Financial Markets and Institutions
Exam Preparation Guide
Course Introduction
This course provides an in-depth exploration of the structure, functioning, and role of financial markets and institutions within the economy. Covering topics such as money and capital markets, the types and functions of financial intermediaries, risk management, and regulatory frameworks, students will gain insights into how these entities facilitate the flow of funds, economic stability, and growth. The course also examines the impact of monetary policy, globalization, technological advances, and current events on financial systems, equipping students with the analytical skills necessary to navigate and understand the dynamic financial landscape.
Recommended Textbook
International Money and Finance 8th Edition by Michael Melvin
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13 Chapters
694 Verified Questions
694 Flashcards
Source URL: https://quizplus.com/study-set/3608
Page 2
Chapter 1: The Foreign Exchange Market
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71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/71637
Sample Questions
Q1) Suppose the dollar price of Thai baht THB is $0.025/THB.Thai Airways purchases a $10 million airplane from Boeing.This airplane would cost ___________ Thai baht to Thai Airways.
A) 0.25 million
B) 2.5 million
C) 40 million
D) 400 million
Answer: D
Q2) The Citibank trading desk quotes a buy rate of 1.25 and a sell rate of 2.00 for the dollar/euro exchange rate S<sub>$/ </sub>.How much euros would you receive,if you sell $1,000 to Citibank?
A) 500 euros
B) 800 euros
C) 1,250 euros
D) 2,000 euros
Answer: A
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Chapter 2: International Monetary Arrangements
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) Destabilizing speculation is the process where
A) In a free floating exchange system, speculators cause wide fluctuations to the exchange rate.
B) In a fixed peg exchange system, speculators hold foreign reserves too long and destabilize the peg.
C) In a free floating exchange system, the International Monetary Fund is forced to issue Special Drawing Rights.
D) In a fixed peg exchange system, speculators sell all holdings of Special Drawing Rights.
Answer: A
Q2) An example of an optimal currency area would be
A) United States
B) Southeast Asia
C) Latin America
D) Both A and C
Answer: A
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Chapter 3: The Balance of Payments
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51 Verified Questions
51 Flashcards
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Sample Questions
Q1) In the twin deficits hypothesis,to reduce a current account deficit,a country has to:
A) increase domestic investment
B) reduce private saving
C) reduce government budget deficit
D) All of the above are correct
Q2) A U.S.resident increasing her holdings of a foreign financial asset causes a:
A) Credit in the U.S. current account
B) Debit in the U.S. current account
C) Credit in the U.S. capital account
D) Debit in the U.S. capital account
Q3) The U.S.subsidiary of a South Korean company pays dividends to its parent company in South Korea causes a:
A) Credit in the U.S. investment income
B) Debit in the U.S. investment income
C) Credit in U.S. services
D) Debit in U.S. services
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5
Chapter 4: Forward-Looking Market Instruments
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44 Verified Questions
44 Flashcards
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Sample Questions
Q1) Foreign currency options contracts that give the buyer the right to sell are called:
A) Call options.
B) Selling rights.
C) Put options.
D) Strike rights.
Q2) A contract that provides the right,but not the obligation,to buy or sell a given amount of currency at a fixed exchange rate on or before the maturity date is called an ______.
A) Excise option
B) Foreign currency option
C) Foreign currency swap
D) Hedge contract
Q3) ________ refers to buying and selling currencies to be delivered at a future date.
A) The currency swap market
B) The forward market
C) The default swap market
D) The options market
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6
Chapter 6: Exchange Rates, interest Rates, and Interest
Parity
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64 Verified Questions
64 Flashcards
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Sample Questions
Q1) Suppose that the one-year U.S.interest rate is 9% and the one-year U.K.interest rate is 6%.If the current spot rate is $1.80 per pound,what must the one-year forward rate $/pound be according to the approximate covered interest parity?
A) 1.746
B) 1.854
C) 1.908
D) 1.962
Q2) Suppose that the one-year U.S.interest rate is 8% and the equivalent one-year U.K.interest rate is 10%.According to the covered interest rate parity,there is a ________ on the U.S dollar.
A) 2% forward discount
B) 2% forward premium
C) 18% forward discount
D) 18% forward premium
Q3) Refer to Table 6.2.On May 5,2012,the 1-month forward pound was selling at a:
A) 9.52% premium per annum against the dollar.
B) 114.24% premium per annum against the dollar.
C) 9.52% discount per annum against the dollar.
D) 114.24% discount per annum against the dollar.
Page 7
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Chapter 7: Prices and Exchange Rates: Purchasing Power
Parity
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49 Verified Questions
49 Flashcards
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Sample Questions
Q1) Purchasing power parity is used for short term analysis because it tends to fail in the long run.
A)True
B)False
Q2) The real exchange rate is equal to one when absolute PPP holds.
A)True
B)False
Q3) Suppose the exchange rate between the U.S.dollar and the British pound is initially 2.00 dollars per pound.According to relative purchasing-power parity,if the price of traded goods rises by 10 percent in the United States and remains constant in the U.K,the exchange rate will become:
A) 1.80 dollars per pound
B) 1.98 dollars per pound
C) 2.02 dollars per pound
D) 2.20 dollars per pound
Q4) ________ tends to hold better.
A) Absolute PPP
B) Relative PPP
C) Covered Interest Rate Parity
D) Big Mac Index
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Chapter 8: Foreign Exchange Risk and Forecasting
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) Which forecasting technique uses the past movements in the exchange rate movements to predict the future level?
A) Structural
B) Hedging
C) Atheoretical
D) Flow
Q2) Investors would be willing to hold foreign investments even if the foreign investments yield lower expected returns than the domestic investments,if there is a negative risk premium on domestic currency.
A)True
B)False
Q3) Which of the following is not a type of foreign exchange risk?
A) Information exposure
B) Translation exposure
C) Transaction exposure
D) Economic exposure
Q4) Information exposure is a type of foreign exchange risk.
A)True
B)False
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Chapter 9: Financial Management of the Multinational Firm
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50 Verified Questions
50 Flashcards
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Sample Questions
Q1) A detailed list of the content that is shipped,and can be used to identify missing or damaged items is called an:
A) Adjusted payment
B) Import contract
C) Contract guarantee
D) Bill of lading
Q2) An advantage of netting of a multinational corporation and its subsidiaries is that it:
A) increases foreign exchange risk.
B) decreases the total volume of inter-subsidiary fund flows.
C) increases the total amount of currency conversion.
D) decreases the number of employees.
Q3) Which of the following is NOT an objective of international cash management by MNCs?
A) To increase the firm's liquidity.
B) To increase the firm's returns on investment.
C) To ensure that all subsidiaries have the same pattern of cash flows.
D) To reduce foreign exchange risk.
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10
Chapter 10: International Portfolio Investment
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56 Flashcards
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Sample Questions
Q1) Consider two securities known as Security A and B.If returns on Security A decrease 10% while returns on Security B increase 10%,then the correlation coefficient is:
A) Positive
B) Negative
C) Zero
D) Impossible to determine
Q2) Capital market segmentation is a financial market imperfection caused mainly by:
A) Government regulations
B) High transactions costs
C) Political risk
D) All of the above contribute to the imperfection in financial markets.
Q3) A foreign firm has stock that can be purchased in New York,London,and Tokyo.The firm must be using an:
A) GDR
B) ADR
C) Variant stock
D) Preferred stock
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11
Chapter 12: Determinants of the Balance of Trade
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50 Verified Questions
50 Flashcards
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Sample Questions
Q1) The elasticity approach to the balance of trade:
A) focuses on the effects of changing relative prices of domestic and foreign goods on the balance of trade.
B) indicates that the elasticity of demand for exports is always perfectly inelastic.
C) assumes a flexible exchange rate regime.
D) All of the above are correct.
Q2) The J-curve effect could be a result of currency contract period and pass-through price adjustment.
A)True
B)False
Q3) Suppose the dollar is devalued.If an import contract is written in dollars,then the value of U.S.imports:
A) Decrease
B) Increase
C) Stay the same
D) Not possible to answer with the given information
Q4) The responsiveness of quantity to changes in price refers to elasticity.
A)True
B)False
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Chapter 13: The Is-Lm-Bp Approach
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) If the capital is perfectly immobile due to restrictions,then the BP curve is:
A) Horizontal
B) Vertical
C) Downward-sloping
D) Upward-sloping
Q2) When the Fed decreases money supply,the LM curve shifts:
A) to the left, causing domestic interest rate to rise.
B) to the left, causing domestic interest rate to fall.
C) to the right, causing domestic interest rate to rise.
D) to the right, causing domestic interest rate to fall.
Q3) The internal and external equilibrium occurs when the IS curve crosses the LM curve above the BP curve.
A)True
B)False
Q4) Considering the internal balance in an economy,which of the following could lead to lower interest rate and higher income?
A) An increase in government spending
B) A depreciation of domestic currency
C) An increase in money supply
D) A decrease in money supply
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Chapter 14: The Monetary Approach
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53 Verified Questions
53 Flashcards
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Sample Questions
Q1) The official holdings of gold and foreign exchange,special drawing rights SDRs,and changes in reserves at the International Monetary Fund are known as:
A) Official settlements balance
B) Central bank holdings
C) Current account balance
D) Capital account balance
Q2) "According to the monetary approach,a balance-of-payments disequilibrium is the result of an imbalance in a country's money supply and money demand."
A)True
B)False
Q3) According to the monetary approach,when a monetary disequilibrium exists,either ____________ or _____________ has to adjust depending on the type of exchange rate system.
A) the balance of payments; domestic production
B) the balance of payments; exchange rate value
C) domestic production; exchange rate value
D) domestic production; foreign inflation rate
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Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) Exchange rates appear to be more volatile than the monetary approach would predict,because:
A) the monetary approach holds better in the short run than in the long run.
B) prices of goods and services adjust instantaneously, while prices of assets are sluggish.
C) prices of goods and services are sluggish to adjust, while prices of assets adjust instantaneously.
D) the monetary approach is based on many unrealistic assumptions so that it fails to predict exchange rates in both short run and long run.
Q2) According to the general equilibrium approach of open-economy macroeconomic model,if South Korea had a significant technological progress in the past decade,which allowed them to produce more goods at much lower prices than the rest of the world,then we would expect the Korean won to __________.
A) appreciate
B) depreciate
C) stay the same
D) None of the above is correct, since productivity has nothing to do with exchange rate.
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Page 15