Question

1. An MNC's value depends on all of the following:

   	a.	the MNC's required rate of return.
   	b.	the amount of the MNC's cash flows in a particular currency.
   	c.	the exchange rate at which cash flows are converted to dollars.
   	d.	All of the above

1 points   

QUESTION 2

1. Livingston Co. has a subsidiary in Korea. The subsidiary reinvests half of its net cash flows into operations and remits half to the parent. Livingston's expected cash flows from domestic business are $1,000,000, and the Korean subsidiary is expected to generate 1 billion Korean won at the end of the year. The expected value of the won is $.0012. What are the "total" expected dollar cash flows of Livingston Co.?​

   	a.	​$1000,000
   	b.	​$2,000,000
   	c.	​$600,000
   	d.	​$1,600,000

2 points   

QUESTION 3

1. In general, if a home currency begins to appreciate against other currencies, this should ____ the current account balance, other things being equal (assume that substitutes are readily available in other countries, and that the prices charged by firms remain the same).

   	a.	improve
   	b.	have no impact on
   	c.	worsen
   	d.	all of the above are possible.

1 points   

QUESTION 4

1. Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance-of-trade position (increase its exports or reduce its imports)?

   	a.	The government could provide subsidies to importers.
   	b.	The government could attempt to reduce its home currency's value.
   	c.	The government could require firms to engage in outsourcing.
   	d.	The government should do nothing.

2 points   

QUESTION 5

1. A weak home currency may not be a perfect solution to correct a balance-of-trade deficit because:

   	a.	it reduces the prices of imports paid by local companies.
   	b.	​it prevents international trade transactions from being prearranged.
   	c.	it increases the prices of exports by local companies.
   	d.	foreign companies may reduce the prices of their products to stay competitive.

2 points   

QUESTION 6

1. Which of the following will probably NOT result in an improved current account balance (assuming everything else remains constant)?

   	a.	a decrease in a country's national income level
   	b.	a decrease in a country's rate of inflation
   	c.	an increase in government restrictions in the form of tariffs or quotas
   	d.	an appreciation of a country's currency

2 points   

QUESTION 7

1. Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar's value should ____ the U.S. demand for products produced by major foreign countries.

   	a.	weakening; increase
   	b.	weakening; decrease
   	c.	strengthening; decrease
   	d.	strengthening; increase

2 points   

QUESTION 8

1. Which of the following is an example of direct intervention in foreign exchange markets?

   	a.	increasing the inflation rate
   	b.	imposing barriers on international trade
   	c.	lowering interest rates
   	d.	exchanging dollars for foreign currency

1 points   

QUESTION 9

1. A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar.

   	a.	downward; downward
   	b.	​downward; upward
   	c.	upward; upward
   	d.	upward; downward

2 points   

QUESTION 10

1. The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

   	a.	remain stable
   	b.	strengthen
   	c.	weaken
   	d.	None of these will have an impact on inflation.

1 points   

QUESTION 11

1. A weaker dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which places ____ pressure on U.S. bond prices.

   	a.	upward; downward; upward
   	b.	upward; upward; downward
   	c.	downward; upward; upward
   	d.	upward; downward; downward

2 points   

QUESTION 12

1. Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

   	a.	downward; increase; higher
   	b.	upward; reduce; unchanged
   	c.	​upward; increase; higher
   	d.	downward; reduce; unchanged

2 points   

QUESTION 13

1. To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities.

   	a.	sell; buy
   	b.	buy; sell
   	c.	buy; sell
   	d.	sell; sell

2 points   

QUESTION 14

1. ​If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____.

   	a.	decreases; appreciate; weaken
   	b.	decreases; appreciate; strengthen
   	c.	​increases; depreciate; strengthen
   	d.	increases; appreciate; weaken

2 points   

QUESTION 15

1. Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using sterilized intervention. The Fed would:

   	a.	sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
   	b.	sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
   	c.	buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
   	d.	buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.

Answer 1

1) D. All of the above.

MNC's value depends on multiple factors that's why all of the above is the answer because MNC value will depend on the rate of return earned by MNC, for calculating net profit exchange rate is very important to convert all the cash flows from different currency in dollars.

2) D. $1600000

Korean = 1B

Exchange rate =$ 0.0012

total= 1B *0.0012*0.5+1000000

=$1600000

3) C. worsen

As currency will appreciate imports will become cheaper and exports expensive. So this will increase imports and decrease exports. Current account bal=export- imports. So it will worsen.

4) B. The government could attempt to decrease it's home currency value.

If currency will depriciate exports will increase as it will become cheaper for foreign economy and imports become expensive. Balance of trade = Exports of G&S- Import of G&S. It will increase.