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MULTIPLE-CHOICE QUESTIONS
NB: Clearly indicate which alternative you think is correct.
1. In a Swan diagram, if an economy is situated below (to the
right) of the external balance (EE) curve,there is a balance of
payments ________ , and, if the economy is situated above (to the
right) of theinternal balance (YY) curve, there is ________ .
a. deficit; recession or unemploymentb. deficit; inflation*c.
surplus; recession or unemployment
d. surplus; inflation
2. Points below the internal balance line YY of the Swan diagram
indicate
a. a balance of payments deficitb. a balance of payments
surplusc. unemployment*d. inflation
3. The Reserve Bank buying of Australian dollars on the foreign
exchange market is recorded in the
BOPA as
a. a credit item in the current accountb. a debit item in the
current accountc. a debit item in the capital accountd. a credit
item in the capital account*
4. If, under the Gold Standard, the par value of the franc in
terms of the US dollar is $0.20, and if it costs$0.01 to move one
francs worth of gold between the two countries, then the gold
export point from
the US is at ____________, and the gold import point into the US
is at _____________.
a. $0.20 = 1 franc; $0.20 = 1 francb. $0.19 = 1 franc; $0.21 = 1
francc. $0.21 = 1 franc; $0.19 = 1 franc*d. $0.22 = 1 franc; $0.21
= 1 franc
5. The J-curve effect occurs when
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a. the trade balance improves sharply following revaluationb.
the trade balance improves sharply following devaluationc. the
trade balance worsens then improves following devaluation*d. the
volume of exports decreases continuously
6. Currency arbitrage
a. encourages destabilising currency speculationb. increases the
risk of taking short or long positions in a foreign currencyc.
helps to even out the amplitude of currency exchange rate
fluctuation in the long run*d. none of the above
7. AUD/USD = 1.8984, USD/GBP = 1.4514. What is the consistent
cross rate for AUD/GBP?
a. 0.7645b. 1.3078
c. 2.7553*d. none of the above
8. If the AUD price of GBP is 2.50 and the EUR price of GBP is
6.30, what is the EUR price of theAUD?
a. 0.3968b. 2.50c. 2.52 *d. none of the above
9. The bid exchange rate is determined by
A: the demand by customers and the supply by market-makers.B:
the demand by customers and the demand by market-makers.C: the
supply by customers and the supply by market-makers.D: None of the
above*
10. In 2005, the EUR/AUD exchange rate fell from 0.5764 to
0.5403.
Calculate the percentage change in the AUD against the EUR.
A: +6.26%B: -6.26%*C: +6.68%D: -6.68%
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11. The receipt of an interest payment on a long-term loan made
by a commercial bank to a foreignresident is entered in the US
balance of payments as a
a. credit in the short-term capital accountb. credit in the
current account*c. credit in the long-term capital account
d. debit in the long-term capital account
12. For the MNC, agency costs are typically:
a. non-existent.b. larger than agency costs of a small purely
domestic firm.*c. smaller than agency costs of a small purely
domestic firm.d. the same as agency costs of a small purely
domestic firm.
13. A rise in the domestic and foreign growth rates leads
to:
A: Depreciation of the foreign currency.B: Depreciation of the
domestic currency.C: No change in the domestic currency.D: The
effect cannot be determined without knowing the exact growth
rates.*
14. The main participants in the Eurocurrency market are:
a. consumers.b. small firms.
c. large corporations.*d. small European firms needing European
currencies for international trade.
15. Assume countries A, B, and C produce goods that are
substitutes of each other and that thesecountries engage in trade
with each other. Assume that country As currency floats against
countryBs currency, and that country Cs currency is pegged to Bs.
If As currency depreciates against B,then As exports to C should
_______, and As imports from C should _______.
A: Decrease; increaseB: Decrease; decreaseC: Increase;
decrease*
D: Increase; increase
16. To strengthen the USD using sterilized intervention, the Fed
would _____________ USD andsimultaneously ____________ Treasury
securities.
A: Buy; sellB: Sell; buyC: Buy; buy*D: Sell; sell
17. You are given the following exchange rate quotes in
Sydney:
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GBP/USD 0.5500
SEK/USD 7.3500
SEK/GBP 16.0000
Calculate the USD profit, if any, on a three-point
arbitrage.
A: USD 0.1578 for every 1 USD investedB: USD 1.1973 for every 1
USD investedC: USD 0.1973 for every 1 USD invested*D: USD 1.1578
for every 1 USD invested
18. Dealer A quotes 1.25001.2550 for the AUD/USD exchange rate
to dealer B. The price (in USdollars) at which B can buy one unit
of the Australian dollar is
a.1.2500.b.1.2550.c.0.8000.*d. 0.7968.
19. The Bretton Woods system was a system of
a. fixed but adjustable exchange rates.*b. crawling peg.c.
managed floating.d. fixed exchange rates.
20. Central banks buy and sell currencies on the foreign
exchange market to
a. make profit and accumulate reserves.b. smooth out
fluctuations in exchange rates.*c. finance the countrys
international transactions.d. smooth out capital movements.
Formulas
(x/y)0 to (x/y)1
y
.
= [(x/y)1/(x/y)0]- 1
x
.
= - y.
/(1 + y.
)
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