International Financial Management 13th Edition By Jeff Madura – Test Bank

International Financial Management 13th Edition By Jeff Madura – Test Bank

Chapter 06

1. To force the value of the pound to appreciate against the dollar, the Federal Reserve should:
a. sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market.
b. sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market.
c. sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should not intervene.
d. sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell pounds for dollars in the foreign exchange market.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: INFM.MADU.15.06.02
NATIONAL STANDARDS: United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS: United States – OH – DISC.INFM.MADU.15.02
KEYWORDS: Bloom’s: Comprehension

2. A weak dollar is normally expected to cause:
a. high unemployment and high inflation in the U.S.

b. high unemployment and low inflation in the U.S.

c. low unemployment and low inflation in the U.S.

d. low unemployment and high inflation in the U.S.

ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: INFM.MADU.15.06.04
NATIONAL STANDARDS: United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS: United States – OH – DISC.INFM.MADU.15.02
KEYWORDS: Bloom’s: Comprehension

3. A strong dollar is normally expected to cause:
a. high unemployment and high inflation in the U.S.

b. high unemployment and low inflation in the U.S.

c. low unemployment and low inflation in the U.S.

d. low unemployment and high inflation in the U.S.

ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: INFM.MADU.15.06.04
NATIONAL STANDARDS: United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS: United States – OH – DISC.INFM.MADU.15.02
KEYWORDS: Bloom’s: Comprehension

4. To force the value of the British pound to depreciate against the dollar, the Federal Reserve should:
a. sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
b. sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
c. sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.
d. sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: INFM.MADU.15.06.02
NATIONAL STANDARDS: United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS: United States – OH – DISC.INFM.MADU.15.02
KEYWORDS: Bloom’s: Comprehension

5. Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the ____ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the ____ system.
a. floating rate; fixed rate

b. floating rate; floating rate

c. fixed rate; fixed rate

d. fixed rate; floating rate

ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: INFM.MADU.15.06.01
NATIONAL STANDARDS: United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS: United States – OH – DISC.INFM.MADU.15.02
KEYWORDS: Bloom’s: Comprehension

6. A primary result of the Bretton Woods Agreement was:
a. the establishment of the European Monetary System (EMS).

b. establishing specific rules for when tariffs and quotas could be imposed by governments.

c. establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values.
d. establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary).
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: INFM.MADU.15.06.01
NATIONAL STANDARDS: United States – BUSPROG.INFM.MADU.15.03
STATE STANDARDS: United States – OH – DISC.INFM.MADU.15.02
KEYWORDS: Bloom’s: Knowledge