1.

A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the
dollar.
A. downward; downward
B. downward; upward
C. upward; upward
D. upward; downward

2. Which of the following is an example of direct intervention in foreign exchange markets?

A. increasing the inflation rate
B. imposing barriers on international trade
C. lowering interest rates
D. exchanging dollars for foreign currency

3. 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 these are correct.

4. As foreign exchange activity has grown, a given degree of central bank intervention has
become:
A. more effective
B. less effective
C. more frequent
D. None of these are correct

5. 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. sterilized intervention
B. pegged intervention AND sterilized intervention
C. pegged intervention
D. nonsterilized intervention
E. indirect intervention

6. 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 allowed.
C. central bank intervention in the foreign exchange market is not necessary.
D. central bank intervention in the foreign exchange market is often necessary.

7. To strengthen the dollar using sterilized intervention, the Fed would ____ dollars and
simultaneously ____ Treasury securities.
A. sell; sell B. sell; buy C. buy; sell D. buy; buy
8. Countries that have adopted the euro tend to have very similar ____.
A. interest rates B. inflation rates C. income tax rates D. budget deficits
9. China's yuan is presently:
A. allowed to fluctuate freely without any central bank intervention.
B. pegged to the euro.
C. pegged to the dollar.
D. allowed to fluctuate but with central bank intervention.
10. Countries that have adopted the euro must agree on a single ____ policy.
A. Fiscal B. foreign relations C. worker compensation D. monetary

1. If the Fed announces that it will decrease U.S. interest rates, and the European Central Bank
takes no action, then the value of the euro will ____ against the value of U.S. dollar (holding
other factors constant).*
A. be unchanged B. depreciate C. appreciate D. depreciate but only briefly
2. ____ are not a factor that causes currency supply and demand schedules to change.
A. relative inflation rates
B. relative interest rates
C. relative income levels
D. expectations
E. All of these are factors that cause currency supply and demand schedules to change.

3. Assume that British corporations begin to purchase more supplies from the United States as a
result of several labor strikes by British suppliers. This action reflects:
A. an increased demand for British pounds.
B. a decrease in the demand for British pounds.
C. an increase in the supply of British pounds for sale.
D. a decrease in the supply of British pounds for sale.

4. The real interest rate adjusts the nominal interest rate for:
A. exchange rate movements
B. income growth
C. inflation
D. government controls
E. None of these are correct.
5. If U.S. inflation suddenly increased while European inflation stayed the same, there would be:
A. an increased U.S. demand for euros and a decreased supply of euros for sale.
B. a decreased U.S. demand for euros and an increased supply of euros for sale.
C. a decreased U.S. demand for euros and a decreased supply of euros for sale.
D. an increased U.S. demand for euros and an increased supply of euros for sale.
1. The agency costs of an MNC are likely to be lower if it:*
A. increases its volume of international business.
B. scatters its subsidiaries across many foreign countries AND increases its volume of
international business.
C. scatters its subsidiaries across many foreign countries.
D. uses a centralized management style.

2. Which of the following theories suggests that firms seek to penetrate new markets over time*
A. product cycle theory
B. theory of comparative advantage
C. imperfect markets theory
D. None of these are correct.

3. For an MNC, agency costs are typically:*

A. the same as agency costs of a small purely domestic firm.
B. larger than agency costs of a small purely domestic firm.
C. nonexistent
D. smaller than agency costs of a small purely domestic firm.

4. Which of the following theories identifies the non-transferability of resources as a reason for
international business?*
A. product cycle theory
B. imperfect markets theory
C. None of these are correct.
D. theory of comparative advantage

5. The commonly accepted goal of an MNC is to:*

A. maximize short-term earnings.
B. maximize international sales.
C. maximize shareholder wealth.
D. maximize short-term earnings AND minimize risk.
minimize risk

6. Four MNCs generate the same level of sales. The MNC that ______________________would
likely have the most direct foreign investment*
A. exports all of its products
B. acquires a foreign firm that produces most of its products to be sold in that foreign country
C. imports products from unrelated firms in other countries and sells them locally
D. produces and sells its products locally

7. Licensing obligates a firm to provide ____, while franchising obligates a firm to provide
____.*
A. its technology; its technology
B. its technology; a specialized sales or service strategy
C. a specialized sales or service strategy; its technology
D. its technology; an initial investment
E. a specialized sales or service strategy; a specialized sales or service strategy

8. Due to the risks involved in international business, firms should:*

A. maintain international business to no more than 20% of total business.
B. None of these are correct.
C. maintain international business to no more than 35% of total business.
D. only consider international business in major countries.

9. Which of the following theories identifies specialization as a reason for international business?
A. theory of comparative advantage
B. imperfect markets theory
C. None of these are correct.
D. product cycle theory

10. Which of the following could reduce agency problems for an MNC?
A. investor monitoring
B. stock options as managerial compensation
C. hostile takeover threat
D. All of these are forms of corporate control that could reduce agency problems for an MNC.

1. The foreign exchange market closes *

A. 4:00 p.m. GMT (London time).
B. 4:00 p.m. EST (New York time).
C. 4:00 p.m. (Tokyo time).
D. Never.

2. Assume that $1 is equal to .85 euros and 98 yen. The value of the yen in euros is:*
A. 1.18
B. 0.01
C. 0.0087
D. 118

3. Which of the following is NOT a factor that affects the bid/ask spread?*
A. volume
B. All of these factors affect the bid/ask spread.
C. order costs
D. inventory costs

4. Most foreign exchange transactions are for *

A. retail trade.
B. intervention by central banks.
C. interbank trades between international banks or nonbank dealers.
D. purchase of hard currencies

5. The difference between a broker and a dealer is

A. dealers sell drugs; brokers sell houses.
B. brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy
and sell from their inventory.
C. brokers transact in stocks and bonds; currency is bought and sold through dealers.
D. none of the above

6. Assume that a bank's bid rate on Japanese yen is $.0041 and its ask rate is $.0043. Its bid/ask
percentage spread is:*
A. about 4.88%.
B. about 4.43%.
C. about 4.99%.
D. about 4.65%.

7. You observe a quotation of the Japanese yen (¥) of $0.007. You are, however, interested in the
number of yen per dollar. Thus, you calculate the ____ quotation of ____ ¥/$.*
A. direct; 142.86
B. indirect; 142.86
C. indirect; 150
D. direct; 150
E. indirect; 0

8. The world's largest foreign exchange trading center is *

A. Hong Kong.
B. London.
C. New York.
D. Tokyo.

9. If a U.S. firm is receiving 100,000 euros in 90 days and wishes to avoid the risk from
exchange rate fluctuations, it could:
A. purchase a 90-day forward contract on euros.
B. sell a 90-day forward contract on euros.
C. purchase euros 90 days from now at the spot rate.
D. sell euros 90 days from now at the spot rate.
forward contact helps acquiring an asset in a pre-determined time on a set price in future. In this
case, after 90 days 100,000 euros can be acquired at a price agreed in advance to avoid risk
fluctuations .

10. The spot market *

A. takes place only on the floor of a physical exchange.
B. involves the almost-immediate purchase or sale of foreign exchange.
C. involves the sale of futures, forwards, and options on foreign exchange.
D. all of the above.
2. On average, worldwide daily
trading of foreign exchange is
A. impossible to estimate.
B. $15 billion.
C. $504 billion.
D. $3.21 trillion
2. On average, worldwide daily
trading of foreign exchange is
A. impossible to estimate.
B. $15 billion.
C. $504 billion.
D. $3.21 trillion
2. On average, worldwide daily trading of foreign exchange is
A. impossible to estimate.
B. $15 billion.
C. $504 billion.
D. $3.21 trillion
2) On average, worldwide daily
trading of foreign exchange is
closest to
A)$100 million.
B) $15 billion.
C) $504 billion.
D) $5 trillion
2) On average, worldwide daily trading of foreign exchange is closest to
A)$100 million.
B) $15 billion.
C) $504 billion.
D) $5 trillion
35) The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$. The AUD/SF cross
exchange rate is ________.
A) 0.7813
B) 2.0000C
) 1.2800
D) 0.3500 Answer: C
36) Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00. Calculate the
euro-pound exchange rate.
A) €1.3333 = £1.00
B) £1.3333 = €1.00
C) €3.00 = £1
D) €1.25 = £1.00
37) Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the
euro-pound exchange rate.
A) €1.3333 = £1.00
B) £1.3333 = €1.00
C) €3.00 = £1
D) €1.25 = £1.00 Answer: D
38. Governments intervene in the foreign exchange markets for all of the
following EXCEPT to

earn foreign exchange

1. If a foreigner purchases a U.S. government security the

a. supply of dollars rises
b. federal government deficit declines
c. demand for dollars rises
d. U.S. money supply rises
2. A multinational firm can be defined as a firm that:
A. has sales affiliates in several countries.
B. is incorporated in more than one country.
B. incorporated in one country and has production and sales operations in several other countries.
Correct
d. invests short-term cash inflows in more than one currency.
3. Liquidity refers to?
A.the ease with which an asset is converted to the medium of exchange.
B.the measurement of the intrinsic value of commodity money.
C.the measurement of the durability of a good.
D.how many times a dollar circulates in a given year.
4. When the Fed conducts an open market sale, it:
a. reduces the money supply and lowers interest rates
b. reduces the money supply and raises interest rates
c. increases the money supply and raises interest rates
d. increases the money supply and lowers interest rates
5. The _______ for/of foreign currency in the U.S. is derived from the demand for ___________
by American consumers.
a. Demand, foreign products
b. Demand, tax loopholes
c. Supply, lower tariffs
d. Supply, local products
6. Which list contains only actions that increase the money supply?
Make open market purchases and lower the reserve requirement ratio.
International trade is
- a "zero-sum" game in which one country benefits at the expense of another country.
- an "increasing-sum" game at which all players become winners.
- prone to both countries being worse off than had they not participated in international trade.
- none of the options