Revision quiz 1

A forward contract to deliver British pounds for U.S. dollars could be described either as ________ or ________.

• buying dollars forward; buying pounds forward.

• selling pounds forward; selling dollars forward.

• selling pounds forward; buying dollars forward.

• selling dollars forward; buying pounds forward.

The current U.S. dollar-yen spot rate is 125¥/$. If the 90-day forward exchange rate is 127 ¥/$ then the yen is selling at a per annum ________ of ________.

• premium; 1.57%

• premium; 6.30%

• discount; 1.57%

• discount; 6.30%

Two general conclusions can be made from the empirical tests of purchasing power parity (PPP):

• PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively low rates of inflation.

• PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively high rates of inflation.

• PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively low rates of inflation.

• PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively high rates of inflation.

Imports have the potential to lower a country's inflation rate because of each of the following EXCEPT:

• The higher prices of foreign goods spurs domestic competitors to cut prices.

• The import of lower priced services limits what domestic competitors can charge for services.

• The import of lower priced goods limits what domestic competitors can charge for goods.

• All of the above

The two major concerns about foreign direct investment are:

• National defense and taxes.

• Who controls the assets and who receives the profits.

• Who receives the profits and taxes.

• Who pays the taxes and who receives the taxes.

The theory that suggests specialization by country can increase worldwide production is:

• the theory of comparative advantage.

• the theory of purchasing power parity

• The international Fisher effect.

• The theory of foreign direct investment

Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?

• An American tourist purchases cheese in Milwaukee, Wisconsin.

• The U.S. subsidiary of a British firm pays profits (dividends) back to its parent firm in London.

• A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in

  Seattle.

• All of the above are considered BOP transactions.

An American tourist purchases a leather jacket while in Italy. Which of the following statements is true?

• The leather purchase would be considered an import for the U.S. BOP.

• This transaction would be properly accounted for in the Current Account of the U.S. BOP.

• The leather purchase is considered an import of a good, and thus, considered part of the balance of trade as well.

• All of these statements are true.

The financial account consists COMPLETELY of which four components?

• stock investment, bond investment, derivative investment, and mutual fund investment

• direct investment, stock investment, net financial derivatives, and bond investment

• direct investment, portfolio investment, net financial derivatives, and other asset investment

• mutual fund investment, portfolio investment, derivative investment, and stock investment

The following is an example of an American term foreign exchange quote:

• $20/£

• €0.85/$

• ¥100/€

• ¥100/$