1.3.3 International Economic Factors Flashcards
An American investor is looking at the potential impact of rising inflation rates in the Eurozone on their international stock portfolio. Which of the following effects is most likely?
A. Increased value of Eurozone stocks in USD terms
B. Decreased value of Eurozone stocks in USD terms
C. Unchanged value of Eurozone stocks in USD terms
D. Decreased Eurozone inflation rates
B. Decreased value of Eurozone stocks in USD terms
Explanation: Rising inflation in the Eurozone could lead to a weaker Euro relative to the dollar. This depreciation can result in a decrease in the USD value of investments denominated in Euros.
1.3.3 International Economic Factors
A Japanese corporation announces a breakthrough in battery technology. What immediate effect might this have on the Japanese Yen?
A. Appreciation
B. Depreciation
C. No change
D. Decreased liquidity
A. Appreciation
Explanation: Positive economic news, such as a technological breakthrough, can lead to appreciation of the home currency due to anticipated economic growth and increased foreign investment.
1.3.3 International Economic Factors
A significant increase in U.S. interest rates could likely cause what immediate effect in emerging market economies?
A. Capital inflows
B. Capital outflows
C. Increased stability
D. Decreased export activity
B. Capital outflows
Explanation: Higher U.S. interest rates might attract investors looking for better returns, leading to capital moving out of riskier emerging markets back to U.S. assets.
1.3.3 International Economic Factors
If China decides to devalue its currency, the Yuan, how would this most likely impact other global markets?
A. Increase in global commodity prices
B. Decrease in global commodity prices
C. No change in global commodity prices
D. Increased stability in global commodity prices
B. Decrease in global commodity prices
Explanation: A weaker Yuan makes imports more expensive for China, potentially decreasing their demand for commodities, thus leading to lower global commodity prices.
1.3.3 International Economic Factors
An increase in geopolitical tensions in the Middle East is most likely to have what effect on oil prices?
A. Increase
B. Decrease
C. No change
D. Predictable fluctuations
A. Increase
Explanation: Geopolitical tensions in oil-rich regions typically lead to fears of supply disruptions, pushing oil prices higher.
1.3.3 International Economic Factors
The European Central Bank announces a program of quantitative easing. What is the most likely immediate effect on the Euro?
A. Appreciation
B. Depreciation
C. No change
D. Increase in interest rates
B. Depreciation
**Explanation: **Quantitative easing increases money supply, which can lead to depreciation of the currency due to inflationary pressures and lower interest rates.
1.3.3 International Economic Factors
A decrease in the U.S. trade deficit with Mexico is most likely to:
A. Strengthen the Mexican Peso against the U.S. Dollar
B. Weaken the Mexican Peso against the U.S. Dollar
C. Have no effect on currency values
D. Decrease U.S. exports to Mexico
A. Strengthen the Mexican Peso against the U.S. Dollar
Explanation: A smaller U.S. deficit means the U.S. is importing less or exporting more to Mexico, potentially strengthening the Peso due to increased demand for Mexican goods or decreased supply of Pesos.
1.3.3 International Economic Factors
The Brexit decision led to significant economic uncertainty in the United Kingdom. What was an immediate effect on the British Pound?
A. Appreciation
B. Depreciation
C. No change
D. Increased stability
B. Depreciation
Explanation: Uncertainty surrounding the economic impacts of Brexit led to a loss of confidence in the British Pound, causing it to depreciate.
1.3.3 International Economic Factors
Question: A rise in political stability in Brazil is likely to:
A. Attract more foreign direct investment
B. Result in capital outflows
C. Decrease interest in Brazilian equities
D. Increase inflation rates in Brazil
A. Attract more foreign direct investment
Explanation: Increased political stability generally improves investor confidence, leading to more foreign direct investment.
1.3.3 International Economic Factors
Question: An increase in foreign direct investment (FDI) in India is most likely to:
A. Appreciate the Indian Rupee
B. Depreciate the Indian Rupee
C. Have no impact on the Indian Rupee
D. Decrease Indian exports
A. Appreciate the Indian Rupee
Explanation: Increased FDI generally strengthens the local currency through higher demand for domestic currency needed to make investments.
1.3.3 International Economic Factors
If Russia significantly increases its interest rates, what is the likely immediate effect on foreign investment?
A. Increase
B. Decrease
C. No change
D. Redirect to other regions
A. Increase
**Explanation: **Higher interest rates typically attract foreign capital looking for higher yields, assuming the political and economic environment is stable enough to support the risk.
1.3.3 International Economic Factors
A decrease in global demand for electronic goods would most likely have what effect on South Korean exports?
A. Increase
B. Decrease
C. No change
D. Increase in prices
B. Decrease
Explanation: South Korea is a major exporter of electronic products, so a global decrease in demand for these goods would likely reduce its export volumes.
1.3.3 International Economic Factors
The adoption of more stringent environmental regulations in China is likely to:
A. Increase costs for manufacturers
B. Decrease costs for manufacturers
C. Have no impact on costs
D. Decrease export prices
A. Increase costs for manufacturers
**Explanation: **Stricter environmental regulations typically increase production costs due to the need for cleaner technologies and compliance measures.
1.3.3 International Economic Factors
A significant improvement in U.S.-China trade relations is most likely to:
A. Decrease the value of the U.S. dollar
B. Increase the value of the U.S. dollar
C. Have no effect on currency values
D. Decrease Chinese imports to the U.S.
B. Increase the value of the U.S. dollar
**Explanation: **Improved trade relations can lead to increased stability and confidence, potentially strengthening the U.S. dollar as trade volumes and investment opportunities increase.
1.3.3 International Economic Factors
What is the most likely effect of a sudden increase in the unemployment rate in Germany on the Euro?
A. Appreciation
B. Depreciation
C. No change
D. Increase in Euro liquidity
B. Depreciation
Explanation: Higher unemployment can lead to economic slowdown concerns, reducing the attractiveness of assets denominated in that currency.
1.3.3 International Economic Factors