free rate. c. equal the risk-free rates in other European countries. d. equal the risk-free rates in Asian countries. ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

26. Which of the following is true regarding the euro? a. Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders. b. It allows for more consistent economic conditions across countries. c. It prevents each country from conducting its own monetary policy. d. All of the above are true. ANS: D PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

27. It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce unemployment. Which of the following is an appropriate action given this scenario? a. Weaken the dollar b. Strengthen the dollar c. Buy dollars with foreign currency in the foreign exchange market d. Implement a tight monetary policy ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.04 STA: DISC.INFM.MADU.15.02

28. It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario? a. Sell dollars for foreign currency b. Buy dollars with foreign currency c. Lower interest rates d. None of the above ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.03 STA: DISC.INFM.MADU.15.02

29. To strengthen the dollar using sterilized intervention, the Fed would ____ dollars and simultaneously ____ Treasury securities. a. buy; sell b. sell; buy c. buy; buy d. sell; sell ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.03 STA: DISC.INFM.MADU.15.02

30. As foreign exchange activity has grown, a given degree of central bank intervention has become: a. more effective. b. more frequent. c. less effective. d. none of the above ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.03 STA: DISC.INFM.MADU.15.02

31. When using indirect intervention, a central bank is likely to focus on: a. inflation. b. interest rates. c. income levels. d. expectations of future exchange rates. ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.03 STA: DISC.INFM.MADU.15.02

32. Which of the following countries was probably the least affected (directly or indirectly) by the Asian crisis? a. Thailand. b. Indonesia. c. Russia. d. China. e. Malaysia. ANS: D PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.App. STA: DISC.INFM.MADU.15.02

33. Which of the following is not true regarding Thailand? a. Thailand was one of the slowest growing countries before the Asian crisis. b. High levels of spending and low levels of saving placed upward pressure on prices of real estate, products, and on Thailand's local interest rate. c. Thailand's baht was linked to the dollar prior to July 1997, which made Thailand an attractive site for foreign investors. d. Thai banks provided many loans that were very risky in their attempt to make use of all of their funds. e. All of the above are true. ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.App. STA: DISC.INFM.MADU.15.02

34. China's yuan is presently: a. allowed to fluctuate freely without any central bank intervention. b. allowed to fluctuate but with central bank intervention. c. pegged to the dollar. d. pegged to the euro. ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

35. During the period 1944-1971, the U.S. used a ____ system. a. euro exchange rate b. fixed c. dirty float d. flexible ANS: B PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

36. Which of the following are examples of currency controls? a. import restrictions. b. prohibition of remittance of funds. c. ceilings on granting credit to foreign firms. d. all of the above ANS: D PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.03 STA: DISC.INFM.MADU.15.02

37. From a financial management perspective, which of the following is true regarding the introduction of the Euro? a. U.S.-based MNCs are not subject to exchange rate risk when they have transactions in euros. b. The euro is pegged to all other European currencies. c. Transactions costs decline for MNCs that conduct transactions within Europe. d. The euro replaced the British pound. ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

38. Which of the following countries have not adopted the euro? a. Germany b. Italy c. Switzerland d. France ANS: C PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

39. Which of the following are true about the Southeast Asian currency crisis? a. It was preceded by several years of large capital inflows to Asia. b. It was preceded by a five-year recession in Asia. c. Asian interest rates declined during the crisis. d. Asian exchange rates were pegged to the Japanese yen to resolve the crisis. ANS: A PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.App. STA: DISC.INFM.MADU.15.02

40. Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system. a. True b. False ANS: T PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

41. 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. a. True b. False ANS: F PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Comprehension

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

42. Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system. a. True b. False ANS: F PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

43. Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency. a. True b. False ANS: T PTS: 1 NAT: BUSPROG.INFM.MADU.15.03

DIF: Easy OBJ: INFM.MADU.15.06.01 STA: DISC.INFM.MADU.15.02

KEY: Bloom's: Knowledge 44. A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe. a. True b. False ANS: T PTS: 1 NAT: BUSPROG.INFM.MADU.15.03 KEY: Bloom's: Knowledge

DIF: Easy OBJ: INFM.MADU.15.06.02 STA: DISC.INFM.MADU.15.02

45. The European countries conforming to the euro are completely insulated from movements in the euro's value with respect to other currencies. a. True b. False ANS: F PTS: 1 NAT:...