QUESTION Contracting out manufacturing may be more appropriate for high-value-added manufacturing Indicate whether the statement is true or false. ANSWER FALSE Contracting out manufacturing may be less appropriate for high-value-added manufacturing, in which firm-specific technology and skills add significant value to the product (e.g., the heavy equipment industry) and in which switching costs are […]
QUESTION In the face of unpredictable exchange rate movements, a firm should pursue strategies that reduce its economic exposure. Indicate whether the statement is true or false. ANSWER TRUE The forward market tends to offer coverage for exchange rate changes a few months—not years—ahead. Given this, it makes sense to pursue strategies that will […]
QUESTION The forward exchange market is an accurate predictor of future exchange rates. Indicate whether the statement is true or false. ANSWER FALSE The forward exchange market is far from perfect as a predictor of future exchange rates. The forward market tends to offer coverage for exchange rate changes a few months—not years—ahead. Given […]
QUESTION Which of the following refers to the institutional arrangements that govern exchange rates? A. Generally accepted accounting principles B. General agreement on tariffs and trade C. International monetary system D. General agreement on trade in services E. Financial management information system ANSWER C
QUESTION In which kind of exchange rate is the value of the currency fixed relative to a reference currency, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate? A. Flexible B. Pegged C. Real D. Dirty-float E. Floating ANSWER B
QUESTION Which of the following refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand? A. Fixed exchange rate B. Floating exchange rate C. Forward exchange rate D. Pegged exchange rate E. Nominal exchange rate ANSWER B
QUESTION Many of the world’s developing nations peg their currencies, primarily to the: A. U.S. dollar. B. Saudi riyal. C. Japanese yen. D. Chinese yuan. E. German deutsche mark. ANSWER A
QUESTION In a floating exchange rate, the relative value of a currency: A. is more predictable and less volatile. B. is determined by market forces. C. changes infrequently only under a specific set of circumstances. D. is set against other currencies at some mutually agreed on exchange rate. E. does not depend on the free […]
QUESTION Which of the following refers to a system under which a country’s currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value? A. Fixed float B. Clean float C. […]
QUESTION Which of the following statements is true about the various exchange rate systems? A. In a fixed exchange rate system, the value of a currency is adjusted according to the day to day market forces. B. In a clean float, the central bank of a country will intervene in the foreign exchange market to […]
