International Finance
Final Exam
Course Introduction
International Finance explores the fundamental concepts and practices of financial management in a global context. The course examines foreign exchange markets, international financial systems, and the instruments used to manage currency risk. Students will learn about balance of payments, international monetary policy, and financial strategies for multinational corporations. Emphasis is placed on understanding exchange rates, international capital flows, global investment analysis, and the impact of international financial regulations, preparing students to effectively analyze and make decisions in a dynamic, interconnected economic environment.
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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71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/71637
Sample Questions
Q1) Suppose that you are an arbitrageur that starts with $100 in New York.Which of the following paths is correct in order to make arbitrage profit?
A) Buy pound in New York sell pound for SFr in New York sell SFr for dollar in New York.
B) Buy SFr in New York sell SFr for pound in New York sell pound for dollar in New York.
C) Buy SFr in New York sell SFr for pound in Geneva sell pound for dollar in New York.
D) Buy pound in New York sell pound for SFr in London sell SFr for dollar in New York.
Answer: D
Q2) The biggest player in the foreign exchange market are:
A) tourists
B) import/export firms
C) drug dealers
D) financial institutions such as banks
Answer: D
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3
Chapter 2: International Monetary Arrangements
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) What exchange rate is maintained with a central rate that is frequently adjusted?
A) Fixed Peg
B) Currency board
C) Managed floating
D) Crawling bands
Answer: D
Q2) Consider the following scenario.The Swiss franc is fixed to the U.S.dollar.Market pressures lead to a move away from the peg.Which of the following can be used to restore the previous peg?
A) The Swiss central bank can use a commodity such as gold to back the previous peg.
B) The Swiss government can lower domestic prices to offset import pressures.
C) Allow the exchange by the market and in the long run the peg will be restored.
D) The Swiss central bank can purchase or sell U.S. dollars.
Answer: D
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4
Chapter 3: The Balance of Payments
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51 Verified Questions
51 Flashcards
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Sample Questions
Q1) Remittances by foreigners in the U.S.,pension paid and aid offered by the U.S.to its citizens living abroad are examples of:
A) Reserve asset transfers
B) Investment income
C) Export of services
D) Unilateral transfers
Q2) Which of the following is not a method to restore a balance of payments equilibrium in a surplus country?
A) Government mandated quotas
B) Accumulate international reserves
C) Allow the use of flexible exchange rates
D) Price controls
Q3) Let Y be domestic income,C be consumption,I be investment,G be government spending and T be taxes.The private saving is:
A) Y - C - T - G
B) Y - C - I
C) Y - C - T
D) Y - C - G
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Chapter 4: Forward-Looking Market Instruments
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44 Verified Questions
44 Flashcards
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Sample Questions
Q1) Standardized contracts traded on established exchanges for delivery of currencies at a specified future date are called foreign currency futures.
A)True
B)False
Q2) A strike price is the price where:
A) A futures contract reaches maturity.
B) The owner of an options contract can transact.
C) The bank sets as an out-of-bounds in contract negotiations.
D) All currencies are brought to a standardized price.
Q3) When the forward price of a currency ________ the spot price,the currency is said to sell at a ________.
A) Greater than, flat
B) Greater than, discount
C) Less than, discount
D) Less than, premium
Q4) The exchange market has seen the rise of new contracts combines features of forward contracts and option contracts.
A)True
B)False
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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) Which of the following reasons explain why interest rate parity may not hold perfectly?
I.Transaction costs
II.Business loan risks
III.Offshore risk accounting rules
IV.Political risk
A) I only
B) II and III
C) I and IV
D) I, III, and IV
Q2) 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
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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) Assume that the United States faces a 5 percent inflation rate while no zero inflation exists in Japan.According to the relative PPP,the dollar would be expected to:
A) appreciate by 5 percent against the yen
B) depreciate by 5 percent against the yen
C) remain at its existing exchange rate
D) None of the above is correct.
Q2) If the inflation rates of two countries are both equal to the percentage change in the exchange rate,then absolute purchasing power parity holds.
A)True
B)False
Q3) A year ago the spot rate of U.S.dollars for Canadian dollars was $1/C$1.Since that time,the rate of inflation in the U.S.has been 4% greater than that in Canada.Based on the theory of Relative PPP,the current spot exchange rate of U.S.dollars for Canadian dollars should be approximately _________ per Canadian dollars.
A) $0.96
B) $1
C) $1.04
D) $4
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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 of the following best describes translation exposure?
A) Operating banks in a remote location with an uncommon language
B) Accounting exposure from translating interest rates from different regions
C) Translating financial statements from one currency to another
D) Creating more than one offshore branch
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 six-month interest rate in the United States is 10 percent; in Mexico it is 16 percent.The current spot rate dollars per peso is $0.20.The annualized six-month forward rate equal to ______ and peso is selling at a forward _______.
A) 0.188, discount
B) 0.212, premium
C) 0.194, discount
D) 0.206, premium
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Page 9
Chapter 9: Financial Management of the Multinational Firm
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50 Verified Questions
50 Flashcards
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Sample Questions
Q1) The price that one subsidiary charges another subsidiary of internal good transfers is called an:
A) Transfer price
B) Transaction price
C) Strike price
D) Subsidiary price
Q2) When a multinational firm calculates a project for a foreign subsidiary with ________ net value,then the project should probably be ________.
A) Zero, delayed
B) Positive, sold
C) Negative, accepted
D) Positive, accepted
Q3) The firm's management style determines whether to decentralize or centralize its financial management between the parent and the foreign subsidiaries.
A)True
B)False
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Chapter 10: International Portfolio Investment
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56 Flashcards
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Sample Questions
Q1) Investors often hold ________ to reduce risk associated with investments.
A) Domestic currency contracts
B) Letters of credit
C) Diversified portfolios
D) Forward contracts only
Q2) Portfolio diversification explains the two-way flow of capital between countries.
A)True
B)False
Q3) 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
Q4) Portfolio diversification eliminates the systematic risk that is unique to an individual asset although nonsystematic risk will remain.
A)True
B)False
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Chapter 12: Determinants of the Balance of Trade
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Sample Questions
Q1) 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
Q2) When the exchange rate S<sub>¥/$</sub> was 100,a U.S.firm imports one Toyota automobile at ¥1,000,000 and agrees to make payments 60 days from the day of contract signing.On day 45,the exchange rate value changes to S<sub>¥/$</sub> = 80,what would happen to the U.S.import value from this exchange rate change?
A) If the contract is written in dollar, the import value decreases.
B) If the contract is written in dollar, the import value increases.
C) If the contract is written in yen, the import value decreases.
D) If the contract is written in yen, the import value increases.
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Page 12
Chapter 13: The Is-Lm-Bp Approach
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54 Flashcards
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Sample Questions
Q1) Suppose that North Korea has closed off its capital market from the rest of the world.No resident is allowed to invest outside North Korea and no foreigner is allowed to invest in North Korea's capital market.In this case,the BP curve will be:
A) upward-sloping curve
B) downward-sloping curve
C) horizontal curve
D) vertical curve
Q2) Which of the following factors shifts the LM curve to the left?
A) An increase in money supply
B) An decrease in money supply
C) An increase in government spending
D) A depreciation of domestic currency
Q3) 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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Sample Questions
Q1) A central bank sale of _____ to purchase ______ in the foreign exchange market results in a rise in its international reserves and the money base.
A) foreign assets; domestic currency
B) foreign assets; foreign currency
C) domestic currency; foreign assets
D) domestic currency; domestic currency
Q2) The basic premise of the monetary approach is that:
A) Exchange rate movements change according to uncontrolled shocks.
B) Holdings of international reserves should be minimized.
C) Any balance of payments disequilibrium is based on a monetary disequilibrium.
D) People's willingness to hold money can alter exchange rates but not the balance of payments.
Q3) In a perfectly floating exchange rate regime,according to the monetary approach to the exchange rate MAER,what would be the effect of a decrease in U.S.output growth by 3% on the dollar price of a Swiss franc $/SFr?
A) Swiss franc would depreciate against the dollar.
B) Swiss franc would appreciate against the dollar.
C) The exchange rate remains unaffected.
D) The dollar would appreciate against the Swiss Franc.
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Page 14
Chapter 15: Extensions to the Monetary Approach of Exchange Rate Determination
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48 Flashcards
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Sample Questions
Q1) Since news is unexpected and catches people off-guard,
A) it is easy to forecast the future exchange rate.
B) it causes exchange rates to fluctuate substantially.
C) it causes prices of goods and services to vary more than exchange rates.
D) it has no effect on exchange rates.
Q2) Assume that two Caribbean countries announce that they will be coordinating monetary policy.This is because their currencies are considered:
A) Substitutes
B) Compliments
C) Inferior
D) Vulnerable
Q3) When citizens anticipate a country to experience trade deficits in the near future,the domestic currency would:
A) Appreciate immediately
B) Appreciate only in the future
C) Depreciate immediately
D) Depreciate only in the future
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Page 15