Posted: May 13th, 2018

Compare and contrast a pegged exchange system and a dirty float system of exchange rates.

Question 1
The foreign exchange market serves
two main functions. These are:
Answer

collect duties on imported products and
convert the currency of one country into the currency of another.

insure companies against foreign exchange
risk and set interest rates charged to foreign investors.

collect duties on imported products and
set interest rates charged to foreign investors.

convert the currency of one country into
the currency of another and provide some insurance against foreign exchange
risk.

Question 2
FDI has been rising for all of the
following reasons except:
Answer

the globalization of the world economy.

the general increase in trade barriers
over the past 30 years.

firms are trying to circumvent trade
barriers.

there is a shift toward democratic
political institutions and free market economies.

Question 3
A fixed exchange rate regime:
Answer

modeled along the lines of the Bretton
Woods system will not work.

allows each country to choose its own
inflation rate.

is characterized by speculation that adds
to the uncertainty surrounding future currency movements.

leads to a situation where governments
under political pressures expand monetary supply too rapidly, causing
unacceptably high price inflation.

Question 4
Licensing would be a good option for
firms in which of the following industries?
Answer

High-technology industries in which
protecting firm-specific expertise is of paramount importance and licensing
is hazardous.

Global oligopolies, in which competitive
interdependence requires that multinational firms maintain tight control over
foreign operations.

Industries in which intense cost
pressures require that multinational firms maintain tight control over
foreign operations.

In fragmented, low-technology industries
in which globally dispersed manufacturing is not an option.

Question 5
One function of the foreign exchange
market is to provide some insurance against the risks that arise from changes
in exchange rates, commonly referred to as:
Answer

foreign market hazard.

global jeopardy.

foreign exchange risk.

commerce uncertainty.

Question 6
Which event was initially
responsible for London becoming the leading center of Eurocurrency trading?
Answer

Regulations that discouraged British
banks from trading in the Eurocurrency market

Strengthening of the British pound
against major European currencies in the 1960s

Collapse of the Bretton Woods system

Prohibition of British banks from lending
British pounds to finance non-British trade

Question 7
Assume that the yen/dollar exchange
rate quoted in London at 3:00 p.m. is x120 = $1, and the New York yen/dollar
exchange rate at the same time is x125 = $1. A dealer makes a profit by buying
a currency low and selling it high. The dealer has engaged in a(n):
Answer

currency swap.

arbitrage.

backwardation.

straddle.

Question 8
When a country pegs its currencies
to gold and guarantees convertibility, the country is following the:
Answer

gold standard.

Bretton Woods system.

fixed exchange system.

floating exchange rate system.

Question 9
Which of the following is NOT a reason that
the radical position of MNEs was in retreat by the end of the 1980s?
Answer

The strong economic performance of those
developing countries that embraced capitalism rather than radical ideology

The collapse of communism in eastern
Europe

The generally abysmal economic
performance of those countries that embraced the radical position

A growing belief in many capitalist
countries that MNEs tightly control key technology and that important jobs in
the MNEs’ foreign subsidiaries go to home-country nationals

Question 10
A political benefit of economic
integration is that:
Answer

it enables participants to achieve gains
from the free flow of trade.

it enables participants to achieve gains
from the free flow of investment.

it allows countries to specialize in the
production of goods and services that they can produce most efficiently.

linking neighboring economies creates
incentives for cooperation between the neighboring states and reduces the
potential for violent conflict.

Question 11
What prompted the formation of the
European Union?

Question 12
Compare and contrast a pegged
exchange system and a dirty float system of exchange rates.

Order | Check Discount