San Francisco State University

IBUS 330

International Business: The New Realities, 2e

Chapter 11 The International Monetary and Financial Environment

1)Companies have a tendency to prefer handling international business transactions with their own currency rather than with the currency of another country.

2. The most universally accepted currencies for international business transactions are the euro, dollar, yen, and peso, which are all considered hard currencies.

3. The foreign-exchange market has locations in Switzerland, Japan, and the United States.

4. The greater the demand for a currency, the lower its price; the lower the demand for a currency, the higher its price.

5. In most high-inflation nations, interest rates are increasing while the purchasing power of the national currency is plummeting.

6. An increase in a nation's rate of inflation leads to an oversupply of money and eventually to a decrease in the value of the nation's currency.

7. The Bretton Woods Agreement was enacted in the late 1960s when the U.S. needed to finance government programs and the Vietnam War.

8. The International Monetary Fund was created through the Bretton Woods Agreement as a way to monitor the foreign exchange systems and lend money to developing economies.

9. The official price of gold is used to determine the value of all major currencies in the exchange rate system used for international trade today.

10. The global financial system establishes the rules and procedures for exchanging national currencies in international business transactions.

11. The integration of international financial and monetary activity creates more opportunities for contagions.

12. Central banks are the only participants on the national government level of the global monetary and financial system.

13. Wire transfers are commonly used by individuals in advanced economies to transfer money to family members in emerging markets such as India and Mexico.

14. Approximately how many currencies are used in business transactions around the world?

15. Which of the following is an example of a country that has experienced dollarization?

16. The price of one currency expressed in terms of another is known as which of the following?

17. Which of the following is  regarding the value of national currencies?

18. Currency risk can best be defined as the risk that occurs when                              .

19. Which of the following is an example of a currency risk?

20. A U.S. company that buys from a supplier whose currency is increasing against the dollar will most likely have to do which of the following if the price is expressed in the supplier's currency?

21. A French company that sells goods to a foreign customer whose currency is depreciating against the euro will most likely experience which of the following when completing the sale?

22. Which of the following characterizes hard currencies?

23. The U.S. dollar is an example of which of the following?

24. The type of currency used only for domestic business transactions is known by which of the following terms?

25. Capital flight has which of the following effects on a nation?

26. Currency complications which occur in international business transactions are resolved by which of the following?

27. If last year one dollar equaled one euro, and then the exchange rate shifted so that today one dollar equals two euros, which of the following would most likely not occur?

28. The levels of supply and demand for a currency vary                               with its price.

29. If the supply of a currency rises, which of the following is most likely to be

regarding the currency's price?

30. If demand for the dollar is reduced, the price of the dollar is most likely to                                 .

31. What does the central bank do in order to accommodate a nation's economic growth?

32. Momentum trading is characterized by which of the following?

33. A trade surplus occurs as a result of which of the following?

34. Each of the following significantly affects the level of the balance of trade except

                     .

35. A government reduction of the currency value is known by which of the following terms?

36. The difference between the total amount of money flowing into and out of a nation is known by which of the following terms?

37. The purpose of the Bretton Woods Agreement was to                          .

38. Which of the following was most likely the underlying reason for the demise of the Bretton Woods system?

39. Which of the following best characterizes the functions of the World Bank?

40. The Bretton Woods Agreement most likely influenced the current trend towards international free trade when member countries agreed to                                                              

41. Each of the following characterizes the floating exchange rate system except                               .

42. A dirty float is defined by which of the following?

43. Which of the following best describes the role that the international monetary system plays with foreign firms?

44. All of the following are part of the global financial system except the                                 .

45. Which of the following is a new driver of the global financial system?

46. On which of the following levels of the international monetary and financial systems pyramid are commercial banks categorized?

47. Information technology has altered the way stock markets function primarily by

                     .

48. All of the following characterize stock exchanges except                               .

49. Bonds can best be described as which of the following?

50. Institutional investors are responsible for managing                              and mutual funds.

51. A firm that is considering a corporate merger would most likely seek advice from which of the following?
52. A banking crisis often occurs under which of the following situations?

53. Which of the following questions would be more important for Chisholm to evaluate before presenting his manufacturing recommendations to shareholders?

54. Which of the following should be considered closely before Chisholm recommends increasing production to take advantage of the current exchange rate?

55. Which of the following supports maintaining the current production status instead of increasing production?

56. Which of the following questions would be more important to evaluate in determining the reason behind the inflation in Country X?

57. Which of the following is most likely an additional problem faced by Country X due to its inflation?

58. Which of the following should be considered before the government takes any action to correct the high rate of inflation?

59. Expert A most likely works for which of the following?

60. The employer of Expert B can most likely be categorized as which of the following?

61. Expert C most likely works for which of the following?

62. Given the fluctuation of exchange rates, what should buyers and sellers consider when entering into international business transactions? In a short essay, explain three points managers should remember in regard to price agreements and exchange rates.

63. What is the difference between a convertible currency convertible and a nonconvertible currency? In a short essay, explain why governments of some countries impose restrictions on currency convertibility.

64. Suppose that last year one dollar equaled one euro. Now suppose that, today, one euro equals $1.50. In a short essay, explain the effects of this exchange rate on European firms and consumers. How do nations try to manage fluctuating exchange rates?

65. In a short essay, explain how a nation's economic growth is measured and what stimulates economic growth. What is the central bank, and how does it affect economic growth?

66. In a short essay, describe the underlying reasons for inflation. Provide an example of a nation that faced a high rate of inflation.

67. In a short essay, explain the concept of currency risk. How can inflation and interest create currency risk?

68. In a short essay, explain the purpose of devaluation.

69. In a short essay, explain the belief that a persistent trade deficit is harmful to the national economy. Why was the Bretton Woods Agreement initiated, and why was it terminated?

70. In a short essay, describe four principles or organizations brought about by the Bretton Woods Agreement that remain important to international business and trade today. Why does the integration of financial and monetary activity worldwide continue to grow?

71. In a short essay, describe the two main types of foreign exchange management used today. Provide examples of nations which use each type of system. What are the benefits of each system?

72. In a short essay, explain why international financial and monetary activities are becoming more integrated. What are the risks and benefits of the growing integration of the two activities?

73. In a short essay, describe the role of commercial banks in the global financial sector. Provide a brief description of the activities performed by three different types of commercial banks.

74. In a short essay, explain the duties of central banks. How do central banks, such as the Federal Reserve, implement national monetary policies?

75. In a short essay, explain the differences between the international monetary system and the International Monetary Fund. What are the three major types of crises most frequently addressed by the International Monetary Fund?

76. The Indian rupee is one of the currencies upon which the value of the SDR is based

77. A huge oversupply of easy money in global financial markets can lead to excessive demand in a developed nation’s housing market as well as for basic commodities such as petroleum and food. Such high levels of demand can lead to problems such as banks making risky loans and even high levels of inflation for basic commodities.