Test Bank For International Financial Management 12th Edition by Jeff Madura

Chapter 2—International Flow of Funds

1. Recently, the U.S. experienced an annual balance of trade representing a ____.

a.

large surplus (exceeding $100 billion)

b.

small surplus

c.

level of zero

d.

deficit

ANS: D PTS: 1 DIF: Easy OBJ: INFM.MADU.15.02.02

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY: Bloom’s: Knowledge

2. A high home inflation rate relative to other countries would ____ the home country’s current account balance, other things equal. High growth in the home income level relative to other countries would ____ the home country’s current account balance, other things equal.

a.

increase; increase

b.

increase; decrease

c.

decrease; decrease

d.

decrease; increase

ANS: C PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.02.03

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY: Bloom’s: Comprehension

3.If a country’s government imposes a tariff on imported goods, that country’s current account balance will likely ____ (assuming no retaliation by other governments).

a.

decrease

b.

increase

c.

remain unaffected

d.

either A or C is possible

ANS: B PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.02.03

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY: Bloom’s: Comprehension

4.____ purchases more U.S. exports than the other countries listed here.

a.

Italy

b.

Spain

c.

Mexico

d.

Canada

ANS: D PTS: 1 DIF: Easy OBJ: INFM.MADU.15.02.02

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY: Bloom’s: Knowledge

5. An increase in the current account deficit will place ____ pressure on the home currency value, other things equal.

a.

upward

b.

downward

c.

no

d.

upward or downward (depending on the size of the deficit)

ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.02.03

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY: Bloom’s: Comprehension

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

a.

increase

b.

have no impact on

c.

reduce

d.

all of the above are equally possible

ANS: C PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.02.03

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY: Bloom’s: Comprehension

7. The International Financial Corporation was established to:

a.

enhance development solely in Asia through grants.

b.

enhance economic development through non-subsidized loans (at market interest rates).

c.

enhance economic development through low-interest rate loans (below-market rates).

d.

enhance the economic development of the private sector through investment in the stock of corporations.

ANS: D PTS: 1 DIF: Easy OBJ: INFM.MADU.15.02.05

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY: Bloom’s: Knowledge

8. The World Bank was established to:

a.

enhance development solely in Asia through grants.

b.

enhance economic development through non-subsidized loans (at market interest rates).

c.

enhance economic development through low-interest rate loans (below-market rates).

d.

enhance economic development of the private sector through investment in stock of corporations.

ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.02.05

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY:Bloom’s: Knowledge

9.The International Development Association was established to:

a.

enhance development solely in Asia through grants.

b.

enhance economic development through non-subsidized loans (at market interest rates).

c.

enhance economic development through low-interest rate loans (below-market rates).

d.

enhance economic development of the private sector through investment in stock of corporations.

ANS: C PTS: 1 DIF: Easy OBJ: INFM.MADU.15.02.05

NAT: BUSPROG.INFM.MADU.15.03 STA: DISC.INFM.MADU.15.02

KEY:Bloom’s: Knowledge

10.Which of the following would likely have the least direct influence on a country’s current account?

a.

inflation.

b.

national income.

c.

exchange rates.

d.

tariffs.

e.

a tax on income earned from foreign stocks.

ANS: E PTS: 1 DIF: Easy OBJ: INFM.MADU.15.02.03