International Finance

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Exercise Questions for Mid-term Exam

1. Which of the following factors of production DO NOT flow freely between countries? A) Labors and Land
B) Financial capital
C) (Non-military) Technology
D) All of the above factors of production flow freely among countries.

2. Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was A) £4.8665/$.

B) £0.2055/$.
C) always changing because the price of gold was always changing. D) unknown because there is not enough information to answer this question

3. The post WWII international monetary agreement that was developed in 1944 is known as the ________. A) United Nations.
B) League of Nations.
C) Yalta Agreement.
D) Bretton Woods Agreement.

4. 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

5. Which of the following correctly identifies exchange rate regimes from less fixed to more fixed? A) Independent floating, currency board arrangement, crawling pegs. B) Independent floating, currency board arrangement, managed float. C) Independent floating, crawling pegs, exchange arrangements with no separate legal tender. D) Exchange arrangements with no separate legal tender, currency board arrangement, crawling pegs.

6. Which of the following is NOT a major subaccount of the Balance of Payments? A) The financial account.
B) The accounts payable.
C) The capital account.
D) The current account.

7. The balance of payments as applied to a course in international finance may be defined as: A) the amount still owed by an exporting firm after making an initial down payment. B) the amount still owed by governments to the International Monetary Fund. C) the measurement of all international economic transactions between the residents of a country and foreign residents. D) the amount of a country's merchandise trade deficit or surplus.

8. Which of the following is NOT a part of the Current Account of BOP? A) Net export/import of goods.
B) Balance of Trade.
C) Net portfolio investment.
D) Net export/import of services.

9. The ________ includes all international economic transactions with income or payment flows occurring within the year. A) capital account
B) current account
C) financial account
D) IMF account

10. Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of ________. A) services trade

B) income trade
C) goods trade
D) current transfers

11. When categorizing investments for the financial account component of the balance of payments the ________ is an investment where the investor has no control whereas the ________ is an investment where the investor has control over the asset. A) direct investment; portfolio investment

B) direct investment; indirect investment
C) portfolio investment; indirect investment
D) portfolio investment; direct investment

12. The process of turning an illiquid asset into a liquid saleable asset is called ________. A) swapping
B) wrapping
C) securitization
D) creationism

13. A ________ is a financial intermediation device that allowed the participant to borrow short and lend long. A) sub-prime loan
B) structured investment vehicle
C) non-conforming loan
D) all of the above

14. ________ is the method of making investments more attractive to prospective buyers by reducing their perceived risk. A) Subordination
B) Credit enhancement
C) Derivation
D) Deregulation

15. While...
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