Financial Markets and Institutions
Midterm Exam
Course Introduction
This course explores the structure, functions, and operations of financial markets and institutions, highlighting their crucial roles within the global economy. Students will examine various types of financial markets, such as money, capital, and derivatives markets, alongside financial institutions including banks, investment firms, and insurance companies. The curriculum covers fundamental concepts such as market efficiency, asset valuation, risk management, interest rate determination, and regulatory frameworks. Through real-world case studies and current events, students gain insights into the interrelationships between financial systems and economic stability, preparing them to analyze and interpret financial developments in a dynamic environment.
Recommended Textbook
International Money and Finance 8th Edition by Michael Melvin
Available Study Resources on Quizplus
13 Chapters
694 Verified Questions
694 Flashcards
Source URL: https://quizplus.com/study-set/3608 Page 2
Chapter 1: The Foreign Exchange Market
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/71637
Sample Questions
Q1) Assume that the dollar value of a Swiss franc is 0.8600 dollar per franc,and that U.S.importers start to like Swiss watches more than they did in the past.Assume that the Swiss Central Bank wants to keep the Swiss franc fixed at 0.8600.To intervene,they have to:
A) buy up Swiss francs and sell dollars.
B) buy up dollars and sell Swiss francs.
C) buy up both dollars Swiss francs.
D) sell both dollars and Swiss francs.
Answer: B
Q2) Refer to Figure 1.2.Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro.Then the supply curve shifts to S<sub>2</sub>.If the European central bank wants to fix the exchange rate at $2.00/euro,they have to:
A) buy euro and sell dollar by the amount of Q<sub>3</sub> - Q<sub>1</sub>.
B) sell euro and buy dollar by the amount of Q<sub>3</sub> - Q<sub>1</sub>.
C) sell only euro by the amount of Q<sub>3</sub> - Q<sub>1 </sub>and leave dollar alone.
D) buy only euro by the amount of Q<sub>3</sub> - Q<sub>1 </sub>and leave dollar alone.
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: International Monetary Arrangements
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/71631
Sample Questions
Q1) When the United States suspended the convertibility of dollars into gold in 1971,this lead to:
A) The collapse of the Bretton Woods system
B) Creation of the regional currency boards
C) Creation of the International Monetary Fund
D) All of the above
Answer: A
Q2) Referring to Figure 2.2,an increase in the demand for British goods by the U.S.importers has led to pressure on the pound to appreciate against the dollar.If the Bank of England wishes to intervene to maintain a peg of $2.0/pound,what distance represents that intervention?
A) A to B
B) B to A
C) A to C
D) B to C
Answer: C
Q3) An example of a fixed exchange rate was the gold standard.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: The Balance of Payments
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/71630
Sample Questions
Q1) A U.S.gift of wheat to a Nicaragua causes a:
A) Credit in the U.S. merchandise account
B) Credit in the U.S. unilateral transfers
C) Credit in the U.S. private capital account
D) Debit in the U.S. private capital account
Q2) The double-entry bookkeeping for the balance of payments tracks tariffs and currency exchanges.
A)True
B)False
Q3) Which of the following is considered a capital outflow?
A) A sale of U.S. financial assets to a foreign buyer.
B) A loan from a U.S. bank to a foreign borrower.
C) A purchase of foreign financial assets by a U.S. buyer.
D) A donation of $100,000 worth of wheat to Nicaragua
Q4) The German government donates $100,000 worth of vaccine to Tanzania.This action is recorded as a $100,000 debit to the German unilateral transfers.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Forward-Looking Market Instruments
Available Study Resources on Quizplus for this Chatper
44 Verified Questions
44 Flashcards
Source URL: https://quizplus.com/quiz/71629
Sample Questions
Q1) The process of matching the liability created by borrowing foreign currencies with the asset created by lending domestic currency by commercial banks is known as ________ the foreign exchange risk.
A) Capitalizing
B) Pegging
C) Drifting
D) Hedging
Q2) Assume that the annualized forward premium is 1 percent and that the spot rate is 2.00 $/pound.What would the one-year forward rate have to be?
A) 1.76
B) 1.98
C) 2.02
D) 2.24
Q3) The fixed rate of currencies that will be delivered at an agreed upon future date is called the:
A) Swap price.
B) Future rate.
C) Forward rate.
D) Strike price.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 6: Exchange Rates, interest Rates, and Interest
Parity
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/71628
Sample Questions
Q1) If the expected inflation in Brazil in higher than the expected inflation in the U.S.,and the real interest rates are equal across countries,then:
A) there is a forward premium on the dollar.
B) there is a forward flat on the dollar.
C) there is a forward discount on the dollar.
D) there is a spot discount on the dollar.
Q2) Suppose that the one-year U.S.interest rate is 7% and the one-year Swedish interest rate is 10%.If the current spot rate is 6.80 Swedish krona per dollar,what must the one-year forward rate SKr/$ be according to the approximate covered interest parity?
A) 6.596
B) 6.720
C) 7.004
D) 7.276
Q3) Deviations from interest rate parity could be the result of:
A) different tax treatment of income and foreign exchange earnings
B) political risk
C) transaction costs
D) All of the above are correct.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 7: Prices and Exchange Rates: Purchasing Power
Parity
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/71627
Sample Questions
Q1) ________ tends to hold better.
A) Absolute PPP
B) Relative PPP
C) Covered Interest Rate Parity
D) Big Mac Index
Q2) The relationship between product price levels and exchange rates is explained by:
A) Currency boards.
B) Purchasing power parity.
C) Per capita income levels.
D) Interest rate parity.
Q3) Suppose Russia's inflation rate is 200% over one year but the inflation rate in Switzerland is only 2%.According to relative PPP,
A) the Russian ruble should depreciate against Swiss franc by 198 percent.
B) the Russian ruble should appreciate against Swiss franc by 198 percent.
C) the Russian ruble should depreciate against Swiss franc by 202 percent.
D) the Russian ruble should appreciate against Swiss franc by 202 percent.
Q4) The real exchange rate is equal to one when absolute PPP holds.
A)True
B)False
8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Foreign Exchange Risk and Forecasting
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/71626
Sample Questions
Q1) The uncovered interest rate parity UIRP indicates that the interest rate differential is approximately equal to___________.
A) expected premium
B) risk premium
C) forward premium
D) exchange rate premium
Q2) Suppose that the 1-year forward rate of dollar per Swiss franc is $0.42,the current spot rate $/SFr is $0.40,and the expected future spot rate $/SFr is $0.45.The forward premium equals to:
A) - 7.5%
B) 5%
C) 6.67%
D) 12.5%
Q3) The ________ in the forward exchange market is equal to the effective return differential.
A) Strike price
B) Exposure risk
C) Future spot exchange rate
D) Risk premium
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 9: Financial Management of the Multinational Firm
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/71625
Sample Questions
Q1) Centralization of cash management allows the parent to offset subsidiary payables and receivables in a process called:
A) Internalizing
B) Outsourcing
C) Risk shifting
D) Netting
Q2) To reduce transfer pricing distortion,multinational firms are supposed to charge prices to their foreign subsidiaries that are __________.
A) Average variable costs
B) Total costs
C) Marginal costs
D) Arm's-length prices
Q3) A letter of credit LOC is a contract written by a bank to guarantee that the exporter will pay the importer the amount of money owed.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 10: International Portfolio Investment
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/71636
Sample Questions
Q1) A certificate that represents shares of a foreign stock issued by a U.S.bank is called an:
A) Letter of credit
B) American depository receipt
C) Foreign credit
D) Exchange contract
Q2) Investors often hold ________ to reduce risk associated with investments.
A) Domestic currency contracts
B) Letters of credit
C) Diversified portfolios
D) Forward contracts only
Q3) Security A and Security B have a correlation coefficient of - 1.0.If Security A's return is expected to increase by 10 percent,
A) Security B's return should also increase by 10 percent.
B) Security B's return should decrease by 10 percent.
C) Security B's return should be zero.
D) Security B's return is impossible to determine from the above information.
Q4) The risk present in all investment opportunities is known as systematic risk.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 12: Determinants of the Balance of Trade
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/71635
Sample Questions
Q1) When the demand is ________,an increase in price will decrease the total revenue.
A) Elastic
B) Inelastic
C) Contracted
D) Expanded
Q2) Assume that U.S.imports are contracted in foreign currency and the U.S.exports are Contracted in domestic currency.If the dollar is devalued,then the balance of trade will:
A) Become more negative
B) Become more positive
C) Stay the same
D) Not possible to answer with the given information
Q3) At the full-employment level,if the domestic absorption remains constant,the currency devaluation will not change the balance of trade.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: The Is-Lm-Bp Approach
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/71634
Sample Questions
Q1) The following curves represent an equilibrium in which markets? Match the curves with the type of equilibrium.
I.Money market equilibrium
II.Balance of payments equilibrium
III.Goods market equilibrium
A) IS, BP, LM
B) LM, BP, IS
C) BP, IS, LM
D) LM, IS, BP
Q2) A change in the monetary policy shifts the:
A) IS curve
B) LM curve
C) BP curve
D) None of the above
Q3) If the capital is perfectly immobile due to restrictions,then the BP curve is:
A) Horizontal
B) Vertical
C) Downward-sloping
D) Upward-sloping
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 14: The Monetary Approach
Available Study Resources on Quizplus for this Chatper
53 Verified Questions
53 Flashcards
Source URL: https://quizplus.com/quiz/71633
Sample Questions
Q1) Under the flexible exchange rate,an increase in the foreign price level leads to a domestic currency __________.
A) appreciation
B) depreciation
C) devaluation
D) overshooting
Q2) An unsterilized intervention in which a central bank sells domestic currency to buy foreign assets will lead to:
A) an increase in foreign reserves
B) a decrease in domestic money supply
C) an appreciation of domestic currency
D) All of the above are correct.
Q3) The monetary approach states that,under a fixed exchange rate system,an excess demand for money leads to a trade deficit.
A)True
B)False
Q4) Under MABP,the full effect of the monetary policy is felt on the exchange rate.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
Available Study Resources on Quizplus for this Chatper
48 Verified Questions
48 Flashcards
Source URL: https://quizplus.com/quiz/71632
Sample Questions
Q1) Use the Portfolio-Balance Approach to answer this question.Other things remaining constant,if the supply of foreign bonds increases,what would happen to the domestic currency?
A) The domestic currency would appreciate.
B) The domestic currency would depreciate.
C) The domestic currency would not change.
D) The domestic currency would sharply depreciate and then appreciate later.
Q2) If the portfolio balance approach is true then which of the following will directly lead to changes in the exchange rate?
A) A monetary policy announcement
B) A fiscal policy announcement
C) A shift in the demand for foreign bonds
D) A shift in the relative cost of a substitute currency
Q3) "The portfolio-balance approach of exchange rate determination assumes that households can choose to hold their wealth in money,domestic bonds,and foreign bonds."
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15