International Finance
Exam Practice Tests
Course Introduction
International Finance explores the financial systems, markets, and instruments that operate across national borders. This course examines topics such as foreign exchange markets, international monetary systems, balance of payments, exchange rate determination, international financial management, and the impact of globalization on financial decision-making. Students will analyze how multinational corporations navigate financial opportunities and risks, manage currency exposure, and make investment decisions in an interconnected global economy. The course also addresses current trends and challenges, including financial crises, international banking, and regulatory frameworks, equipping students with the skills to understand and manage international financial operations.
Recommended Textbook
International Economics 15th Edition by Robert Carbaugh
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17 Chapters
1863 Verified Questions
1863 Flashcards
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Page 2
Chapter 1: The International Economy and Globalization
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) The United States was less open to international trade between:
A) 1890 and 1910
B) 1930 and 1950
C) 1890 and 1950
D) 1950 and 2013
Answer: C
Q2) Which of the following is a fallacy of international trade?
A) Trade is a zero-sum activity
B) Exports increase employment in exporting industries
C) Import restrictions increase employment in import-competing industries
D) Tariffs and quotas reduce trade volume
Answer: A
Q3) During the last century,the relative importance of international trade for the U.S.has:
A) significantly increased
B) slightly increased
C) significantly decreased
D) slightly decreased
Answer: A
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Chapter 2: Foundations of Modern Trade Theory:
Comparative Advantage
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166 Verified Questions
166 Flashcards
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Sample Questions
Q1) The gains from international trade increase as:
A) A nation consumes inside of its production possibilities schedule
B) A nation consumes along its production possibilities schedule
C) The international terms of trade rises above the nation's autarky price
D) The international terms of trade approaches the nation's autarky price
Answer: C
Q2) John Stuart Mill's theory of reciprocal demand best applies when trading partners:
A) Are of equal size and importance in the market
B) Produce under increasing cost conditions
C) Partially specialize in the production of commodities
D) Have similar taste and preference levels
Answer: A
Q3) Referring to Table 2.1,the United States has the absolute advantage in the production of:
A) Steel
B) Televisions
C) Both steel and televisions
D) Neither steel nor televisions
Answer: C
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Chapter 3: Sources of Comparative Advantage
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) If Japanese workers receive lower wages in the production of autos than do American workers:
A) Japan will have a comparative advantage in the production of autos
B) Japan will have an absolute advantage in the production of autos
C) Production costs will be lower in Japan than in the U.S.
D) Production costs could be lower in the U.S.if American labor productivity is higher than the Japanese
Answer: D
Q2) The simultaneous import and export of computers by Germany is an example of:
A) Intra-industry trade
B) Inter-industry trade
C) Perfect competition
D) Imperfect competition
Answer: A
Q3) The Heckscher-Ohlin theory emphasizes the role that demand plays in the creation of comparative advantage.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Tariffs
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124 Flashcards
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Sample Questions
Q1) The redistribution effect is the transfer of producer surplus to domestic consumers of the import-competing product.
A)True
B)False
Q2) Refer to Exhibit 4.2.The tariff's revenue effect equals $6,000.
A)True
B)False
Q3) Consider Figure 4.1.With a per-unit tariff of $3,the quantity of imports decreases to:
A) 20 calculators
B) 40 calculators
C) 50 calculators
D) 70 calculators
Q4) Relatively low wages in Mexico make it impossible for U.S.manufacturers of labor-intensive goods to compete against Mexican manufacturers.
A)True
B)False
Q5) Can import duties have unintended side effects?
Q6) How can tariffs be justified?
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Chapter 5: Nontariff Trade Barriers
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) What is the price-based definition of dumping?
Q2) With a quota placed on imported sugar,increased domestic demand leads to increased sugar imports but not to higher sugar prices.
A)True
B)False
Q3) For most nations,the ratio of imports to total purchases in the public sector is much higher than in the private sector.
A)True
B)False
Q4) During periods of growing demand,a tariff more effectively restricts the volume of imports than an equivalent import quota.
A)True
B)False
Q5) The U.S.-Japaneses agreement in 1981 to limit imports of small Japanese cars to the U.S.
A) affected Japanese automakers uniformly
B) resulted in losses to the Japanese auto industry
C) cost the U.S.consumer an extra $660 or so per Japanese import purchased
D) did not save any U.S.jobs
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Chapter 6: Trade Regulations and Industrial Policies
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) Suppose the United States imposes trade sanctions (export quotas)on grain sold to the Russians.Assuming other nations do not increase grain exports to the Russians,all of the following would occur except:
A) Grain prices would rise in Russia
B) Consumer surplus would decrease for the Russians
C) Grain prices would rise in the United States
D) Export revenues would decrease for U.S.producers
Q2) Industrial policy attempts to fulfill all of the following objectives except:
A) Improving the infrastructure for an industry
B) Easing transitions for workers in declining industries
C) Supporting troubled industries if the difficulty is temporary
D) Fostering industries which offer long-run comparative disadvantage
Q3) The principle of normal trade relations (most-favored-nation)treatment was established with the passage of the:
A) Fordney-McCumber Act of 1922
B) Smoot-Hawley Act of 1930
C) Reciprocal Trade Agreements Act of 1934
D) Trade Act of 1974
Q4) What is the basis for trade adjustment assistance?
Q5) Has industrial policy contributed significantly to Japan's economic growth?
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Chapter 7: Trade Policies for the Developing Nations
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) To be considered a good candidate for an export cartel,a commodity should:
A) Be a manufactured good
B) Be a primary product
C) Have a low price elasticity of supply
D) Have a high price elasticity of demand
Q2) Which trade strategy have developing countries used to restrict imports of manufactured goods so that the domestic market is preserved for home producers,who thus can take over markets already established in the country?
A) International commodity agreement
B) Export promotion
C) Multilateral contract
D) Import substitution
Q3) Among the economic problems facing developing countries have been low dependence on primary-product exports,unstable export markets,and worsening terms of trade.
A)True
B)False
Q4) Are economic downturns helpful to cartels?
Q5) What are some major trade problems faced by developing nations?
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Chapter 8: Regional Trading Arrangements
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Customs union theory reasons that the formation of a customs union will decrease members' real welfare when the:
A) Trade diversion effect exceeds the trade creation effect
B) Trade production effect exceeds the trade consumption effect
C) Trade consumption effect exceeds the trade production effect
D) Trade creation effect exceeds the trade diversion effect
Q2) Consider Figure 8.2.If Portugal forms a customs union with France,the resulting trade-creation effect equals $500.
A)True
B)False
Q3) If a customs union included all of the countries in the world,there could exist only trade creation,not trade diversion.
A)True
B)False
Q4) The European Union is primarily intended to permit:
A) Countries to adopt scientific tariffs on imports
B) An agricultural commodity cartel within the group
C) The adoption of export tariffs for revenue purposes
D) Free movement of resources and products among member nations
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Chapter 9: International Factor Movements and Multinational
Enterprises
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) By establishing transplant factories in the United States,Japanese automakers were able to avoid export restrictions imposed by the Japanese government,but not import restrictions imposed by the U.S.government.
A)True
B)False
Q2) Foreign-owned companies in the United States operate under more strict antitrust,environmental,and other regulations than U.S.-owned companies.
A)True
B)False
Q3) Mergers differ from joint ventures in that they involve the creation of a new business firm,rather than the union of two existing companies.
A)True
B)False
Q4) As workers migrate from low-wage Mexico to high-wage United States,wages tend to rise in Mexico and fall in the United States.
A)True
B)False
Q5) What are guest workers?
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Chapter 10: The Balance of Payments
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92 Verified Questions
92 Flashcards
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Sample Questions
Q1) Which balance-of-payments item does not directly enter into the calculation of the U.S.gross domestic product?
A) Merchandise imports
B) Shipping and transportation receipts
C) Direct foreign investment
D) Service exports
Q2) The balance of payments includes international transactions of households and businesses,but not government.
A)True
B)False
Q3) In a country's balance of payments,which of the following transactions are debits?
A) Domestic bank balances owned by foreigners are decreased
B) Foreign bank balances owned by domestic residents are decreased
C) Assets owned by domestic residents are sold to nonresidents
D) Securities are sold by domestic residents to nonresidents
Q4) How do we measure the international investment position of the United States at any point in time? How did the U.S.become a net debtor nation so rapidly?
Q5) What does a current account deficit mean?
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Chapter 11: Foreign Exchange
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) The bid rate refers to the price at which a bank is willing to sell a unit of foreign currency; the offer rate is the price at which a bank is willing to buy a unit of foreign currency.
A)True
B)False
Q2) Assume that you are the Chase Manhattan Bank of the United States,and you have 1 million Swiss francs in your vault that you will need to use in 30 days.Moreover,you need 500,000 British pounds for the next 30 days.You arrange to loan your francs to Barclays Bank of London for 30 days in exchange for 500,000 pounds today,and reverse the transaction at the end of 30 days.You have just arranged a:
A) Forward contract
B) Futures contract
C) Spot contract
D) Currency swap
Q3) The supply schedule of yen has a positive-sloping region which corresponds to the inelastic region on the Japanese demand schedule for foreign currency.
A)True
B)False
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Chapter 12: Exchange-Rate Determination
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) Long-run determinants of the dollar's exchange value include all of the following except:
A) Preferences of Americans for foreign produced goods
B) U.S.tariffs placed on imports of foreign produced goods
C) Productivity of the American worker
D) Interest rates in U.S.financial markets
Q2) A forward discount on Mexico's peso serves as a rough benchmark of the expected appreciation in the peso's spot rate.
A)True
B)False
Q3) Under floating exchange rates,relatively low domestic interest rates tend to promote depreciation of a currency's exchange value while relatively high domestic interest rates lead to currency appreciation.
A)True
B)False
Q4) What is exchange rate overshooting?
Q5) What is the asset market approach to exchange rate determination?
Q6) In a free market,what determines exchange rates in the long run and the short run?
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Chapter 13: Mechanisms of International Adjustment
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107 Flashcards
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Sample Questions
Q1) The gold standard's "rules of the game" required central bankers in a trade deficit nation to expand the money supply,leading to falling interest rates and net investment outflows.
A)True
B)False
Q2) Refer to Figure 13.1.The U.S.capital and financial account schedule would shift upward from CA<sub>0</sub> to CA<sub>1</sub> if:
A) U.S.residents receive subsidies to invest in foreign nations
B) U.S.interest rates rise relative to foreign interest rates
C) Taxes are reduced on income earned by U.S.residents from their foreign investments
D) Expected profits decline on U.S.investments in foreign manufacturing
Q3) When a country's current account moves into disequilibrium,automatic adjustments in tariffs and quotas occur which move the current account back into equilibrium.
A)True
B)False
Q4) Compared to classical economists,how did Keynesian economics change the discussion of trade adjustment?
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15
Chapter 14: Exchange-Rate Adjustments and the Balance of Payments
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Suppose the exchange value of the franc rises against the currencies of Switzerland's major trading partners.To protect themselves from decreases in foreign sales caused by the mark's appreciation,Swiss companies could shift production to countries whose currencies had depreciated against the mark.
A)True
B)False
Q2) Given favorable elasticity conditions,a depreciation of the lira tends to result in:
A) Lower prices of imported products for Italy
B) Higher prices of imported products for Italy
C) A larger trade deficit for Italy
D) A smaller trade surplus for Italy
Q3) By increasing relative U.S.production costs,a dollar depreciation tends to increase U.S.export prices in foreign-currency terms,which results in an increase in the quantity of U.S.goods exported abroad.
A)True
B)False
Q4) How do demand elasticities influence a country's trade position when exchange rates change?
Page 16
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Chapter 15: Exchange-Rate Systems and Currency Crises
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) Suppose that Japan maintains a pegged exchange rate that overvalues the yen.This would likely result in:
A) Japanese exports becoming cheaper in world markets
B) Imports becoming expensive in the Japanese market
C) Unemployment for Japanese workers
D) Full employment for Japanese workers
Q2) To offset an appreciation in the dollar's exchange value,the Federal Reserve can nudge interest rates down in the United States which results in net investment outflows.
A)True
B)False
Q3) Refer to Figure 15.2.Suppose the demand for pounds increases from D<sub>0</sub> to D<sub>1</sub>.Under a fixed exchange rate system,the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by:
A) Selling pounds for dollars on the foreign exchange market
B) Selling dollars for pounds on the foreign exchange market
C) Decreasing U.S.exports,thus decreasing the supply of pounds
D) Stimulating U.S.imports,thus increasing the demand for pounds
Q4) Which nations use multiple exchange rates the most and why?
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Page 17
Chapter 16: Macroeconomic Policy in an Open Economy
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72 Verified Questions
72 Flashcards
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Sample Questions
Q1) Nations have typically placed greater importance to the goal of internal balance than to the goal of external balance.
A)True
B)False
Q2) The goals of the Plaza Agreement of 1985 were to combat protectionism in the U.S.Congress,promote world economic expansion by stimulating demand in Germany and Japan,and to ease the burden of the U.S.debt service.
A)True
B)False
Q3) Under floating exchange rates and high capital mobility,an expansionary monetary policy would help a country resolve a recession and a current account deficit.
A)True
B)False
Q4) Expenditure-switching policies include currency revaluation,currency devaluation,and direct controls such as tariffs,quotas,and subsidies.
A)True
B)False
Q5) Was the Plaza Agreement of 1985 a success?
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Chapter 17: International Banking: Reserves, Debt, and Risk
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Sample Questions
Q1) International reserves allow a country to finance disequilibria in its balance-of-payments position.
A)True
B)False
Q2) When granting loans to financially troubled nations,the International Monetary Fund requires some degree of conditionality,meaning that the borrowing nation must agree to implement economic policies as mandated by the IMF.
A)True
B)False
Q3) Swap arrangements
A) Are agreements between governments
B) Require repayment within a stipulated period
C) Are usually multilateral agreements
D) Are never initiated by telephone
Q4) Eurocurrencies are deposits,denominated and payable in dollars and other foreign currencies,in banks outside the United States,primarily in London,the market's center.
A)True
B)False
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Page 19