International Finance
Final Exam

I updated and changed the course notes in the Spring 2011. These multiple choice questions reflect the lectures from the first time I taught the course.

Lesson 1

1. If a person owns his own business, what type is it?

A) Partnership
B) Corporation
C) Limited Liability Partnership
D) Sole proprietorship

2. If a two or more people own their own business, what type is it?

A) Partnership
B) Corporation
C) Sole proprietorship
D) Government

3. What is limited liability for a corporation?

A) Stockholders are not liable for corporation’s debt
B) Stockholders can bind corporation to debts
C) Corporation cannot be sued in a court
D) Stockholders are liable for corporation’s debt

4. Which security allows stockholders to vote for board of directors?

A) Preferred stock
B) Common stock
C) Corporate bond
D) Corporate loan

5. Why can corporations raise a substantial amount of capital?

A) Stockholders cannot bind corporation to contracts.
B) Corporate ownership is easily transferred.
C) Corporations have continuity of life.
D) All of the above

6. If corporation bankrupts, who is first for a corporation’s assets?

A) President of corporation
B) Preferred stockholders
C) Loans from banks, bondholders, and taxes from government
D) Common stock holders

7. Which person or entity appoints the president of a corporation?

A) Stockholders
B) Bondholders
C) Board of Directors
D) Chief Financial Officer (CFO)

8. Why does a corporation issue preferred stock?

A) Preferred stockholders do not have to share control with bondholders
B) Common stockholders can increase their power
C) Common stockholders do not have to share control with bondholders
D) Common stockholders do not have to share control with new stockholders

9. What is tax avoidance?

A) A corporation carefully plans activities, preventing tax liabilities from being created
B) A corporation illegally does not pay taxes, when an activity has created this liability
C) A corporation bribes government officials, so government reduces the corporation’s taxes
D) Corporations pass all tax liabilities onto stockholders and bondholders

10. If a stockholder is not happy the way his corporation manages its business, what can he do?

A) Stockholder can vote for new board of directors at next stockholders meeting
B) Stockholder can sell his shares
C) Stockholder can complain to the board of directors
D) All of the above are valid options

11. What is the purpose of a corporation?

A) To earn profits
B) To maximize costs and minimize revenue
C) To help government improve society
D) To pay taxes and employ workers

12. What is a disadvantage of a corporation?

A) The corporation has continuity of life
B) The corporation has mutual agency relationship
C) The corporation is heavily regulated
D) The corporation pays taxes once

13. What is a disadvantage of a corporation?

A) Government taxes corporation’s profits twice
B) The corporation has mutual agency relationship
C) Investors can easily sell or invest in corporations
D) Corporations can theoretically live forever

14. What is a bond?

A) Piece of ownership of a corporation
B) A bank loan
C) A loan, where investors can re-sell on secondary market
D) A document that establishes the corporation

15. Which factor increases the complexity of a corporation, such as having many subsidiaries?

A) Regulations
B) Taxes
C) Lawsuits
D) All of the above

Lesson 2

16. Which financial statement would you find revenue?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

17. Which financial statement would you find an expense?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

18. Which financial statement would you find an asset?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

19. Which financial statement would you find a liability?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

20. Which financial statement would you find contributed capital from stockholders?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

21. Which financial statement would you find retained earnings?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

22. Which financial statement lists the cash inflows and outflows of a business?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

23. Which financial statement shows changes to the equity account?

A) Income Statement
B) Balance Sheet
C) Changes in Owner’s Equity
D) Statement of Cash Flow

24. Which item below is an asset?

A) Cash
B) Interest Payable
C) Salaries owed to workers
D) Accounts Payable

25. Which item below is a liability?

A) Accounts Payable
B) Cash
C) Copyright
D) A building

26. What is accounts receivable?

A) Money owed to the business from customers
B) A business owes money to the customers
C) A business owes money to a bank
D) A business owes money to government

27. Which item below is an asset?

A) Contributed Capital
B) Retained Earnings
C) Copyright
D) Notes Payable

28. Which item below is a liability?

A) Salaries owed to workers
B) Patent
C) Copyright
D) A building

29. Which item causes a cash inflow?

A) Cash sales
B) Company pays salaries
C) Company purchased land
D) Company pays dividends

30. Which item causes a cash inflow?

A) Accounts receivable increases
B) Merchandise inventory decreases
C) Company pays expenses
D) Company pays dividends

31. Which item causes a cash inflow?

A) Accounts receivable increases
B) Company pays dividends
C) Company pays salaries
D) Company issues new stock

32. Which item causes a cash outflow?

A) Customers pay account receivables
B) Company purchases stocks and bonds for investment
C) Accounts payable increases
D) Company sells property and equipment

33. Which item causes a cash outflow?

A) Company pays dividends
B) Company sells land
C) Merchandise inventory decreases
D) Customers pay their accounts receivable

34. Which item causes a cash outflow?

A) Cash sales
B) Accounts receivable decreases
C) Company sells property.
D) Company pays for an expense.

35. How does depreciation expense impact cash flow?

A) Causes a cash inflow.
B) Causes a cash outflow.
C) Internal transaction; has not impact on cash flow.
D) Do not have enough information.

36. What is contributed capital?

A) Amount held in the retained earnings account.
B) The amount of stock purchased by stockholders.
C) Net assets, after liabilities are deducted
D) Total equity invested by proprietor.

Lesson 3

37. How can a foreign bank enter the United States banking market?

A) Offshore markets.
B) Agency office.
C) Edge Act corporation.
D) International banking facility.

38. If your U.S. company invested $1 million into Russia and the loan is denominated in rubles, what happens to your investment if the exchange changes from [ $1 to 500 rubles ] to [ $1 to 1,000 rubles ]?

A) Your company has been hurt by exchange rate risk.
B) Your company has benefited from the exchange rate risk.
C) There is no change to your company’s investment in Russia.
D) There is not enough information to solve this problem.

39. If your U.S. company invested $1 million into Russia and the loan is denominated in rubles, what happens to your investment if the exchange changes from [ $1 to 500 rubles ] to [ $1 to 250 rubles ]?

A) Your company has been hurt by exchange rate risk.
B) Your company has benefited from the exchange rate risk.
C) There is no change to your company’s investment in Russia.
D) There is not enough information to solve this problem.

40. If your U.S. company invested $1 million into Russia and the loan is denominated in U.S. dollars, what happens to your investment if the exchange changes from [ $1 to 500 rubles ] to [ $1 to 1,000 rubles ]?

A) Your company has been hurt by exchange rate risk.
B) Your company has benefited from the exchange rate risk.
C) There is no change to your company’s investment in Russia.
D) There is not enough information to solve this problem.

41. When a bank helps a company exchange debt instruments denominated in different currencies, so this company can invest in a foreign country, what is this called?

A) Banker’s acceptance.
B) Currency swap.
C) International transaction currency.
D) Eurodollars.

42. When an international bank is not located in a financial center, has little regulation, has low tax rates, and has strict-customer confidentiality laws, what is this called?

A) Edge Act corporation.
B) Offshore markets.
C) Foreign bank subsidiary.
D)International banking facility.

43. What instrument can a company use to import products from a foreign exporter and this exporter cannot evaluate the credit worthiness of the company?

A) Euromarkets.
B) Currency swap.
C) International transaction currency.
D) Banker’s acceptance.

44. Why is credit risk in international commerce magnified?

A) Because of exchange rate fluctuations.
B) Because of the deregulation of the international banking sector.
C) Because exporters often have limited information about importers.
D) Because governments are limited in their ability to regulate the international commerce.

45. What are Eurodollars?

A) Bank guarantees payment to exporters.
B) Loans denominated in U.S. dollars and held outside the United States.
C) Two firms in different countries swap loans.
D) U.S. dollar denominated bank accounts held outside the United States.

46. How can a U.S. bank enter a foreign banking market?

A) Offshore markets.
B) Agency office.
C) U.S. subsidiary branch.
D) International banking facility.

47. Which asset is the most liquid?

A) Cash
B) Corporate Stock
C) Corporate Bond
D) House

48. What is a benefit of an international bank?

A) Increases information costs.
B) Accepts deposits, but does not make loans
C) Decreases liquidity of financial markets.
D) Connects borrowers and savers from different countries.

Lesson 4

49. If you deposit $1 into a savings account that earns 3% APR, how much will you have in 10 years?

A) $1.00
B) $1.34
C) $2.00
D) Cannot be determined from information given

50. If you deposit $100 into a savings account that earns 100% APR, how much will you have in one year?

A) $100
B) $200
C) $1,000
D) Cannot be determined from information given

51. You are expecting to receive $50 million dollars in one year, what is this amount worth to you today, if the market interest rate is 20% APR?

A) $2.5 million
B) $41.67 million
C) $50 million
D) Cannot be determined from information given

52. You are expecting to receive $1,000 dollars in two years, what is this amount worth to you today, if the market interest rate is 10% APR?

A) $1,000
B) $826.45
C) $0
D) Cannot be determined from information given

53. What is APR?

A) All interest rates are defined in annual terms
B) All interest rates are defined in semi-annual terms
C) All interest rates are defined in monthly terms
D) Cannot be determined from information given

54. You are expecting to receive $500 dollars in one month , what is this amount worth to you today, if the market interest rate is 12% APR?

A) $446.43
B) $495.05
C) $500.00
D) Cannot be determined from information given

55. If the interest rate is 12% APR, which interest rate would you put in the net present value, if cash flows are monthly?

A) 0.01
B) 0.12
C) 0.24
D) Cannot be determined from the information given

56. If the interest rate is 10% APR, which interest rate would you put in the net present value, if cash flows are semi-annually?

A) 0.00833
B) 0.05
C) 0.10
D) Cannot be determined from the information given

57. Looking at the amortization table below, what is this person’s monthly payment?

A) $965.02
B) $833.33
C) $131.69
D) Cannot be determined from the information

58. Looking at the amortization table, how much interest does this person pay for Payment 8?

A) $965.02
B) $825.46
C) $139.56
D) Cannot be determined from the information

59. Looking at the amortization table, how much does this person owe the bank after he pays Payment 10?

A) $98,632.62
B) $965.02
C) $100,000.00
D) Cannot be determined from the information

60. How does the Net Present Value affect future cash flows?

A) Future cash flows are weighted towards the present
B) Future cash flows are weighted towards the future
C) Net present value has not impact on cash flows
D) Need more information to answer this question

61. When a bank grants a 30-year loan for a property and the property is the collateral, what kind of loan is this?

A) Mortgage
B) Commercial bank loan
C) A bond
D) Corporate stock

62. If you received a loan and make the exact monthly payment every month, where the payment covers the principal and interest, what kind of loan is this?

A) Stock
B) Discount bond
C) Coupon bond
D) Fixed-payment loan

63. If you received a mortgage for $1,000 for 1 year at 30% annual interest rate with only one payment, how much is your payment?

A) $1,000
B) $1,300
C) $591.72
D) $1,690

64. If you received a mortgage for $10,000 for 1 year at 10% APR interest rate with only one payment, how much is your payment?

A) $1,000
B) $10,000
C) $11,000
D) Cannot be determined from the information given

65. You bought a discount bond with a face value of $10,000 with a maturity of 1 year. What market price do you pay for the bond if the market interest rate is 30% APR?

A) $9,708.74
B) $3,000
C) $13,000
D) $7,692.31

66. You bought a discount bond with a face value of $2,000 with a maturity of 6 months. What market price do you pay for the bond if the market interest rate is 10% APR?

A) $2,000
B) $1,818.18
C) $2,200
D) $1,904.76

67. You bought a discount bond with a face value of $2,000 with a maturity of 1 year. What is your rate of return, if you bought this bond for $1,500?

A) 0.33%
B) 3.33%
C) 33.33%
D) 333.33%

68. You bought a discount bond with a face value of $10,000 with a maturity of 6 months . What is your rate of return in APR, if you bought this bond for $9,500?

A) 0.526%
B) 5.26%
C) 1.05%
D) 10.5%

69. You bought a bond with a face value of $1,000 with a stated interest rate of 10% with a maturity of 1 year. The interest is paid yearly. What market price do you pay for the bond if the market interest rate is 5% APR?

A) $1,047.62
B) $1,100
C) $952.38
D) $1,000

70. You bought a bond with a face value of $10,000 with a stated interest rate of 20% with a maturity of 1 year. The interest is paid yearly. What market price do you pay for the bond if the market interest rate is 20% APR?

A) $9,090.91
B) $10,000
C) $12,000
D) $2,000

71. Which bond does not have an interest rate stated on it?

A) Coupon bond
B) Discount bond
C) Stock
D) Perpetuity (or consul) bond

72. Which bond allows the investor to convert bond into stock?

A) Coupon bond
B) Discount bond
C) Convertible bond
D) Registered bond

73. If a corporation keeps the names and addresses of all bondholders, what type of bond is this?

A) Bearer bond
B) Discount bond
C) Convertible bond
D) Registered bond

74. If a corporation is financially strong and does not pledge assets for the bonds, what type of bond is this?

A) Bearer bond
B) Debenture bond
C) Convertible bond
D) Registered bond

75. Which bond in theory never matures?

A) Perpetuity (or consul) bond
B) Debenture bond
C) Convertible bond
D) Registered bond

76. When the market interest rate increases, what happens to bond market prices?

A) The market price of bonds will also increase, when they are discounted.
B) This increases the liquidity of the bond market, because more people enter the market.
C) Higher interest rates cause the maturity of bonds to become shorter.
D) The market price of bonds will decrease, when they are discounted.

77. If you bought a perpetuity bond that pays $100 interest every year, what is the market price of the bond, if the market interest rate is 5%?

A) $100
B) $1,000
C) $2,000
D) $4,000

78. If you bought a perpetuity bond that pays $10 interest every year, what is the market price of the bond, if the market interest rate is 20%?

A) $10
B) $25
C) $50
D) $100

79. If you have a one-year bond and a ten-year bond and the bonds are exactly the same except the maturity, what happens to these bond prices, if the market interest rate falls?

A) The bond price increases exactly the same amount for both bonds
B) The ten-year bond prices increases more than the one-year bond price
C) The one-year bond prices increases more than the ten-year bond price
D) Need more information to answer this question

80. If you bought a financial instrument and hold the instrument until it matures, what is the total rate of return?

A) The rate of return equals the market interest rate.
B) The rate of return equals the market interest rate plus the capital loss.
C) The rate of return equals the market interest rate plus the capital gain.
D) The rate of return cannot be determined in this case.

81. You bought a financial instrument for $1,000, earned $100 interest, and resold it for $800 exactly one year later, what is your total rate of return on this investment?

A) -10%
B) -5%
C) 0%
D) 10%

82. You bought a financial instrument for $10,000, earned $200 interest, and resold it for $11,000 exactly one year later, what is your total rate of return on this investment?

A) -12%
B) -6%
C) 6%
D) 12%

83. If you bought a financial instrument and resold it for a lower price, what is this price difference called?

A) The yield to maturity
B) The rate of return
C) Capital loss
D) Capital gain

84. What is the difference between a stock and bond?

A) Stock is ownership while bond is a loan
B) Stock is a loan while bond is ownership
C) Both stocks and bonds are ownership in a corporation
D) Stock is a one-year loan, while bonds are one year or more

85. Why issue bonds instead of new common stock?

A) Bonds pay interest, which lowers net income and taxes
B) Bonds do not cause stockholders to lose power
C) Issuing bonds may allow stockholders to earn more dividends per share
D) All items above are true

86. What is a difference between notes payable and a bond?

A) A bond is ownership while investors buy notes payable from markets
B) Bond is a bank loan while investors buy notes payable from markets
C) Notes payable is ownership while bond is a loan
D) Notes payable is a bank loan while investors buy bonds from markets

87. If you bought a financial instrument and resold it for a higher price, what is this price difference called?

A) The yield to maturity
B) The rate of return
C) Capital loss
D) Capital gain

88. If you bought a financial instrument and held it to maturity, what is “r” called in the present value formula?

A) The yield to maturity
B) The rate of return
C) Capital loss
D) Capital gain

89. If you bought a financial instrument and re-sold it before maturity, what is “r” called in the present value formula?

A) The yield to maturity
B) The rate of return
C) Capital loss
D) Capital gain

Lesson 6

90. Which of the following institutions help corporations issue new stocks or new bonds?

A) Dow Jones Industrial Average
B) Organized exchange, like the New York Stock Exchange
C) Investment banks
D) Corporation

91. When an investment banker informs family and friends about a corporation merger and the corporate stock is expected to rise, what is this called?

A) Underwriting
B) Insider information
C) Syndicate
D) Dow Jones Industrial Average

92. When an investment banker helps a corporation issue new securities, what is this process called?

A) Underwriting
B) Syndicate
C) Dividends
D) Dow Jones Industrial Average

93. When a market does not have a physical location and the dealers and brokers are connected to each other by telephones and computers, what kind of market is this?

A) Over-the-counter market
B) Exchange market
C) Syndicates
D) The Dow Jones Industrial Average

94. When a market has a physical location and buyers and sellers meet face-to-face, what kind of market is this?

A) Over-the-counter market
B) Exchange market
C) Syndicates
D) The Dow Jones Industrial Average

95. Why are stock market crashes so bad?

A) They can cause banks to earn enormous profits
B) They bankrupt many financial institutions
C) They cause stock prices to increase too fast
D) They cause the economy to grow to fast

96. What is a benefit of the Dow Jones Industrial Average?

A) The Dow provides fast information, as information is updated every second
B) The government calculates the Dow, manipulating the number to prevent financial crisis
C) The Dow helps corporations earn billions of dollars in profits
D) The Dow helps corporations issue new stocks and bonds

97. In the area of investment banking, what is a syndicate?

A) Several investment banks work together to sell new stocks and bonds
B) The mafia work together to increase crime and profits
C) An investment bank works with government to create new corporations
D) The syndicate helps the government regulate the financial markets

98. What is a stock market crash?

A) Stock prices rapidly increase and keep increasing
B) Stock prices remain constant and do not change
C) Stock prices never crash
D) Stock prices rapidly fall in a short time period

99. If a corporation offers a stock split, how does this change stockholders’ power?

A) Stockholders’ power increases
B) Stockholders’ power decreases
C) No impact on stockholders power, every stockholder retains the same percentage of stock
D) Need more information to answer this question

100. If a corporation pays a dividend of $5, the rate of return is 12%, and dividends grow at 2% per year, what is the market price of this stock per share?

A) $50.00
B) $41.67
C) $250.00
D) No answer is correct

101. If a corporation pays a dividend of $2, the rate of return is 7%, and dividends grow at -3% per year, what is the market price of this stock per share? (The dividend growth rate is negative)

A) $66.67
B) $50.00
C) $20.00
D) No answer is correct

102. If a corporation pays a dividend of $1, the rate of return is 10%, and dividends grow at 0% per year, what is the market price of this stock per share?

A) $5.00
B) $100.00
C) $10.00
D) No answer is correct

Lesson 7

103. When a buyer and seller negotiate a price today, but the actual exchange of money for the financial security occurs at a future date, what is this called?

A) Marking to mark
B) Forward transactions
C) Option premium
D) Spot transactions

104. When a buyer has the obligation to pay for an asset as set forth in the futures contract, what is this called?

A) Put option
B) Call option
C) Long position
D) Short position

105. When the market prices of futures contracts changes, investors experience gains and losses each day. What is the process called, when investors have to settle their gains and losses as required by the exchange?

A) Put option
B) Call option
C) Option premium
D) Marking to market

106. When investors buy and sell securities in order to lower risk or use long-term investment strategies, what is this called?

A) Hedging
B) Option premium
C) Speculation
D) Marking to market

107. When investors buy and sell securities in order to gain quick profits, what is this called? This is a form of gambling.

A) Hedging
B) Option premium
C) Speculation
D) Marking to market

108. What kind of derivative contract gives an investor the option to buy or sell a financial security?

A) Spot market contract
B) Options contract
C) Option premium
D) Marking to market

109. What kind of contract gives an investor the right to sell an asset in the future?

A) Call option
B) Put option
C) Option premium
D) Hedging

110. What kind of contract gives an investor the right to buy an asset in the future?

A) Call option
B) Put option
C) Option premium
D) Hedging

111. Investors pay a fee in order to buy an option. What is this fee called?

A) Option premium
B) Hedging
C) Call option
D) Put option

112. Which answer below is a factor that influences the size of an option premium?

A) The financial institution that issues the option. More prestigious institutions charge higher option premiums.
B) The asset’s prices are very stable and do not fluctuate; options become more important for speculation.
C) The interest rates are very stable and do not fluctuate; options become more important for speculation.
D) If the asset’s price fluctuates greatly, causing a higher probability that the option is exercised.

113. Where do the price of derivatives receive (i.e. derive) their value from?

A) The derivatives obtain their value from the market value of the assets that are specified in the derivatives contract
B) The investors’ behavior determines the derivatives value in the derivatives market
C) The demand and supply determine the derivatives value in the derivatives market
D) The officials who manage the derivatives exchanges determine the derivatives value

114. Which item does derivatives help prevent?

A) Currency exchange rate risk
B) Interest rate risk
C) Reduces price uncertainty
D) All items listed prevents risk

115. What is the difference between American and European options?

A) They differ when investors can exercise them
B) They are exactly the same
C) They differ in the marking to mark requirements
D) American options increase price uncertainty, while European options do not

116. If a futures contract states that petroleum is $90 per barrel and the spot price is $99 per barrel, who pays the broker the marking-to-mark requirement?

A) The buyer of this contract
B) The seller of this contract
C) Both the buyer and seller of this contract
D) There is no marking to mark requirement for futures contract

117. If a futures contract states that petroleum is $85 per barrel and the spot price is $75 per barrel, who pays the broker the marking-to-mark requirement?

A) The buyer of this contract
B) The seller of this contract
C) Both the buyer and seller of this contract
D) There is no marking to mark requirement for futures contract

118. A bank sells a futures contract for tenge to Proctor and Gamble for 120 tenge per $1. Who pays the marking-to-mark requirement, if the tenge appreciates?

A) Proctor and Gamble
B) The bank
C) Both the bank, and Proctor and Gamble
D) There is no marking to mark requirement for futures contract

119. If a European call option states that the strike price of petroleum is $85 per barrel and the spot price is $90 per barrel on the expiration date, what will the investor do?

A) The investor exercises the call option
B) The investor does not exercise the call option
C) Have no idea
D) This is a trick question; an investor cannot exercise a European option on the expiration date

120. If a European call option states that the strike price of petroleum is $80 per barrel and the spot price is $75 per barrel on the expiration date, what will the investor do?

A) The investor exercises the call option
B) The investor does not exercise the call option
C) Have no idea
D) This is a trick question; an investor cannot exercise a European option on the expiration date

121. If a European put option states that the strike price of petroleum is $85 per barrel and the spot price is $80 per barrel on the expiration date, what will the investor do?

A) The investor exercises the put option
B) The investor does not exercise the put option
C) Have no idea
D) This is a trick question; an investor cannot exercise a European option on the expiration date

122. If a European put option states that the strike price of petroleum is $90 per barrel and the spot price is $100 per barrel on the expiration date, what will the investor do?

A) The investor exercises the put option
B) The investor does not exercise the put option
C) Have no idea
D) This is a trick question; an investor cannot exercise an European option on the expiration date

123. A bank sells a European call option for tenge to Proctor and Gamble for a strike price of 120 tenge per $1. Will Proctor and Gamble exercise this option on the expiration date, if the tenge appreciates?

A) Proctor and Gamble exercises the call option
B) Proctor and Gamble does not exercise the call option
C) Have no idea
D) This is a trick question; an investor cannot exercise an European option on the expiration date

Lesson 8

124. The term ceteris paribus means that:

A) Everything is variable.
B) All variables except those specified are constant.
C) No one knows which variables will change and which will remain constant.
D) The Law of Demand does not apply.

125. The Law of Demand asserts that:

A) Every physical good has a use.
B) When people want a good badly enough, they will steal it.
C) The desire for a good relates directly to its price.
D) The market price and quantity are inversely related.

126. Which factors shift the demand function?

A) Consumer tastes and preferences
B) Consumer income
C) Prices of substitutes and complements
D) All answers shift the demand function

127. What is consumers' surplus?

A) An aggregate benefit to all consumers in the market
B) An aggregate benefit to all producers in the market
C) A factor that shifts the demand function
D) A factor that shifts the supply function

128. Scientist discover a new technology for making beer that allows the same amount of beer to be produced with only half as much barley and hops. What will happen in the beer market?

A) The supply of beer will decrease, and the price will increase.
B) The supply of beer will decrease, and the price will decrease.
C) The supply of beer will increase, and the price will increase.
D) The supply of beer will increase, and the price will decrease.

129. Prices is important in a market economy because it:

A) Eliminates imbalances between supply and demand.
B) Communicates information to buyers and sellers.
C) Coordinates the choices of consumers and producers and brings them into harmony.
D) All of the above.

130. What happens in a market, if there is excess demand (i.e. shortage) of a product with no government price control?

A) Price tends to fall
B) Price is above market price
C) Producers will decrease output and sales will fall
D) Price tends to increase

131. Bill pays $150 a month for electricity, when he would gladly pay $250 for the same service. This is an example of:

A) Irrational pricing by the electric company.
B) Price discrimination.
C) Consumers' surplus.
D) This is a trick question because nobody pays less for something than it is worth to them.

132. The Law of Supply asserts that:

A) Every physical good has a use
B) When people want a good badly enough, they will steal it
C) Prices tend to increase over time
D) The market price and quantity are positively related

133. What is producers' surplus?

A) Every physical good has a use
B) When people want a good badly enough, they will steal it
C) An aggregate benefit to producers in the market
D) The market price and quantity are inversely related

134. What is a market surplus?

A) Producers supply more product than consumers want
B) Producers supply less product than consumers want
C) An aggregate benefit to producers in the market
D) An aggregate benefit to consumers in the market

135. What is elasticity of demand?

A) How responsive consumers are to changes in market price
B) A measure of social welfare
C) An aggregate benefit to producers in the market
D) An aggregate benefit to consumers in the market

136. When there is excess supply (i.e. surplus) of a product in a market with no government controls:

A) Price tends to rise.
B) Price is above equilibrium price.
C) Producers will expand output and sales will rise.
D) Price is below equilibrium price.

137. Which factors shift the supply function?

A) Taxes
B) Prices for resource inputs
C) The number of sellers in the market
D) All answers shift the supply function

138. How will an increase in lumber prices influence the home construction market?

A) The demand for newly constructed homes will rise.
B) The demand for newly constructed homes will fall.
C) The supply of newly constructed homes will rise.
D) The supply of newly constructed homes will fall.

139. In the Wealth of Nations, Adam Smith argued that:

A) Government control over economic activity is essential for the talents of individuals to be directed toward their highest valuation.
B) The economic wealth of a nation is determined by a nation’s holdings of precious metals, such as gold and silver.
C) Public policy should prohibit domestic producers from selling their goods to foreigners.
D) Free (competitive) markets will bring individual self-interest and the public interest into harmony.

140. Using the supply and demand curves for the automobile market, what happens to the automobile market if the automobile taxes decreases? Select the correct answer below.

A) The demand increases and shifts to the right.
B) The demand decreases and shifts to the left.
C) The supply increases and shifts to the right.
D) The supply decreases and shifts to the left.

Lesson 9

141. Which person has a demand for foreign currencies?

A) International investors
B) International traders
C) International travelers
D) All people above need foreign currencies

142. Which activity creates a demand for tenge on international currency markets?

A) U.S. importers that buy wheat from Kazakhstan
B) Kazakhstan firms that import products from U.S.
C) Kazakhstan citizens who travel abroad
D) Kazakhstan national government

143. If the tenge depreciates, what is the impact on Kazakhstan imports and exports?

A) Both Kazakhstan exports and imports increase
B) Kazakhstan exports decrease while imports increase
C) Kazakhstan exports increase while imports decrease
D) Nothing happens to imports and exports

144. Which activity creates a supply for tenge on international currency markets?

A) U.S. importers that buy wheat from Kazakhstan
B) Kazakhstan firms that import products from U.S.
C) U.S. citizens who travel to Kazakhstan
D) The U.S. national government

145. What if the inflation rule for foreign currencies?

A) People and businesses prefer to hold currencies with low inflation rates.
B) People and businesses prefer to hold currencies with high inflation rates.
C) The higher the inflation rate, the better the investment.
D) Countries with high inflation rates have the cheapest prices.

146. If the real interest is higher in Kazakhstan than the United States, what happens to the value of the tenge?

A) The tenge depreciates.
B) The tenge appreciates.
C) The value of the tenge does not change.
D) The tenge first depreciates and then appreciates.

147. If a country has a higher inflation rate than its trading partners, what is the impact on imports and exports?

A) Exports become relatively more expensive and imports become cheaper.
B) Exports become relatively cheaper and imports become more expensive.
C) Both imports and exports become relatively more expensive.
D) Both imports and exports become relatively cheaper.

148. If income for Kazakhstan citizens increases, what is the impact on the foreign exchange markets?

A) Kazakhstan people increase imports, increasing demand for foreign currencies.
B) Kazakhstan people decrease imports, decreasing demand for foreign currencies.
C) There is no impact on the foreign currency exchange markets.
D) Kazakhstan people stop buying imports because they are too expensive.

149. If the U.S. Federal Reserve System increases the supply of dollars on the international markets, what happens to the international market?

A) The demand for dollars decreases.
B) The demand for dollars increases.
C) The supply for dollars decreases.
D) The supply for dollars increases.

150. If the U.S. Federal Reserve System increases the supply of dollars on the international markets, what happens to the value of the dollar (if no other central banks intervene)?

A) The U.S. dollar depreciates.
B) The U.S. dollar appreciates.
C) The U.S. dollar does not change in value.
D) The U.S. dollar first appreciates and then depreciates.

Lesson 10

151. Which is balance-of-payment account?

A) An account that compares the total flow of money between one country and the rest of the world.
B) An account that measures the trade of goods and services between one country and another.
C) A central bank intervening in its currency exchange rate.
D) A central bank sending money to another central bank.

152. How is a payment by a U.S. resident to another country recorded in the balance-of-payments for the United States?

A) As a surplus item, because money is entering the U.S.
B) As a deficit item, because money is leaving the U.S.
C) As a positive number, because money is entering the U.S.
D) The payment by the U.S. resident has no impact on the balance-of-payments.

153. Which account is the trade balance recorded in?

A) The capital account.
B) The official settlements balance.
C) The current account.
D) Statistical discrepancy.

154. What is a trade surplus?

A) The value of exports is greater than value of imports.
B) The value of exports is less than the value of imports.
C) The value of exports equals the value of imports.
D) There is a current account deficit.

155. If the United States has a trade deficit, what happens to U.S. dollars?

A) The value of exports equal the value of imports.
B) U.S. dollars are not leaving the United States.
C) Less U.S. dollars are leaving the country than the amount flowing in.
D) More U.S. dollars are leaving the country than the amount flowing in.

156. Which items below are included in the capital account?

A) Stock transactions between the U.S. and the rest of the world.
B) Bond transactions between the U.S. and the rest of the world.
C) Real estate transactions between the U.S. and the rest of the world.
D) All the above items are included in the capital account.

157. If the United States capital account is positive, what does this mean?

A) U.S. residents are buying more foreign assets than the amount of assets that foreigners are buying in the U.S.
B) Foreigners are buying more U.S. assets than the amount of assets that U.S. residents are buying in foreign countries.
C) The current account is also positive.
D) The capital account has no meaning.

158. If you know that [ current account + capital account = 0 ], what can you infer if the capital account is negative?

A) The current account is positive, because the country exports more goods and services than what it i imports.
B) The current account is negative, which the country imports more goods and services than what it exports.
C) The current account equals zero.
D) The capital account has no impact on the current account.

159. Which items are included in the official reserve assets?

A) Gold.
B) Foreign currencies.
C) Special Drawing Rights.
D) All of the above are included in official reserve assets.

160. If the U.S. has a balance-of-payment deficit, how can the Federal Reserve System finance this deficit, if foreign countries do not want to hold U.S. dollars?

A) The Fed can do nothing about this.
B) The Fed can buy U.S. dollars by selling foreign currency.
C) The Fed can purchase SDRs and sell more U.S. dollars.
D) The Fed can sell more U.S. dollars and buy more foreign currency.

161. When the capital and current account are added together, why does the balance not equal zero?

A) Some people are evading their taxes, so a discrepancy shows up.
B) There are measurement errors when calculating the current and capital accounts.
C) Some people are engaging in illegal activities and this information is not reported to the government.
D) All of the above answers are true.

162. What is one benefit of having the gold standard?

A) Under the gold standard, a central bank can easily expand the money supply.
B) The gold standard can cause extremely high inflation rates.
C) If one country experiences a recession, this recession can spread to other countries.
D) A gold standard reduces risk for international investors by fixing exchange rates.

163. Which exchange rate regime has flexible exchange rates?

A) The gold standard
B) Free floating exchange rates
C) Special Drawing Rights
D) International Monetary Fund

164. Which agency below grants loans to developing countries that help build a country’s infrastructure?

A) The International Monetary Fund.
B) The World Bank.
C) Special Drawing Rights.
D) A nation’s central bank

Lesson 11

165. What is the definition of exposure ?

A) A company’s risk to exchange rate fluctuations
B) A company’s risk to government seizure of the company’s assets
C) A company’s risk to stock market fluctuations
D) A company’s risk of earning substantial profits

166. What is translation exposure?

A) The risk from transactions in different currencies.
B) The impact of cash flows from changes in currency transactions
C) The impact on a company’s consolidated financial statements from currency exchange rate changes.
D) A company’s risk to government seizure of the company’s assets

167. What is economic exposure?

A) The risk from transactions in different currencies.
B) The impact of cash flows from changes in currency transactions
C) The impact on a company’s consolidated financial statements from currency exchange rate changes.
D) A company’s risk to government seizure of the company’s assets

168. The current exchange rate is $1 = 120 tenge. If an investor will receive 1 million tenge within a month and the exchange rate will fluctuate plus and minus 10%, how much dollars does the investor expect?

A) Exactly $8,333.33
B) From $7,500.00 to $9,166.67
C) From $7,575.76 to $9,259.26
D) Do not have enough information to answer this question

169. The current exchange rate is $1 = 10 pesos. If an investor will receive 10,000 peso within a month and the exchange rate will fluctuate plus and minus 20%, how much dollars does the investor expect?

A) Exactly $1,000
B) From $833.33 to $1,250.00
C) From $800 to $1,200.00
D) Do not have enough information to answer this question

170. What is credit risk?

A) The risk of the borrower defaulting on his loans.
B) The risk a government seizes a company’s assets
C) The impact on a company’s consolidated financial statements from currency exchange rate changes.
D) U.S. residents are buying more foreign assets than the amount of assets that foreigners are buying in the U.S.

171. What is the qualitative measure of risk?

A) Experts form a consensus of a country’s risk level.
B) Experts use statistics to estimate the risk.
C) The risk a government seizes a company’s assets
D) The impact on a company’s consolidated financial statements from currency exchange rate changes.

172. What is the quantitative measure of risk?

A) Experts form a consensus of a country’s risk level.
B) Experts use statistics to estimate the risk.
C) The risk a government seizes a company’s assets
D) The impact on a company’s consolidated financial statements from currency exchange rate changes.

173. If you calculate a project’s rate of return, what rate of return is acceptable for a project in a foreign country?

A) The current interest rate on U.S. government securities.
B) The risk premium associated with that particular country.
C) The current interest rate on U.S. government securities plus that country’s risk premium.
D) Not enough information is given

174. What is an advantage in investing in a foreign country?

A) That country has inexpensive labor
B) Low international transportation costs
C) Take advantage of that government subsidies
D) All of the above are advantages.

Lesson 12

175. If i _d = 5%, i _f = 7%,, T = 180 days, and the current exchange rate is S _t = 140 tenge/1$, what is the price of a forwards contract using Interest Rate Parity Theorem?

A) Forwards contract should be 138.6 tenge per 1$
B) Forwards contract should be 141.4 tenge per 1$
C) Forwards contract should be 140.0 tenge per 1$
D) Cannot be determined from information given

176. If i _d = 3%, i _f =16%,, T = 90 days, and the current exchange rate is S _t = 100 tenge per $1, what is the price of a forwards contract using Interest Rate Parity Theorem?

A) Forwards contract should be 103.25 tenge per 1$
B) Forwards contract should be 96.75 tenge per 1$
C) Forwards contract should be 100.00 tenge per 1$
D) Cannot be determined from information given

177. If i _d = 5%, i _f =5%,, T = 360 days, and the current exchange rate is S _t = 125 tenge per 1$, what is the price of a forwards contract using Interest Rate Parity Theorem?

A) Forwards contract should be 131.25 tenge per 1$
B) Forwards contract should be 118.75 tenge per 1$
C) Forwards contract should be 125 tenge per 1$
D) Cannot be determined from information given

178. If i _d = 16%, i _f = 6%,, and T = 90 days, how much should the exchange rate depreciate (or appreciate) using the International Fisher Effect?

A) Currency should appreciate by +10%
B) Currency should depreciate by -10%
C) Currency should appreciate by +2.5%
D) Currency should depreciate by -2.5%

179. If i _d = 5%, i _f = 25%,, and T = 180 days, how much should the exchange rate depreciate (or appreciate) using the International Fisher Effect?

A) Currency should appreciate by +20%
B) Currency should depreciate by -20%
C) Currency should appreciate by +10%
D) Currency should depreciate by -10%

180. If the net present value of the swap is +$1 million for a company, what does this mean?

A) Company could sell swap for $1 and breakeven on swap
B) Company could sell swap for $1 and earn substantial profit
C) Company earns a $1 million loss and nobody defaults.
D) Company needs to pay swap dealer $1 million.

Answers: