FIN565 - Final Exam - 2016 - Graded - MCQs ONLY

Question 1.

:

(TCO A) A high home inflation rate relative to other countries would _____ the home country's current account balance, other things being equal. A high growth in the home income level relative to other countries would _____ the home country's current account balance, other things being equal.

Student Answer:

increase; increase

increase; decrease

decrease; decrease

decrease; increase

Question 2.

:

(TCO A) The U.S. dollar is not ever used as a medium of exchange in

Student Answer:

any Latin American countries.

industrialized countries outside the United States.

Eastern European countries where foreign exchange restrictions exist.

None of the above

Question 3.

:

(TCO B) Because there are a variety of factors in addition to inflation that affect exchange rates, this will

Student Answer:

reduce the probability that PPP will hold.

increase the probability that PPP will hold.

increase the probability the IFE will hold.

increase the probability that PPE and IFE will hold.

Question 4.

:

(TCO C) To force the value of euro to depreciate against the dollar, the Federal Reserve should

Student Answer:

sell dollars for euros in the foreign exchange market, and the European Central Bank should sell dollars for euros in the foreign exchange market.

sell euros for dollars in the foreign exchange market, and the European Central Bank should sell dollars for euros in the foreign exchange market.

sell euros for dollars in the foreign exchange market, and the European Central Bank should sell euros for dollars in the foreign exchange market.

sell dollars for euros in the foreign exchange market, and the European Central Bank should sell euros for dollars in the foreign exchange market.

Question 5.

:

(TCO D) Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a settlement date 180 days from now will

Student Answer:

definitely be above the 180-day forward rate.

be about the same as the 180-day forward rate.

definitely be below the 180-day forward rate.

None of the above

Question 6.

:

(TCO H) Based on the factors that influence a country's cost of capital, the cost of capital in less-developed countries is likely to be _____ than that of the United States and _____ than that of Japan.

Student Answer:

higher; higher

higher; lower

lower; lower

lower; higher

Question 7.

:

(TCO E) Other things being equal, a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to _____ over time and if the interest rate in that country is relatively _____.

Student Answer:

appreciate; low

appreciate; high

depreciate; high

depreciate; low

Question 8.

:

(TCO F) According to the text, a disadvantage of licensing is that

Student Answer:

it prevents a firm from exporting.

it prevents a firm from importing.

it is difficult to ensure quality control of the production process.

None of the above

Question 9.

:

(TCO I) If IRP exists and transaction costs are zero, foreign financing with a simultaneous forward purchase of the currency borrowed will result in an effective financing rate that is

Student Answer:

less than the domestic interest rate.

greater than the domestic interest rate.

equal to the domestic interest rate.

greater than the domestic interest rate if the forward rate exhibits a premium and less than the domestic interest rate if the forward rate exhibits a discount.

Question 10.

:

(TCO G) If a U.S. firm's expenses are more susceptible to exchange rate movements than revenue, the firm will _____ if the dollar _____.

Student Answer:

benefit; weakens

be unaffected; strengthens

be unaffected; weakens

benefit; strengthens