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Compare and contrast a pegged exchange system and a dirty float system of exchange rates.

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Question;Question 1;The foreign exchange market serves;two main functions. These are;Answer;collect duties on imported products and;convert the currency of one country into the currency of another.;insure companies against foreign exchange;risk and set interest rates charged to foreign investors.;collect duties on imported products and;set interest rates charged to foreign investors.;convert the currency of one country into;the currency of another and provide some insurance against foreign exchange;risk.;Question 2;FDI has been rising for all of the;following reasons except;Answer;the globalization of the world economy.;the general increase in trade barriers;over the past 30 years.;firms are trying to circumvent trade;barriers.;there is a shift toward democratic;political institutions and free market economies.;Question 3;A fixed exchange rate regime;Answer;modeled along the lines of the Bretton;Woods system will not work.;allows each country to choose its own;inflation rate.;is characterized by speculation that adds;to the uncertainty surrounding future currency movements.;leads to a situation where governments;under political pressures expand monetary supply too rapidly, causing;unacceptably high price inflation.;Question 4;Licensing would be a good option for;firms in which of the following industries?;Answer;High-technology industries in which;protecting firm-specific expertise is of paramount importance and licensing;is hazardous.;Global oligopolies, in which competitive;interdependence requires that multinational firms maintain tight control over;foreign operations.;Industries in which intense cost;pressures require that multinational firms maintain tight control over;foreign operations.;In fragmented, low-technology industries;in which globally dispersed manufacturing is not an option.;Question 5;One function of the foreign exchange;market is to provide some insurance against the risks that arise from changes;in exchange rates, commonly referred to as;Answer;foreign market hazard.;global jeopardy.;foreign exchange risk.;commerce uncertainty.;Question 6;Which event was initially;responsible for London becoming the leading center of Eurocurrency trading?;Answer;Regulations that discouraged British;banks from trading in the Eurocurrency market;Strengthening of the British pound;against major European currencies in the 1960s;Collapse of the Bretton Woods system;Prohibition of British banks from lending;British pounds to finance non-British trade;Question 7;Assume that the yen/dollar exchange;rate quoted in London at 3:00 p.m. is x120 = $1, and the New York yen/dollar;exchange rate at the same time is x125 = $1. A dealer makes a profit by buying;a currency low and selling it high. The dealer has engaged in a(n);Answer;currency swap.;arbitrage.;backwardation.;straddle.;Question 8;When a country pegs its currencies;to gold and guarantees convertibility, the country is following the;Answer;gold standard.;Bretton Woods system.;fixed exchange system.;floating exchange rate system.;Question 9;Which of the following is NOT a reason that;the radical position of MNEs was in retreat by the end of the 1980s?;Answer;The strong economic performance of those;developing countries that embraced capitalism rather than radical ideology;The collapse of communism in eastern;Europe;The generally abysmal economic;performance of those countries that embraced the radical position;A growing belief in many capitalist;countries that MNEs tightly control key technology and that important jobs in;the MNEs' foreign subsidiaries go to home-country nationals;Question 10;A political benefit of economic;integration is that;Answer;it enables participants to achieve gains;from the free flow of trade.;it enables participants to achieve gains;from the free flow of investment.;it allows countries to specialize in the;production of goods and services that they can produce most efficiently.;linking neighboring economies creates;incentives for cooperation between the neighboring states and reduces the;potential for violent conflict.;Question 11;What prompted the formation of the;European Union?;Question 12;Compare and contrast a pegged;exchange system and a dirty float system of exchange rates.

 

Paper#53215 | Written in 18-Jul-2015

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