Currency Exchange in Global Trade

Jacques lives in Montreal, Canada. He has just returned home from a trip to the United States. Jacques still has five US dollar bills left from his trip. When he tries to use them to buy lunch, the restaurant will not take the US dollars. Why did the restaurant refuse to take the money?

• A. because stores in Canada only accept the peso

• B. because the US dollar is not legal tender in Canada

• C. because Canada's currency is not divided into cents

• D. because US dollars cannot be converted to Canadian dollars

Box Office Roosters, a US entertainment company, wants to do business with Lao Tzu Electronics, a Chinese manufacturer. What is the first thing that these companies must do?

• A. sign an international trade agreement

• B. create a new company owned by both of them

• C. agree on which currency they will use in their transactions

• D. request permission from their governments to conduct business

Company 1 is based in Country X and Company 2 is based in Country Y. Company 2 signs a contract to

purchase 10,000 sprockets from Company 1. Company 1 insists that payment for the sprockets be made in

Country X's official currency. What is the MOST LIKELY reason why Country X would insist on this condition?

• A. Company 1 does not want to involve an international bank in the transaction.

• B. Country X has a strong, stable currency compared to the currency of Country Y.

• C. Country X's currency is worth less than Country Y's currency.

• D. One sprocket is worth more in Country Y's market than it is worth in Country X's

Why is a system of currency exchange more important in Latin America than it is in western Europe?

• A. Latin American countries frequently trade with each other, while most western European countries are

  isolationists.

• B. Latin American countries have mixed economies, while many western European countries have command

  economies.

• C. Latin American countries do not have many resources, while most western European countries have abundant

  resources.

• D. Latin American countries use many different forms of money, while many western European countries use the

  same money.

a system of exchange whereby one good/service is given in return for another; does not require monetary exchange

• barter

• tariff

• specialization

• embargo

 a nation’s money

• Currency exchange

• Currency

• tariff

• quota

converting one nation’s money into an equivalent value/quantity of another’s

• currency

• currency exchange

• tariff

• quota

a trade barrier which blocks all trade with another nation

• tax

• tariff

• embargo

• quota

 a trade barrier which places a limit on imported goods

• tariff

• quota

• embargo

• relief

any activity which slows or outright blocks the free exchange of goods and services between nations

• trade barrier

• tariff

• embargo

• split