Q&A Hero

Q: Which of the following refers to currency speculation? A.The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates B.The exchange rate at which a foreign exchange dealer will convert one currency into another that particular day C.Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates D.The purchase of securities in one market for immediate resale in another to profit from a price discrepancy E.The growth in a country's money supply exceeding the growth in its output, leading to price inflation

Q: A French company wants to invest 20 million euros for three months. The company found that investing in a Thai money market account would give it a higher interest rate than domestic investments. Which of the following is true about this investment? A.The investment is risk-free because money market investments are considered to be equivalent to bank deposits. B.The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm. C.The investment is risk-free because such investments also lock foreign exchange rates for the duration of the investment. D.The investment is not risk-free because money market instruments are considered to be the most speculative of all investments. E.The investment is risk-free because the Thai money market is considered to be more stable and secure than other markets.

Q: Steven converted $1,000 to 105,000 for a trip to Japan. However, he spent only 50,000. During this period, the value of the dollar weakened against the yen. Considering a current exchange rate of $1 = 100, how many dollars did Steven spend on the trip? A.$550 B.$523 C.$450 D.$600 E.$500

Q: Which of the following is a function of the foreign exchange market? A.To provide some insurance against foreign exchange risk B.To protect short-term cash flow from adverse changes in exchange rates C.To eliminate volatile changes in exchange rates D.To reduce the economic exposure of a firm E.To enable companies to engage in capital flight when countertrade is not possible

Q: The currency of the country of Venadia falls sharply in value against the currency of Lutetia, a neighboring country. Which of the following is a consequence of this exchange rate movement? A.Lutetia's products will achieve a competitive pricing in Venadia. B.Venadia's exports to Lutetia will increase, because Venadian goods will become cheaper in Lutetia. C.Venadia's products will cost more in Lutetia. D.There will be no difference in the volume or direction of trade. E.Lutetia's exports to Venadia will increase, because Lutetian goods will become cheaper in Venadia.

Q: Which of the following enables organizations to conduct international trade without having to resort to barter? A.Foreign exchange market B.Caribbean Single Market and Economy C.Auction market D.Countertrade E.Balance-of-trade equilibrium

Q: Leading and lagging strategies involve accelerating payments from weak-currency to strong-currency countries and delaying inflows from strong-currency to weak-currency countries.

Q: Economic exposure, a category of foreign exchange risk, is distinct from transaction exposure, which is concerned with the effect of exchange rate changes on individual transactions, most of which are short-term affairs that will be executed within a few weeks or months.

Q: Transaction exposure, a category of foreign exchange risk, refers to the impact of currency exchange rate changes on the reported financial statements of a company.

Q: When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency, the phenomenon is generally referred to as capital flight.

Q: Technical analysis, an approach to foreign exchange forecasting, does not rely on a consideration of economic fundamentals.

Q: In terms of exchange rate forecasting, the efficient market school argues that companies should spend additional money trying to forecast short-run exchange rate movements.

Q: Relative monetary growth, relative inflation rates, and nominal interest rate differentials are all moderately good predictors of long-run changes in exchange rates.

Q: Unlike the purchasing power parity theory, the international Fisher effect is a good predictor of short-run changes in spot exchange rates.

Q: In countries where inflation is expected to be high, interest rates also will be high.

Q: For price discrimination to work, arbitrage opportunities must be unlimited.

Q: Inflation occurs when the money supply in a country increases faster than output increases.

Q: In the context of The Economist's "Big Mac Index," assume that the average price of a Big Mac in South Korea is $2.98 at the prevailing won/dollar exchange rate. The average price of a Big Mac in the United States is $3.58. This suggests that the Korean won is overvalued against the U.S. dollar.

Q: If the law of one price were true for all goods and services, the purchasing power parity (PPP) exchange rate could be found from any individual set of prices.

Q: Although a foreign exchange transaction can involve any two currencies, most transactions involve dollars on one side.

Q: The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

Q: When companies wish to convert currencies, they typically enter the foreign exchange market directly.

Q: A common kind of currency swap is spot against forward.

Q: Currency swaps are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Q: When a firm enters into a spot exchange contract, it is taking out insurance against adverse future exchange rate movements.

Q: Spot exchange rates and the 30-day forward rates are the same.

Q: The forward exchange rate refers to the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

Q: Carry trade is a kind of speculation whose success is based upon a belief that there will be no adverse movement in exchange rates.

Q: Companies engage in currency speculation to get minimal but assured returns from idle cash.

Q: The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as countertrade.

Q: The euro/dollar exchange rate is €1 = $1.20. If it costs $36 to buy a European product, the stated price of the product would be €36.

Q: The foreign exchange market offers complete insurance against foreign exchange risk.

Q: What happens in the foreign exchange market does not directly impact the sales, profits, and strategy of a multinational enterprise.

Q: Which of the following is true of the Single European Act? A.It proposed to place frontier controls among European Community countries. B.It sought to abolish the application of the principle of "mutual recognition" to product standards. C.It proposed to reduce costs indirectly by preventing national suppliers to compete. D.It provided the impetus for the restructuring of substantial sections of European industry. E.It proposed to reduce costs directly by preventing lower-cost suppliers into national economies.

Q: Which of the following proposed that all impediments to the formation of a single market be eliminated by December 31, 1992, resulting in the Single European Act? A.Delors Commission B.Andean Pact C.Treaty of Rome D.North American Free Trade Agreement E.Maastricht Treaty

Q: Which of the following was a change proposed by the Single European Act? A.Establish frontier controls among European Community countries B.Increase the resources required for complying with trade bureaucracy C.Place barriers to competition in the retail banking and insurance businesses D.Apply the principle of "mutual recognition" to product standards E.Reduce costs directly by not allowing lower-cost suppliers into national economies

Q: Which of the following is true of the Court of Justice? A.The judges are required to act as representatives of national interests. B.It comprises several judges from a few selected countries. C.It is the supreme appeals court for European Union law. D.A member country cannot bring another member country to this court. E.Member countries cannot bring the commission or the council to this court.

Q: Which of the following is true of the Treaty of Lisbon that was signed in 2007? A.It defined the European Commission's role in competition policy. B.It brought the commission to the court for failure to act according to a European Union treaty. C.It created the position of the president of the European Council. D.It lifted barriers to competition in the retail banking and insurance businesses. E.It created the Court of Justice, the supreme appeals court for European Union law.

Q: Which of the following is true about the European Parliament? A.It cannot propose amendments to legislations. B.It is directly elected by the populations of the member-states. C.It is primarily a legislative body rather than a consultative body. D.It does not have the right to veto laws such as single-market legislation. E.The European Parliament does not have the right to vote on the appointment of commissioners.

Q: Which of the following meets in Strasbourg, France, is primarily a consultative rather than a legislative body, and debates legislation proposed by the commission and forwarded to it by the council? A.European Parliament B.European Central Bank C.Court of Justice D.European Free Trade Association E.European Community

Q: Which of the following has 754 members as of 2014, and is directly elected by the populations of the member-states? A.Court of Justice B.European Council C.European Commission D.European Parliament E.European Community

Q: The European Council is considered to be the ultimate controlling authority within the European Union (EU) because: A.it monitors member-states to make sure they are complying with EU laws. B.it has a monopoly in proposing EU legislation. C.it has 754 members that are directly elected by the populations of the member-states. D.draft legislation from the European Commission can become EU law only if the council agrees. E.it is the supreme appeals court for EU law.

Q: Which of the following is considered to be the ultimate controlling authority within the European Union? A.Court of Justice B.European Commission C.European Council D.European Parliament E.European Community

Q: Which of the following is true about the European Commission? A.The European Union's competition commissioner has been gaining influence as the chief regulator of competition policy in the member nations of the European Union. B.The European Commission has to be approved by the Council of the European Union before it can begin work. C.The European Commission does not have a policing role with respect to European Union laws. D.The legislation proposed by the European Commission goes directly to the European Parliament. E.The European Commission is the ultimate controlling authority within the European Union.

Q: Which of the following institutions has a monopoly in proposing European Union legislation? A.Council of the European Union B.Court of Justice C.European Commission D.European Parliament E.European Community

Q: Which of the following is responsible for proposing European Union legislation, implementing it, and monitoring compliance with European Union laws by member-states? A.Council of the European Union B.European Commission C.European Parliament D.Court of Justice E.European Community

Q: Which of the following is true of the Treaty of Rome? A.It obliged all European Union members to adopt the euro. B.It committed the European Community to establish common policies in agriculture and transportation. C.It called for the establishment of internal trade barriers. D.It allowed members to determine the level of protection applied to goods coming from outside. E.It called for the abolition of a common external tariff.

Q: The European Community became the European Union in 1993 following the ratification of the: A.Maastricht Treaty. B.Warsaw Pact. C.Treaty of Rome. D.Single European Act. E.Lisbon Treaty.

Q: The European Community was established with the signing in 1957 of the Treaty of: A.Paris. B.Brussels. C.Switzerland. D.Rome. E.Lisbon.

Q: Which of the following is a factor that resulted in the establishment of the European Union (EU)? A.The spectacular success of the North American Free Trade Agreement (NAFTA) B.The trade impasse following the oil crisis in the 1970s that occurred due to collusion among oil producing nations C.The devastation of Western Europe during two world wars and the desire for a lasting peace D.The emergence of Japan as an economic and industrial superpower despite the nuclear holocaust E.The rise of communism in Europe

Q: Which of the following are significant trade blocs in Europe? A.The European Union and the European Free Trade Association B.The European Federation and the European Trade Block C.The European Commission and the COMINTERN D.The European Federation and the European Trade Association E.The European Economic Community and the European Federation

Q: Suppose the country of Ceria and Lithinia imposed tariffs on imports from all countries, and then they set up a free trade area, scrapping all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Now, Ceria begins to import sugar from Lithinia. However, Ceria had previously been importing sugar from another country, Cadnia, which produced sugar more cheaply than Ceria or Lithinia. This is known as: A.trade creation B.strategic pricing C.synergy D.trade diversion E.protectionism

Q: The country of Argonia and the country of Berylia imposed tariffs on imports from all countries. They set up a free trade area, removing all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Argonia now begins to import sugar from Berylia. Previously, Argonia was indigenously producing sugar at a higher cost. Thus, Argonia benefits from this transaction. This is known as: A.trade creation B.strategic pricing C.synergy D.trade diversion E.protectionism

Q: A regional free trade agreement will benefit the world only if: A.it raises the standard of living in one of the member countries. B.the amount of trade it creates exceeds the amount it diverts. C.the currencies of the nations involved appreciate. D.the balance-of-trade situation remains stable in the region. E.it creates trade surplus for one of the countries involved.

Q: Which of the following occurs when lower-cost external suppliers are replaced by higher-cost suppliers within a free trade area? A.Trade creation B.Strategic pricing C.Synergy D.Trade diversion E.Protectionism

Q: Which of the following occurs when high-cost domestic producers are replaced by low-cost producers within a free trade area? A.Value creation B.Strategic pricing C.Trade creation D.Trade diversion E.Economic exposure

Q: Which of the following is an example of concerns over national sovereignty acting as an impediment to regional economic integration? A.The Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel B.The Asia-Pacific Economic Cooperation failing to establish itself as a regional arrangement C.Admission of Eastern European nations into the European Union D.Great Britain refusing to adopt the common currency of the European Union, the euro E.The rise of the World Trade Organization

Q: Which of the following are the two impediments to regional economic integration? A.Labor activism and political ideologies B.Immigration and political ideologies C.Costs and national sovereignty D.Political will and popular support E.Political ideologies and international policies

Q: Which of the following is a major consideration that underlay the establishment of the European Community? A.The pressing need to have a common currency that would make trade between European and non-European countries easier B.The need for a united Europe to deal with the United States and the politically alien Soviet Union C.The economic lessons from the Great Depression that hit the United States in the 1920s D.The success of the European Free Trade Association formed by Western European countries in 1960 E.The rise of communism in Europe in the 1960s

Q: Which of the following is true of the political case for regional economic integration? A.Linking neighboring economies increases the potential for violent conflict. B.Free trade stimulates economic growth, which creates dynamic gains from trade. C.Making neighboring economies increasingly dependent on each other fails to create incentives for political cooperation. D.Countries can enhance their political weight in the world by grouping their economies. E.Those who have sought a united Europe have always had a desire to make another war in Europe imminent.

Q: Which of the following supports the economic case for regional economic integration? A.International institutions such as the World Trade Organization have been moving the world away from a free trade regime. B.The greater the number of countries involved in a free trade agreement, the fewer the perspectives that must be reconciled. C.Coordination and policy harmonization problems are largely a function of the number of countries that seek agreement. D.It is difficult to establish a free trade and investment regime among a limited number of adjacent countries as compared to the world community. E.Since most governments do not intervene, unrestricted free trade and FDI have become a reality.

Q: Which of the following is defined as a central political apparatus that coordinates the economic, social, and foreign policy of the member-states? A.Free trade area B.Political union C.Economic union D.Common market E.Command economy

Q: Establishment of which of the following would hold a coordinating bureaucracy accountable to the citizens of member nations? A.A political union B.A customs union C.An exclusive economic zone D.A free trade agreement E.A common market

Q: Which of the following is true with regard to an economic union? A.There are restrictions on immigration, emigration, or cross-border flow of capital among member countries. B.It entails less economic integration and cooperation than a common market. C.It involves the free flow of products and factors of production among member countries. D.It is defined as a central political apparatus that coordinates the economic, social, and foreign policy of the member-states. E.It does not adopt a common external trade policy.

Q: Which of the following levels of economic integration involves the use of a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy? A.Free trade area B.Customs union C.Common market D.Economic union E.Command economy

Q: Which of the following entails a closer economic integration and cooperation than a common market? A.Command economy B.Customs union C.Efficient market D.Free trade area E.Economic union

Q: Which of the following is a feature of a common market? A.Absence of a common external trade policy with regard to nonmembers B.Free movement of factors of production between member nations C.Establishment of barriers to the free flow of goods between member nations D.Lack of administrative machinery to oversee trade relations with nonmembers E.Mandatory use of a common currency among member nations

Q: Which of the following has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members? A.Command economy B.Customs union C.Common market D.Efficient market E.Free trade area

Q: Three countries enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common trade policy with regard to nonmembers. Faced with political backlash, the countries stop short of allowing mobility of factors of production such as labor and capital. Which of the following levels of economic integration best describes this arrangement? A.Political union B.Customs union C.Common market D.Economic union E.Monetary union

Q: Which of the following is true of the European Free Trade Association (EFTA)? A.The emphasis of EFTA has been on free trade in agricultural goods. B.Industrial goods were left out of the trade arrangement, each member being allowed to determine its own level of support. C.Members cannot determine the level of protection applied to goods coming from outside EFTA. D.It was founded by those western European countries that initially decided not to be part of the European Community. E.It imposes a common tariff, of 5 to 20 percent, on products imported from outside.

Q: Which of the following are the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements? A.Licensing agreements B.Economic unions C.Common markets D.Free trade agreements E.Political unions

Q: Which of the following is true with regard to a free trade area? A.Factors of production are allowed to move freely between member nations. B.Each member country is allowed to determine its own trade policies with regard to nonmembers. C.Member nations are required to have a common currency. D.Member nations are required to have a common monetary and fiscal policy. E.Member nations are required to have a central political apparatus that coordinates economic, social, and foreign policy.

Q: Which of the following is defined as a group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies? A.Free trade area B.Command economy C.Efficient market D.Foreign exchange market E.Location economy

Q: Which of the following is the economic level corresponding to the least integration? A.A free trade area B.A customs union C.A common market D.An economic union E.A political union

Q: Where has the movement toward regional economic integration been most successful? A.Africa B.South America C.North America D.Europe E.Asia

Q: Which of the following is true with regard to regional economic integration? A.Agreements designed to promote freer trade within regions have failed to produce gains from trade for all member countries. B.World Trade Organization members are not required to notify the organization of any regional trade agreements in which they participate. C.Regional economic integration is good for consumers because it lowers prices. D.Regional economic integration benefits producers because they do not have to adapt to a more competitive environment. E.The movement toward regional economic integration has been most successful in Asia.

Q: Which of the following refers to agreements among countries in a geographic region to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other? A.Regional economic integration B.Cross-cultural integration C.Zoning agreement D.Administrative trade policies E.Balance-of-trade equilibrium

Q: An advantage of the emergence of single markets is that the lowering of barriers to trade and investment among countries has led to decreased price competition throughout the European Union.

Q: The creation of a single market through regional economic integration offers significant opportunities because markets that were formerly protected from foreign competition are increasingly open.

Q: Since the number of trade groups in the African continent is impressive, progress toward the establishment of meaningful trade blocs has been fast.