International Business 200 Final Exam
Questions With 100% Correct Updated
Answers.
what is transaction risk? - Answer the extent to which income from individual transactions is
affected by fluctuations in foreign exchange
what is translation risk? - Answer the extent to which the reported consolidated financial
statements of a corporation are affected by fluctuations in foreign exchange rates
what is economic risk? - Answer the extent to which a firm's international earning power (or
costs) will be affected by changes in exchange rates
how much money is exchanged in the foreign exchange market every day? - Answer $5.7TN
USD
what percentage of the total volume traded in foreign exchange has the USD on one end of the
transaction? - Answer 85%
what is the settlement period for spot deals? - Answer 2 business days for most currencies, 1
business day for USD with Canada/Mexico
what is the ask price? - Answer the seller's price
what is the bid price? - Answer the buyer's price
what is the main central reserve asset of most countries? - Answer the USD
name 4 "hard" currencies - Answer USD, EUR, GBP, JPY
what is the law of one price? - Answer in competitive markets free of transportation costs and
trade barriers, identical products sold in different countries should sell for the same price in
their respective currencies
, what does the big Mac index show? - Answer compares the price of a big mac in one country
with the price in another country. supposed to approximate the exchange rate
what are some flaws with the big mac index? - Answer different brand positioning across
markets could make the big mac in higher or lower demand for different countries. cultural
issues could raise or lower the price (i.e. chicken used in big mac in india due to meatless
culture)
what does the purchasing power parity show? - Answer mostly helpful to show how economic
forces will affect exchange rates between nations
what makes a currency "hard"? - Answer they are convertible and highly liquid, widely
accepted globally and stable on a day-to-day basis
why is hedging important? - Answer because exchange rates are volatile and can change
drastically in a short period of time (transaction risk!!)
what does the international fisher effect say about exchange rates? - Answer spot exchange
rates and future exchange rates should change in equal amounts but in the opposite direction
to the difference in nominal interest rates between the two countries. basically says the real
rate of interest is fixed globally so differences in nominal rates can be traced to differences in
expectations about inflation between markets.
what is the fisher effect equation (in words) - Answer nominal (market) rate = real rate of
interest + expectations about inflation
name 3 reserve assets - Answer USD, Gold, SDRs
why would a government limit their currency's convertibility? - Answer to maintain foreign
exchange reserves. it allows them to service international debt, allows governments to have
funds to make imports, and eases government concerns about capital flight
name two reasons why exchange rate regimes are a good thing - Answer they eliminate
foreign exchange, and alternatives allow government to skew country competitiveness by
engaging in "currency wars" and competitive devaluations of their currency to spur jobs and
exports
Questions With 100% Correct Updated
Answers.
what is transaction risk? - Answer the extent to which income from individual transactions is
affected by fluctuations in foreign exchange
what is translation risk? - Answer the extent to which the reported consolidated financial
statements of a corporation are affected by fluctuations in foreign exchange rates
what is economic risk? - Answer the extent to which a firm's international earning power (or
costs) will be affected by changes in exchange rates
how much money is exchanged in the foreign exchange market every day? - Answer $5.7TN
USD
what percentage of the total volume traded in foreign exchange has the USD on one end of the
transaction? - Answer 85%
what is the settlement period for spot deals? - Answer 2 business days for most currencies, 1
business day for USD with Canada/Mexico
what is the ask price? - Answer the seller's price
what is the bid price? - Answer the buyer's price
what is the main central reserve asset of most countries? - Answer the USD
name 4 "hard" currencies - Answer USD, EUR, GBP, JPY
what is the law of one price? - Answer in competitive markets free of transportation costs and
trade barriers, identical products sold in different countries should sell for the same price in
their respective currencies
, what does the big Mac index show? - Answer compares the price of a big mac in one country
with the price in another country. supposed to approximate the exchange rate
what are some flaws with the big mac index? - Answer different brand positioning across
markets could make the big mac in higher or lower demand for different countries. cultural
issues could raise or lower the price (i.e. chicken used in big mac in india due to meatless
culture)
what does the purchasing power parity show? - Answer mostly helpful to show how economic
forces will affect exchange rates between nations
what makes a currency "hard"? - Answer they are convertible and highly liquid, widely
accepted globally and stable on a day-to-day basis
why is hedging important? - Answer because exchange rates are volatile and can change
drastically in a short period of time (transaction risk!!)
what does the international fisher effect say about exchange rates? - Answer spot exchange
rates and future exchange rates should change in equal amounts but in the opposite direction
to the difference in nominal interest rates between the two countries. basically says the real
rate of interest is fixed globally so differences in nominal rates can be traced to differences in
expectations about inflation between markets.
what is the fisher effect equation (in words) - Answer nominal (market) rate = real rate of
interest + expectations about inflation
name 3 reserve assets - Answer USD, Gold, SDRs
why would a government limit their currency's convertibility? - Answer to maintain foreign
exchange reserves. it allows them to service international debt, allows governments to have
funds to make imports, and eases government concerns about capital flight
name two reasons why exchange rate regimes are a good thing - Answer they eliminate
foreign exchange, and alternatives allow government to skew country competitiveness by
engaging in "currency wars" and competitive devaluations of their currency to spur jobs and
exports
