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Exam 10: International Money System

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Question 1

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To help resolve the developing nations' debt crisis, the Brady Plan called for large-scale reduction of the debt owed by poorer nations, the exchange of old loans for new low-interest loans and the creation of debt instruments that would be tradable on world financial markets.

A) True
B) False

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Question 2

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If money were free from all controls when transferred internationally, the real rate of interest would ________.

A) be the same in all countries
B) be reflected in exchange rate conversions
C) create arbitrage opportunities across countries
D) be the same as the inflation rate

E) A) and B)
F) A) and C)

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Question 3

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The gold standard is a ________ because it fixed nation's currencies to the value of gold.

________ refers to activities that directly affect a nation's interest rates or money supply.

For the law of one price to apply, products must be all of the following EXCEPT ________.

Scenario: Just-for-Kids, Inc. Just-for-Kids, Inc. is a toys and clothes manufacturer based in San Diego, California. The company has received an inquiry from an overseas company to do business. Tom Dodd is the owner of the company researching the opportunity and how exchange rates will affect its international business activities. -If Just-for-Kids is selling in a country with a strong currency while sourcing from a country with a weak currency, it will ________.

The value of a currency expressed in dollars is called its par value.

________ employs charts of past trends in currency prices and other factors to forecast exchange rates.

A company selling its product in a country with a ________ currency while sourcing from a country with a ________ currency improves its profits.

When a government buys its own securities on the open market, it is employing ________.

Which of these is the intentional lowering of a currency's value by the nation's government?

Compare and contrast Mexico's debt crisis versus Southeast Asia's financial crisis.

The rule that the nominal interest rate is the sum of the real interest rate and the expected rate of inflation over a specific period is called ________.

Using gold as a medium of exchange in international trade was advantageous for all of the following reasons EXCEPT ________.

Because real interest rates are theoretically equal across countries, any difference in interest rates between two countries must be due to different expected rates of inflation.

The law of one price ________.

The intentional lowering of the value of a currency by the nation's government is called ________.

Scenario: Sam Dearing, Budding International Financier Sam Dearing is a summer intern in the arbitrage department at a prestigious Wall Street firm. Sam is hoping to be offered a full-time position at the firm after he graduates from college, and therefore, Sam knows that he must demonstrate a strong understanding of how exchange rates work. -Sam already knows that the ________ tells us how much of one currency we must pay to receive a certain amount of another.

The intentional raising of the value of a currency by a nation's government is called devaluation.

The European Monetary System ceased to exist in 1999 when 12 European Union member nations adopted a single currency.