QUESTION Which of the following is a great strength of the gold standard? A. It helped establish the dollar as a predominant vehicle currency. B. It helped governments raise foreign exchange reserves thereby increasing economic stability. C. It contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries. D. It helped reduce inflation to […]
QUESTION A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. Indicate whether the statement is true or false. ANSWER TRUE A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency […]
QUESTION Under a currency board system, the government has the absolute authority to set interest rates. Indicate whether the statement is true or false. ANSWER FALSE Currency boards have their drawbacks. Under a currency board system, government lacks the ability to set interest rates.
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 When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a pegged exchange rate regime. Indicate whether the statement is true or false. ANSWER FALSE When the foreign exchange market determines the relative value of a currency, we say that the country is […]
