International Finance Multiple Choice Examples
International Finance Multiple Choice Examples
International Finance Multiple Choice Examples
3) Government transfer payments like social security and unemployment benefits are
A) Included in government purchases.
B) Not included in government purchases, but they are part of the investment component of
GNP.
C) Not included in government purchases, but they are included in the consumption component
of GNP.
D) Not included in government purchases.
E) Included in government purchases but not in the GNP.
7) How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the
exchange rate is 1.5 dollars per British pound?
A) 25 B) 10 C) 30 D) 35 E) 20
8) A(n) _________ of a nation’s currency will cause imports to ___________ and exports to _______,
all other things held constant.
A) Appreciation; increase; increase
B) Depreciation; decrease; decrease
C) Depreciation; increase; decrease
D) Appreciation; decrease; increase
E) Depreciation; decrease; increase
9) In 2010, what is the percentage of foreign exchange transactions that involved exchanges of
foreign currencies for U.S. dollars?
A) 20 percent B) 30 percent C) 10 percent D) 40 percent E) 85 percent
10) If the dollar interest rate is 4 percent, the euro interest rate is 6 percent, then
A) Invest only in euros if the exchange rate is expected to remain constant.
B) An investor should invest only in dollars
C) An investor should invest only in euros
D) Invest only in dollars if the exchange rate is expected to remain constant
E) An investor should be indifferent between dollars and euros
11) Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro.
Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar
deposits is 10 percent and on euro it is 4 percent. Under these assumptions
A) it is hard to tell whether interest parity does or does not hold
B) interest parity does not hold
C) interest parity does hold
D) not enough information is given to answer the question
E) interest parity fluctuates
12) The covered interest rate parity condition can be stated as follows: The interest rate on dollar
deposits equals the interest rate on euro deposits ___________ the forward ____________ on
euros against dollars.
A) Plus; premium
B) times; premium
C) minus; premium
D) plus; discount
E) minus; discount
14) An increase in
A) Real output decreases the interest rate while a fall in a real output increases the interest rate,
given the price level
B) Nominal output raises the interest rate while a fall in a real output lowers the interest rate,
given the price level and the money supply
C) Real output raises the interest rate while a fall in a real output lowers the interest rate, given
the price level and the money supply
D) Real output raises the interest rate while a fall in a real output lowers the interest rate, given
the money supply
E) Nominal output raises the interest rate while a fall in a real output lowers the interest rate,
given the price level
23) An increase in the world relative demand for U.S. output causes
A) A long-run real appreciation of the euro against the dollar
B) A long-run real depreciation of the dollar against the euro
C) A long-run real appreciation of the dollar against the euro
D) A short-run real depreciation of the dollar against the euro
E) A short-run real appreciation of the euro against the dollar
28) Imagine that the economy is at a point that is above both AA and DD, where both the output and
asset markets are out of equilibrium. Which first action is true?
A) The exchange rate will first move to a point on the DD schedule.
B) The AA-DD equilibrium will shift to the position of the economy.
C) The exchange rate will first move left to a position on the AA schedule.
D) The economy will stay at this level in the short run.
E) The exchange rate will first drop to a point on the AA schedule.