Top 250+ Solved International Financial Management MCQ Questions Answer
Q. All else equal, if Euro Area raises its interest rates,
a. the dollar depreciates.
b. the U.S. demand for euros increases.
c. the Euro Area supply of euros increases.
d. Both A and B.
Q. An Austrian firm that buys foreign exchange because its managers expect the euro todepreciate is
a. increasing the supply of foreign exchange.
b. increasing the demand for foreign exchange.
c. speculating.
d. Both A and B.
Q. Suppose the exchange rates between the United States and Euro Area are in long-run equilibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between U.S. and Euro Area rates of inflation would
a. have no effect on nominal exchange rates.
b. be completely offset by changes in the real exchange rate.
c. be completely offset by changes in the nominal exchange rate.
d. violate the conditions for the law of one price.
Q. An increase in the current account deficit will place _______ pressure on the home currency value, other things equal.
a. upward
b. downward
c. no
d. upward or downward (depending on the size of the deficit)
Q. The World Bank's Multilateral Investment Guarantee Agency (MIGA):
a. offers various forms of export insurance.
b. offers various forms of import insurance.
c. offers various forms of exchange rate risk insurance.
d. provides loans to developing countries.
Q. From 1944 to 1971, the exchange rate between any two currencies was typically:
a. fixed within narrow boundaries.
b. floating, but subject to central bank intervention.
c. floating, and not subject to central bank intervention.
d. nonexistent; that is currencies were not exchanged, but gold was used to pay for all foreign transactions.
Q. If a country experiences high inflation relative to the UK, its exports to the UK should _______________, its imports should ___________, and there is __________ pressure on its currency's equilibrium value.
a. decrease; increase; upward
b. decrease; decrease; upward
c. increase; decrease; downward
d. decrease; increase; downward
Q. To force the value of the dollar to appreciate against the pound, the Federal Reserve should:
a. sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.
b. sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.
c. sell dollars for pounds in the foreign exchange market and the Bank of England should not intervene.
d. sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
Q. The Bank of England may use a stimulative monetary policy with least concern aboutcausing inflation if the pound's value is expected to:
a. remain stable.
b. strengthen.
c. weaken.
d. none of the above will have an impact on inflation.
Q. The exchange rate mechanism (ERM) crisis in 1992 represents the __________ in German interest rates that caused other European interest rates to __________, and resulted in less aggregate spending.
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase
Q. As foreign exchange activity has grown:
a. central bank intervention has become more effective.
b. central bank intervention has become more frequent.
c. central bank intervention has become less effective.
d. none of the above
Q. Which of the following are examples of currency controls?
a. import restrictions.
b. prohibition of remittance of funds.
c. ceilings on granting credit to foreign firms.
d. all of the above
Q. Due to _______, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies.
a. forward realignment arbitrage
b. covered interest arbitrage
c. triangular arbitrage
d. locational arbitrage
Q. In which case will locational arbitrage most likely be feasible?
a. One bank's ask price for a currency is greater than another bank's bid price for the currency.
b. One bank's bid price for a currency is greater than another bank's ask price for the currency.
c. One bank's ask price for a currency is less than another bank's ask price for the currency.
d. One bank's bid price for a currency is less than another bank's bid price for the currency.