International Economics International Edition 12th Edition by Robert Carbaugh – Test Bank

Exam Question Bank for International Economics International Edition 12th Edition by Robert Carbaugh

1. Imagine you are an American seller and expect to receive 50 pounds sterling after 60 days. To eliminate the risk of loss due to a devaluation of the pound sterling, you should:
a. Hedge by selling sterling in the forward market for 60-day delivery
b. Purchase sterling now and sell it at the end of 60 days
c. Exchange the dollar equivalent in the forward market for 60-day delivery
d. Retain the sterling in Britain after it’s delivered to you

ANS: A Score: 1

2. Which of the following factors tends to result in the appreciation of the U.S. dollar?
a. Increase in U.S. prices above foreign prices
b. Rapid economic growth in foreign countries
c. Decline in U.S. interest rates below foreign levels
d. Rise in the level of U.S. income

ANS: B Score: 1

3. Concerning managing currency exchange market risks – if an anticipated depreciation of the domestic currency is expected, there is an incentive for:
a. Importers to quickly cover their future needs
b. Exporters to quickly cover their future needs
c. Both importers and exporters to quickly cover their future needs
d. Neither importers nor exporters to quickly cover their future needs

ANS: B Score: 1

4. When short-term interest rates become lower in Tokyo compared to New York, interest arbitrage activities will likely result in:
a. Appreciation in the spot price of the yen
b. Increase in the forward price of the dollar
c. Selling dollars in the forward market
d. Buying yen in the spot market

ANS: C Score: 1

5. An increase in the value of the U.S. dollar against the British pound would likely:
a. Deter the British from purchasing American goods
b. Deter Americans from buying British goods
c. Raise the number of dollars that can be purchased with a pound
d. Deter U.S. travelers from going to Britain

ANS: A Score: 1

6. Regarding the foreign exchange market, it can be said that:
a. There is a spot market for nearly every currency globally
b. The market is highly decentralized unlike the stock exchange
c. Most foreign exchange transactions are conducted using banknotes
d. The values of forward and spot rates are always in agreement

ANS: A Score: 1

7. If researchers discover that Swiss beer causes cancer when consumed in large amounts by British mice, this finding would likely lead to:
a. Reduction in the demand for Swiss francs
b. Increase in the demand for Swiss francs
c. Increase in the supply of Swiss francs
d. Reduction in the supply of Swiss francs

ANS: A Score: 1

8. Assuming that real incomes rise faster in the United States than in Mexico, in the United States, this situation would likely lead to:
a. Increase in the demand for pesos
b. Reduction in the demand for pesos
c. Increase in the supply of pesos
d. Reduction in the supply of pesos

ANS: A Score: 1

9. Depreciation of the dollar refers to:
a. Decrease in the dollar value of foreign currency
b. Increase in the dollar value of foreign currency
c. Loss of foreign exchange reserves for the U.S.
d. Intervention in the international money market

ANS: B Score: 1

10. If Canadian speculators believe that the Swiss franc will appreciate against the U.S. dollar, they would likely:
a. Purchase Canadian dollars
b. Purchase U.S. dollars
c. Purchase Swiss francs
d. Sell Swiss francs