International Finance and Macroeconomics Practice Questions
Classified in Economy
Written on in 
with a size of 2.72 KB
Shareholder and Manager Contracts
A complete contract between shareholders and managers would specify exactly what the manager will do under each of all possible future contingencies.
Current Account Surplus and Foreign Investment
A country with a current account surplus is likely to acquire foreign firms in an overseas country, thereby increasing its net foreign wealth.
Understanding Currency ETFs
A currency exchange-traded fund (ETF) is a portfolio of financial assets in which shares representing fractional ownership of the fund trade on an organized exchange.
Evolution of International Monetary Systems
The chronological order of international monetary systems is as follows:
- Bimetallism
- Gold standard
- Bretton Woods system
- Flexible exchange rate regime
Purchasing Power Parity (PPP) Analysis
Choose the inappropriate statement regarding purchasing power parity (PPP):
- A) The exchange rate between the currencies of two countries should be equal to the ratio of the countries' price levels.
- B) As the purchasing power of a currency sharply declines due to hyperinflation, that currency will depreciate against stable currencies.
- C) PPP is based on the assumption of the law of one price.
- D) The prices of standard commodity baskets in two countries are related.
Calculating Forward Premium
Compute the 90-day forward premium for the USD/EUR exchange rate using the following data:
- S(USD/EUR) = 1.1321
- F(360) USD/EUR = 1.1377
- F(90) USD/EUR = 1.1385
Calculation: (1.1385 – 1.1321) / 1.1321 × 4 = 0.0226 (2.26%)
International Reserve Assets
Currently, international reserve assets are comprised of: gold, foreign exchanges, SDRs, and reserve positions in the IMF.
Interwar Period Political Reality
During the period between World War I and World War II, the political reality was characterized by panicky flights of capital across borders.
Balance of Payments Classification
Classification and recording of U.S. balance of payments transactions:
| Transaction | Credit | Debit |
|---|---|---|
| Japanese purchase of U.S. T-bonds | X | |
| Japanese payment using NYC account | X | |
| U.S. citizen having a meal in Paris | X | |
| Paying the meal with American Express | X | |
| Gift to parents in Bombay | X | |
| Receipt of the check by parents (goodwill) | X |