International Finance Quiz

Which of the following is NOT a component of the current account?

• Trading goods

• Trade in services

• Factor Income

• Foreign direct investment

The capital and financial account records:

• The flow of goods and services

• The flow of income from investments

• The flow of financial assets and liabilities

• The government's budget balance

A country with a floating exchange rate system can correct a balance of payments deficit by:

• Devaluing its currency

• Increasing interest rates

• Imposing import quotas

• All of the above

The J-curve effect describes:

• The immediate improvement in the trade balance after a currency depreciation

• The initial deterioration followed by an improvement in the trade balance after a currency depreciation

• The long-term stability of the trade balance

• The relationship between interest rates and exchange rates

The initial deterioration of the trade balance in the J-curve effect is primarily due to:

• Increased export prices

• Decreased import prices

• Time lags in adjusting production and consumption patterns

• Speculative attacks on the currency

Which of the following factors can influence the shape of the J-curve?

• Price elasticity of demand for imports and exports

• Time lags in adjusting production and consumption

• The magnitude of the currency depreciation

• All of the above

A steep J-curve indicates:

• A quick recovery of the trade balance

• A slow recovery of the trade balance

• No change in the trade balance

• A continuous deterioration of the trade balance

A country with a persistent current account deficit may experience:

• A stronger currency

• A weaker currency

• No change in the exchange rate

• A sudden appreciation of the currency

Which of the following is NOT a primary factor distinguishing international finance from domestic finance?

• Foreign exchange risk

• Political risk

• Market imperfections

• Diversification

Globalization of financial markets refers to the:

• Integration of economies around the world through trade and financial flows

• Increasing dominance of a single currency

• Protectionist policies adopted by countries

• Decrease in foreign direct investment