International Economics Exam Bank
Course Introduction
International Economics explores the fundamental principles and theories governing economic interactions between countries, including international trade, finance, and policy. The course examines topics such as comparative advantage, trade barriers, exchange rates, balance of payments, and the impact of globalization on economies. Students analyze real-world issues like the effects of trade agreements, currency fluctuations, and cross-border capital flows, gaining insights into how nations are interconnected through economic activities and how policies influence global development and economic stability.
Recommended Textbook
International Money and Finance 8th Edition by Michael Melvin
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13 Chapters
694 Verified Questions
694 Flashcards
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Chapter 1: The Foreign Exchange Market
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Sample Questions
Q1) Suppose that the current buy rate for the Japanese yen is 87.410 yen/dollar and the current sell rate is 87.440 yen per dollar.If a bank buys and sells $1,000,000 in the yen market,it will make 30,000 yen from a spread.
A)True
B)False
Answer: True
Q2) If Citi in New York has a buy rate of $0.0127 per yen and Sumitomo Bank in Tokyo has a buy rate of $0.0157 per yen,an arbitrager could profit by buying yen in Tokyo and simultaneously sell them in New York.
A)True
B)False
Answer: False
Q3) Bid price is the price at which a bank is ready to buy a foreign currency and ask price is the price at which a bank is ready to sell a foreign currency.
A)True
B)False
Answer: True
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3
Chapter 2: International Monetary Arrangements
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Sample Questions
Q1) Suppose that under a gold standard,that the price of gold in the United States is $450 per ounce and the price of gold in the United Kingdom is 200£ per ounce.The exchange rate is thus:
A) 2.25£ per dollar
B) $0.45 per pound.
C) $2.25 per pound.
D) 1£ per dollar.
Answer: C
Q2) Refer to Figure 2.3.Suppose that the U.K agreed to peg its currency against the U.S.dollar at $2.00 per pound during the Bretton Woods system.Assume that the U.S.decreases its imports from the U.K.As a result,the Bank of England would have to:
A) let the British pound appreciates
B) let the British pound depreciates
C) sell pounds and buy dollars in foreign exchange market.
D) sell dollars and buy pounds in foreign exchange market.
Answer: D
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Chapter 3: The Balance of Payments
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Sample Questions
Q1) The Algerian government receives $1,000,000 worth of seed from the U.S.government as a gift.This action is recorded as a $1,000,000 debit to the U.S.merchandise account.
A)True
B)False
Q2) The balance on current account includes all of the following items EXCEPT:
A) merchandise exports minus merchandise imports
B) exports of services minus imports of services
C) income receipts minus income payments on investments
D) changes in U.S. assets owned abroad and foreign assets owned in the U.S.
Q3) Capital account transactions include:
I.Foreign purchases of U.S.stocks
II.Goods imports
III.Official financial transactions
IV.Changes in U.S.bank claims on foreign banks
A) I only
B) II only
C) I and IV
D) I, III, and IV
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5
Chapter 4: Forward-Looking Market Instruments
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Sample Questions
Q1) What financial instruments allow firms to obtain long-term foreign currency financing at lower cost than they can by borrowing directly?
A) Currency swaps
B) Forward rates
C) Foreign currency options
D) Future contracts
Q2) Assume that the one-month forward rate is 2.02 dollars per pound and the spot rate is 2.00 dollars per pound.Calculate the annualized percentage forward premium or discount for the pound.
A) 12 percent discount
B) 12 percent premium
C) 144 percent discount
D) 144 percent premium
Q3) When the forward price of a currency is equal to the spot price,it is sold at a forward premium.
A)True
B)False
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6
Chapter 6: Exchange Rates, interest Rates, and Interest
Parity
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Q1) The real interest rate is equal to the nominal interest rate plus the expected rate of inflation.
A)True B)False
Q2) Refer to Figure 6.1.The forward _________ on the U.S.dollar becomes ______ at higher maturities.
A) discount, larger
B) discount, smaller
C) premium, larger
D) premium, smaller
Q3) The ________ interest rate is equal to the ________ interest rate minus the expected rate of inflation.
A) Real, nominal
B) Predicted, nominal
C) Standard, nominal
D) Nominal, standard
Q4) The real interest rate is equal to the nominal interest rate minus the expected rate of inflation.
A)True B)False
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Chapter 7: Prices and Exchange Rates: Purchasing Power
Parity
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Sample Questions
Q1) If absolute PPP holds,then the real exchange rate must be equal to:
A) a constant
B) a positive number
C) one
D) All of the above
Q2) Purchasing power parity PPP explains the relationship between interest rates and product price changes.
A)True
B)False
Q3) The purchasing power parity captures the connection between the goods market and foreign exchange market.
A)True
B)False
Q4) If prices in the U.K.are rising slower than prices in the U.S.then
A) The pound depreciates.
B) The exchange rate stays the same.
C) The dollar depreciates.
D) The dollar appreciates.
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Chapter 8: Foreign Exchange Risk and Forecasting
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Q1) Suppose that the 1-year forward rate of dollar per peso is $11.25,the current spot rate $/peso is $10.00,and the expected future spot rate $/peso is $11.50.The expected premium on the peso is:
A) -2.5%
B) 12.5%
C) 15%
D) 22.75%
Q2) 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
Q3) The variability of the firm's foreign exchange risk arises from uncertainty about future exchange rates.
A)True
B)False
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9
Chapter 9: Financial Management of the Multinational Firm
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Sample Questions
Q1) The sum of the project's initial investment cost,the present values of cash flows,and all financial effects related to the investment is called:
A) Subsidiary investment total
B) Transfer total
C) Cost above investment
D) Adjusted present value
Q2) Refer to Table 9.2.The net present value NPV of this project in U.S.dollar is estimated at:
A) - $0.11million
B) - $1.27 million
C) $2.33 million
D) $1.14 million
Q3) An ________ letter of credit where the agreement can be modified by the importer of the goods is considered:
A) Completed
B) Irrevocable
C) Revocable
D) Drafted
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Chapter 10: International Portfolio Investment
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Sample Questions
Q1) Consider the following variances of different stocks all with the same expected returns.Which stock represents the riskiest choice?
A) Stock A: 0.03
B) Stock B: 0.25
C) Stock C: 0.005
D) Stock D: 0.22
Q2) When the covariance of two assets is negative,then the two variables move in opposite directions: when one rises the other falls.
A)True
B)False
Q3) The risk present in all investment opportunities is known as systematic risk.
A)True
B)False
Q4) Which of the following statements regarding portfolio risk and number of stocks is generally true?
A) Adding more stocks increases risk.
B) Adding more stocks decreases risk but does not eliminate it.
C) Adding more stocks has no effect on risk.
D) Adding more stocks increases only systematic risk.
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Chapter 12: Determinants of the Balance of Trade
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Q1) When the demand is ________,an increase in price will increase the total revenue.
A) Elastic
B) Inelastic
C) Contracted
D) Expanded
Q2) Assume that a country is at full employment and wants to improve its trade deficit by
Devaluing its currency.Using the absorption approach which of the following methods will improve the trade deficit?
I.Increase government spending
II.Increase consumption taxes
III.Increase income taxes
A) I and II
B) I and III
C) II and III
D) None
Q3) The responsiveness of quantity to changes in price refers to elasticity.
A)True
B)False
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Page 12
Chapter 13: The Is-Lm-Bp Approach
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Sample Questions
Q1) A change in the riskiness of country's assets shifts the:
A) IS curve
B) LM curve
C) BP curve
D) None of the above
Q2) With floating exchange rates,a country can use _______ to alter domestic income.
A) Fiscal policy
B) Monetary policy
C) Currency devaluations
D) Currency appreciation
Q3) A change in fiscal policy shifts the:
A) IS curve
B) LM curve
C) BP curve
D) None of the above
Q4) Suppose that the government runs a budget surplus.Then:
A) The IS curve shifts right
B) The IS curve shifts left
C) The LM curve shifts right
D) The LM curve shifts left
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Chapter 14: The Monetary Approach
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Q1) "Under the monetary approach to exchange rate,a rise in domestic income will cause a depreciation of domestic currency."
A)True
B)False
Q2) Action by a central bank to offset the effect of a foreign exchange intervention,on the domestic money supply,by using the open-market operations is known as:
A) Monetary protectionism
B) Sterilized intervention
C) Currency creation
D) Injecting money supply
Q3) "Under the fixed exchange rate,inflation from one country can be transmitted to the other country."
A)True
B)False
Q4) The monetary approach in the case of a managed floating exchange rate:
A) Is like that of currency boards.
B) Introduces variables to represent changes in fiscal policy.
C) Is a combination of MABP and MAER.
D) Is not possible to model.
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Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
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Q1) Which of the following is NOT a factor that causes substantial exchange rate volatility?
A) Unexpected news
B) Changes in expectations about future trade flows
C) Instantaneous adjustments by goods and services prices to shocks.
D) Instantaneous reactions by financial assets markets to shocks
Q2) In the ________,changes in exchange rates occur because of changes in tastes or technology and are part of the adjustment to a shock to the world economy.
A) Balance of payments approach
B) Equilibrium approach
C) News approach
D) Exchange rate approach
Q3) "Exchange rate overshooting occurs because product prices are slow to change while asset prices adjust immediately."
A)True
B)False
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