Exam Practice Flashcards
The institutions of global finance are
- Investment banks
- Central banks
- Commercial banks
- Water of the greatest purity is obtained from wells in Oregon, bottled, and exported worldwide.
- IBM exports computers to Egypt.
- Computer hardware is designed in the United States but manufactured and assembled in Korea.
Ways to implement comparative advantage
What are the attributes of an ideal currency?
-Exchange rate stability
-Full financial integration
- Monetary independence
What are the reasons balance of payment data may be important?
- Changes in a country’s BOP may signal a change in controls over payment of dividends and interest.
- The BOP is an important indicator of a country’s foreign exchange rate.
- BOP data helps to forecast a country’s market potential, especially in the short run.
What are the typical BOP transactions
- Toyota U.S.A. is a U.S. distributor of automobiles manufactured in Japan by its parent company.
- The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich.
- A U.S. tourist purchases gifts at a museum in London.
The ________ of the balance of payments measures all international economic transactions of financial assets.
capital and financial accounts
When categorizing investments for the financial account component of the balance of payments the ________ is an investment where the investor has no control whereas the ________ is an investment where the investor has control over the asset.
portfolio investment, direct investment
Consider the following: A foreign automobile company builds a manufacturing plant in Tennessee and European investors buy U.S. Treasury Bonds.
The auto manufacturer in engaging in direct investment, and the European investors are engaged in portfolio investing.
A high home inflation rate relative to other countries would _______ the home country’s current account balance, other things equal. A high growth in the home income level relative to other countries would _______ the home country’s current account balance, other things equal.
decrease; decrease
It is characteristic of foreign exchange dealers to
act as market makers, willing to buy and sell the currencies in which they specialize.
In the foreign exchange market, ________ seek all of their profit from exchange rate changes while ________ seek to profit from simultaneous exchange rate differences in different markets.
speculators; arbitrageurs
Foreign exchange ________ earn a profit by a bid
ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.
dealers; brokers
A ________ transaction in the foreign exchange market requires an almost immediate delivery (typically within two days) of foreign exchange.
spot
A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.
forward
A ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.
swap
