international finance Mid term

1. International Finance’s Midterm Exam
Int’l Finance –Midterm Exam – 59C – Good Luck Page 1
Int’l Finance- Dr. Sherif M. A. Fattah Esl. 59 C Heliopolis
Student’s Name: ---------------------------------------------------------------------------------- Student’s #------
Multiple Choice Questions please choose the correct answer:
1) Which of the following is a driver in the determination of foreign exchange rates under the
Asset Market Approach to forecasting?
A) relative inflation rates
B) relative real interest rates
C) forward exchange rates
D) the current account balance
2) The authors compromise as to the key factors for exchange rate determination. They conclude
that are important in the short run, but that determines long run exchange
rates.
A) Fisher effect; PPP
B) asset markets, interest rates, and expectations; PPP
C) PPP; Fisher effect
D) Fisher effect; asset prices, interest rates, and expectations
3) Under a fixed exchange rate regime, the government of the country is officially responsible
for
A) intervention in the foreign exchange markets using gold and reserves.
B) setting the fixed/parity exchange rate.
C) maintaining the fixed/parity exchange rate.
D) all of the above.
4) 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
5) In January 2002, the Argentine peso was officially valued at a rate of Peso 1.40/USD. More
recently the exchange rate is Peso 3.10/USD, thus, the Argentine peso
dollar.
A) strengthened
B) weakened
C) remained neutral
D) all of the above
against the U.S.

2. International Finance’s Midterm Exam
Int’l Finance –Midterm Exam – 59C – Good Luck Page 2
6) In London an investor can buy a U.S. dollar for £0.6102. In New York the £/$ exchange rate
is the same as found in London. Given this information, what is the $/£ exchange rate in New
York?
A) $1.6388/£
B) £0.6102/$
C) £1.6388/$
D) $0.6102/£
7) Which of the following is NOT an attribute of the "ideal" currency?
A) monetary independence
B) full financial integration
C) exchange rate stability
D) All are attributes of an ideal currency.
8) A country experiencing a serious BOP is more likely to exports than
otherwise.
A) surplus; contract
B) deficit; contract
C) deficit; expand
D) none of the above
9) The balance of payments is most like a(an) .
A) cash flow statement
B) balance sheet
C) income statement
D) proxy statement
10) Which of the following is NOT an example of an exchange of financial assets?
A) the exchange of travel services
B) the exchange of stocks
C) the exchange of bonds
D) loans
11) If your company were to import and export textiles, the transactions would be recorded in the
current account subcategory of .
A) services trade
B) income trade
C) goods trade
D) current transfers

3. International Finance’s Midterm Exam
Int’l Finance –Midterm Exam – 59C – Good Luck Page 3
12) When the Russian Ruble reached the limits of the bands about its managed float targets
(Ru5.70/$ to Ru6.35/$) in 1997, the Russian government would intervene in the markets to
stabilize the Ruble. If the exchange rate approached Ru5.70/$ the government would
Rubles using foreign exchange and gold, or if the exchange rate approached Ru6.35/$ they
would Rubles.
A) buy; sell
B) sell; buy
C) buy; buy
D) sell; sell
13) The authors discuss the concept of the "Impossible Trinity" or the inability to achieve
simultaneously the goals of exchange rate stability, full financial integration, and monetary
independence. If a country chooses to have a pure float exchange rate regime, which two of the
three goals is a country most able to achieve?
A) monetary independence and exchange rate stability
B) exchange rate stability and full financial integration
C) full financial integration and monetary independence
D) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.
14) Which of the following is the best definition of money laundering?
A) legal transfer of funds through the usual international payments mechanisms
B) the transfer of cash into collectibles that are then transferred across borders
C) the cross-border purchase of assets that are then managed in a way that hide the movement of
money and its ownership
D) false invoicing of international trade transactions
15) Which of the following is NOT a motivation identified by the authors as a function of the
foreign exchange market?
A) The transfer of purchasing power between countries.
B) Obtaining or providing credit for international trade transactions.
C) Minimizing the risks of exchange rate changes.
D) All of the above were identified as functions of the foreign exchange market.
16) Which of the following may be participants in the foreign exchange markets?
A) bank and nonbank foreign exchange dealers
B) central banks and treasuries
C) speculators and arbitragers
D) All of the above.

4. International Finance’s Midterm Exam
Int’l Finance –Midterm Exam – 59C – Good Luck Page 4
17) In the foreign exchange market, seek all of their profit from exchange rate changes
while seek to profit from simultaneous exchange rate differences in different markets.
A) wholesalers; retailers
B) central banks; treasuries
C) speculators; arbitragers
D) dealers; brokers
18) A transaction in the foreign exchange market requires an almost immediate
delivery of foreign exchange.
A) spot
B) forward
C) futures
D) none of the above
19) A common type of swap transaction in the foreign exchange market is the where
the dealer buys the currency in the spot market and sells the same amount back to the same bank
in the forward market.
A) "forward against spot"
B) "forspot"
C) "repurchase agreement"
D) "spot against forward"
20) The important thing to remember about foreign exchange rate determination is that parity
conditions, asset approach, and balance of payments approaches are
than theories.
A) competing; complementary
B) competing; contemporary
C) complementary; contiguous
D) complementary; competing
theories rather
21) , traditionally referred to as chartists, focus on price and volume data to determine
past trends that are expected to continue into the future.
A) Mappists
B) Trappist Monks
C) Filibusters
D) Technical analysts

5. International Finance’s Midterm Exam
Int’l Finance –Midterm Exam – 59C – Good Luck Page 5
22) The euro was launched in January 1999 with an official initial value against the dollar of
$1.16/€. As of January 2011 the currency exchange rate was $1.40/€. Thus, over this time period
the euro has against the dollar by a total of .
A) appreciated; 82.86%
B) appreciated; 20.69%
C) depreciated; 82.86%
D) depreciated; 20.69%
23) "Overshooting" exchange rate changes in response to an action of the Federal Reserve would
be an example of
A) a market inefficiency.
B) a market efficiency.
C) the Fisher Effect.
D) none of the above.
24) is the alteration of economic or financial fundamentals which are thought to be
drivers of capital to flow in and out of specific currencies.
A) Proportional intervention
B) Direct intervention C)
Indirect intervention D)
Hopeless intervention
25) The "tequila effect" is a slang term used to describe a form of financial panic called
.
A) run on the market
B) speculation
C) contrary investing
D) contagion
26) LIBOR is an acronym for .
A) London International Banks Official Rate
B) Latest International Banking Official Rate
C) London Interbank Offered Rate
D) Latest Interbank Option Rate

6. International Finance’s Midterm Exam
Int’l Finance –Midterm Exam – 59C – Good Luck Page 6
27) World War I caused the suspension of the gold standard for fixed international exchange
rates because the war
A) cost too much money.
B) interrupted the free movement of gold.
C) lasted too long.
D) used gold as the main ingredient in armament plating.
28) In a static (accounting) sense, a nation's GDP can be represented by the following equation:
where C = consumption spending, I = investment spending, G = government spending, X =
exports of goods and services, and M = imports of goods and services.
A) GDP = C + I + G + M - X
B) GDP = C + I + G + X - M
C) GDP = C + I - G + X - M
D) GDP = C + I + G + X + M
29) The BOP must be in balance but the current account need not be.
TRUE
FALSE
30) Members of the International Monetary Fund may settle transactions among themselves by
transferring Special Drawing Rights (SDRs).
TRUE
FALSE

7. Int’l Finance –Midterm Exam – 59C – Good Luck Page 7
International Finance’s Midterm Exam
Essay Questions please choose 4 questions out of the following:
1- List and explain the three attributes of the "ideal"currency. Why are these referred
to as "the impossible trinity"?
2- What is the difference between a direct foreign investment and a portfolio foreign
investment?

8. Int’l Finance –Midterm Exam – 59C – Good Luck Page 8
International Finance’s Midterm Exam
3- What are the three major functions ofthe foreign exchange market?
4- Explain how a country can adjust trade balance deficit. Support your answer with a
diagram or graph.

9. Int’l Finance –Midterm Exam – 59C – Good Luck Page 9
International Finance’s Midterm Exam
5- Explain howtechnical analysis can be used to forecast future spot exchange rates. Support
your answer with a diagram.
6- What is meant by the term “overshooting?” What causes it and howis it corrected?
Support your answer with a diagram or graph.