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International Finance > International Finance Midterms 2023 > Flashcards

International Finance Midterms 2023 Flashcards

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1
Q

GDP = C+I+G+XM (NX). True or False?

A

True

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2
Q

The only goods included in the calculation of GDP are those that are fully completed. True or False?

A

True

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3
Q

A French resident currently works in the US. The value of his services is accounted in the French GNP. True or False?

A

True

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4
Q

The balance of payment is made of both the capital/financial account and current account. True or False?

A

True

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5
Q

Portfolio Investment is a component of current account. True or false?

A

False

Part of the Capital Account

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6
Q

When a country imports more than it exports, its FX reserves increases?

A

False

It decreases. You exchange in order to pay the foreign country

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7
Q

Imports, on the balance of payments are always recorded with a debit. True or False?

A

True

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8
Q

An example of an official unrequited transfer would be a donation to a foreign country. True or False?

A

True

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9
Q

A positive trade balance means that a country exports more than imports. True or false?

A

True

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10
Q

The current account balance added to the capital account balance always equals 0. True or false?

A

True

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11
Q

Product A:
Year, Output (units), Selling Price/unit
2017, 2000, €10
2018, 3000, €15

Product B:
Year, Output (units), Selling Price/unit
2017, 2000, €20
2018, 1800, €50

  1. Compute the nominal GDP for 2018
  2. Compute the real GDP for 2018 using 2017 as the base year
  3. Compute the nominal GDP Deflator for 2018
A
  1. 135 000. Product A (Units * Price) + Product B (Units * Price)
  2. 66 000. Product A (Units2018 * Price2017) + Product B (Units2018 * Price2017)
  3. 204,5. (Nominal GDP / Real GDP) * 100 –> (135 000 / 66 000) * 100
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12
Q

When using the direct quotation, the home currency is:
a. the base
b. the quote
c. the claim
d. none of the above

A

b. the quote

You always divide by the home currency –> X/home currency

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13
Q

When the direct quotation decreases, the value of the home currency:
a. increases
b. decreases
c. stays the same
d. none of the above

A

a. increases

The number under / (home currency) increases –> worth more

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14
Q

If the direct quotation (British point of view) for the £ is 0.766/$, what is the size of the indirect quotation?
a. 0.766
b. 1.766
c. 1.305
d. none of the above

A

c. 1.305

X = 1/0.766

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15
Q

Consider the following direct quotations. The exchange rate was GBP/EUR=0.88/EUR at the beginning of the year and ended at 0.90 GBP/EUR. It means that:
a. the euro has appreciated by 2.27%
b. the euro has depreciated by 2.27%
c. the pound has appreciated by 2.27%
d. none of the above

A

a. the euro has appreciated by 2.27%

X = 1 / 0.88 = 1.136
X = 1 / 0.90 = 1.11

–> 1.136 / 1.11 = 1.02272 = 2.27%

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16
Q

Consider the following direct quotations and spot rates:
GBP/EUR = 0.88
USD/AUD = 0.78
AUD/EUR = 1.57

The GBP/AUD cross rate is:
a. 0.686
b. 1.381
c. 0.560
d. none of the above

A

c. 0.560

  1. If the home currency is not at the bottom you divide (take the invert). If it is already at the bottom you multiply.
  2. Find the 2 common spot rates
  3. Home currency is always at the bottom. Therefore, take the spot rate with the home currency in it at the bottom

–> 0.88 / 1.57 = 0.5605

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17
Q

The ask price:
a. is the price that the dealer has just paid for something, his historical cost of the most recent trade
b. is the price that a dealer stands ready to pay
c. is the price that a dealer stands ready to sell at
d. none of the above

A

c. is the price that a dealer stands ready to sell at

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18
Q

if the $/€ bid and ask prices are $1.08/€ and $1.09/€, respectively, the corresponding €/$ bid and ask prices are
a. €0.917 and €0.926
b. €0.926 and €0.919
c. €1.09 and €1.08
d. none of the above

A

a. €0.917 and €0.926

X = 1/1.08
X = 1/1.09

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19
Q

The spot Yen/US dollar exchange rate is 119.8 Yen/$US. The six month forward rate is 121.4 Yen/$US. What is the Yen’s forward premium (or discount) rounded on the dollar, expressed as an annual percentage?
a. 2.63 percent premium
b. 1.31 percent premium
c. 2.63 percent discount
d. none of the above

A

c. 2.63 percent discount

20
Q

When Interest Rate Parity (IRP) does not hold
a. the financial markets are in equilibrium
b. there are opportunities for interest arbitrage
c. the financial markets are in equilibrium and there are opportunities for interest arbitrage
d. none of the above

A

b. there are opportunities for interest arbitrage

21
Q

Suppose you observe a spot exchange rate of €0.050/$. If interest rates are 2% in the U.S. and 3% in the euro zone, what is the no-arbitrage 1-year forward rate?
a. €1.052/$
b. €0.959/$
c. €1.032/$
d. none of the above

A

b. €0.959/$

22
Q

You have the opportunity to invest $100 000 for one year in the US at 4%. The Ruritanian Peso deposits are offering 15%. All other things equal, the spot rate is RUP 30 per $1. The 1 year forward rate is RUP 31 per $1. Which bond will you prefer and why? Ignore transactions costs.
a. US Investment
b. Ruritanian Investment
c. Both offer the same return
d. none of the above

A

a. US Investment

23
Q

Imports are included in GDP. True or False?

A

False

They have been subtracted. Does not impact.

24
Q

A Portuguese individual visiting France purchases a bicycle produced in France. This counts towards French GDP. True or False?

A

True

25
Q

The existance of a current account deficits often means that the country is borrowing to finance the deficit. Despite that, a current account deficit may be desirable if the country borrows to finance profitable domestic investment opportunities. True or false?

A

True

26
Q

There is no difference between a trade deficit and a current account deficit. True or False?

A

False

27
Q

Change in reserves is a component of the current account. True or False?

A

False

Capital account –> reserves

28
Q

Nominal GDP is inflation adjusted. True or False?

A

False

29
Q

FOREX reserves include gold. True or False?

A

True

30
Q

A French resident buys a microwave at the local store. The microwave was produced abroad. Which of the following is correct?

a. The price the local store paid to buy the microwave is excluded from French GDP. The markup the local store charges over the cost of purchasing the microwave is excluded from French GDP

b. The price the local store paid to buy the microwave is excluded from French GDP. The markup the local store charges over the cost of purchasing the microwave is included from French GDP

c. The price the local store paid to buy the microwave is included in French GDP. The markup the local store charges over the cost of purchasing the microwave is excluded from French GDP

d. The price the local store paid to buy the microwave is included in French GDP. The markup the local store charges over the cost of purchasing the microwave is included in French GDP

e. none of the above

A

b. The price the local store paid to buy the microwave is excluded from French GDP. The markup the local store charges over the cost of purchasing the microwave is included from French GDP

31
Q

Which of the following is not included in the current account?
a. Fees paid for business services (e.g., consulting services)
b. Migrants’ transfers of assets as they cross borders
c. Royalties and licensing fees
d. Returns on foreign investments and portfolio investments (e.g., dividends and interest from owing assets abroad)
e. none of the above

A

b. Migrants’ transfers of assets as they cross borders

32
Q

We have a/an____in capital/financial account when more money flows outside of the country than flows inside the country.
a. Deficit
b. Surplus
c. Sudden stop
d. Equilibrium
e. none of the above

A

a. Deficit

33
Q

When using the indirect quotation, the home currency is:
a. the quote
b. the base
c. the reverse
d. the opposite
e. none of the above

A

b. the base

34
Q

When the indirect quotation increases, the value of the home currency:
a. increases
b. decreases
c. stays the same
d. not enough information to answer
e. none of the above

A

a. increases

X/(home currency)

35
Q

Consider the following direct quotations. The exchange rate was EUR/USD=0.90 at the beginning of the year and ended at 1 EUR/USD. It means that:
a. the euro has appreciated
b. the euro has depreciated
c. the dollar has depreciated
d. it depends on the interest rate parity
e. none of the above

A

b. the euro has depreciated

36
Q

Consider the following hypothetical direct quotations and spot rates:
EUR/USD = 0.88
USD/AUD = 0.72
AUD/ZAR = 2

The EUR/AUD cross rate is closest to:
a. 2.8
b. 0.7
c. 0.63
d. 1.59
e. none of the above

A

c. 0.63

  1. If the home currency is not at the bottom you divide (take the invert). If it is already at the bottom you multiply.
  2. Find the 2 common spot rates
  3. Home currency is always at the bottom. Therefore, take the spot rate with the home currency in it at the bottom

–> 0.88*0.72

37
Q

If the €/$ bid and ask prices are EUR 0.8/$ and EUR 0.9/$, respectively, the corresponding $/€ bid and ask prices are.
a. $1 and $1.2
b. $1.23 and $1.24
c. $0.81 and $0.92
d. $1.05 and $1.19
e. none of the above

A

e. none of the above

38
Q

If inflation in the U.S. is forecasted at 1.0% this year and inflation in Mexico is forecasted at 11.10%, what do we know about the expected spot rate? Given a spot rate of 55 Mexican Pesos: $1.
a. 50
b. 60.5
c. 55
d. 61.7
e. none of the above

A

b. 60.5

39
Q

Assume that the annual interest rate is 5.0 percent in the United States and 3.5 percent in Italy, and that the spot exchange rate is $1.12/€ and the forward exchange rate, with one-year maturity, is $1.18/€. Assume that an arbitrager can borrow up to $1 000 000. If an astute trader finds an arbitrage, what is the closest net cash flow in one year?
a. -$50 689.66
b. -$67 627.19
c. $40 446.43
d. $21 964.29
e. none of the above

A

c. $40 446.43

40
Q

As of today, the spot exchange rate is $1.25/£ and the rates of inflation expected to prevail for the next year in the U.S. is 2 percent and 4 percent in the United Kingdom. What is the closest one-year forward rate that should prevail?
a. £1 = $1.2745
b. £1 = $1.326
c. £1 = $0.8157
d. £1 = $1.2259
e. none of the above

A

d. £1 = $1.2259

41
Q

The Brazil economy is predicted to average inflation at 3 percent per year. The inflation forecast for the Eurozone is 1 percent per year. If the interest rate in Brazil is 7%, what must be the closest the interest rate in the Eurozone?
a. 11.31%
b. 9.12%
c. 4.92%
d. 12.31%
e. none of the above

A

c. 4.92%

42
Q

You can invest €100 000 for one year in a French bond at 5%. Mexican peso deposits are offering 15.5%. All other things equal, the spot rate is MXP 50 per €1. The 1 year forward rate is MXP 52 per €1. Which bond will you prefer and why? Ignore transaction costs.
1. I am indifferent because both bonds give the same return
b. I prefer the Mexican peso bond because it gives higher return
c. I prefer the French bond because it gives higher return
d. none of the above

A

b. I prefer the Mexican peso bond because it gives higher return

43
Q

A French company produces a car this year and sells it to a French customer next year. Is this included in GDP?

A

Yes - in GDP this year under the investment national account

44
Q

The most accurate description of nominal GDP is:

a. A measure of total expenditures at current prices
b. A measure to compare one nation’s economy to another
c. The value of goods and services at constant prices

A

a. A measure of total expenditures at current prices

45
Q

Which of the following is included in the current account:

a. imports and exports of goods
b. imports and exports of services
c. net income on capital invested aboard
d. unilateral transfers

A

All

46
Q

Which of the following is included in the financial account:

a. official reserves
b. portfolio investment
c. foreign direct investment
d. other investments e.g., trade credit claims, loans, changes in bank deposits

A

All

47
Q

Which of the following is included in the capital account (but not in the financial account)?

a. debt forgiveness
b. major transfers for uninsured damages to fixed assets
c. transactions of financial and non-produced goods
d. conditional foreign aid and inheritance taxes

A

a, b, d

International Finance (1 decks)

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