Mid Term Exam Sample
CFIN 540: Introduction to International Finance
Multiple Choice Questions:
Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?
A) Widely divergent national monetary and fiscal policies among member nations.
B) Differential rates of inflation across member nations.
C) Several unexpected economic shocks to member nations.
D) all of the above
Answer: D

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?
A) Fixed rates provide stability in international prices for the conduct of trade.
B) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.
C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.
D) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses. Answer: C

The ability of a country to profit from its ability to print money is known as ________.
A) profiteering
B) dollarization
C) seignorage
D) inflation
Answer: C

Of the following, which is NOT a trade-off that must be dealt with in any exchange rate regime?
A) Cooperation vs independence.
B) Rules vs discretionary action.
C) Dollars vs pounds.
D) All of the above are rate regime trade-offs.
Answer: C

Which of the following would NOT be considered a typical BOP transaction?
A) Toyota U.S.A. is a U.S. distributor of automobiles manufactured in Japan by its parent company. B) The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in
Zurich.
C) A U.S. tourist purchases gifts at a museum in London.
D) All are example of BOP transactions.
Answer: D
Which of the following is NOT an item to be considered in BOP calculations?
A) Purchase of a U.S. Treasury Bill by a foreign resident.
B) A U.S.-based firm manages the development of an oil field in Kazakhstan.
C) A consumer buys a VCR made in Korea from a Florida Wal-Mart store.
D) A U.S. citizen living in Minnesota travels to Winnipeg, Canada and buys a case of LaBatt's
Canadian beer.
Answer: C

If your company were to import and export textiles, the transactions would be recorded in the current account subcategory of ________.
A) services trade
B) income trade
C) goods trade
D) current transfers
Answer: C

Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade.
A) greater than
B) equal to
C) less than
D) The relationship is constantly shifting from greater than to less than.
Answer: C

The two major concerns about foreign direct investment are:
A) national defense and taxes.
B) who controls the assets and who receives the profits.
C) who receives the profits and taxes.
D) who pays the taxes and who receives the taxes.
Answer: B

Imports have the potential to lower a country's inflation rate because of each of the following
EXCEPT:
A) the import of lower priced goods limits what domestic competitors can charge for goods.
B) the import of lower priced services limits what domestic competitors can charge for services.
C) the higher prices of foreign goods spurs domestic competitors to cut prices.
D) of all of the above
Answer: C
A forward contract to deliver British pounds for U.S. dollars could be described either as
________ or ________.
A) buying dollars forward; buying pounds forward.
B) selling pounds forward; selling dollars forward.
C) selling pounds forward; buying dollars forward.
D) selling dollars forward; buying pounds forward.
Answer: C

Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity?
¥129.87/$
€1.1226/$
€0.00864/¥
A) ¥115.69/€
B) ¥114.96/€
C) $0.8908/€
D) $0.0077/¥
Answer: B