Commercial Aviation and Global Finance Quiz
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Questions and Answers

What is the primary reason for the high adoption of the dollar as the main currency in trade and finance?

  • Dollar liquidity is abundant and cheap. (correct)
  • It is backed by multiple global military powers.
  • The dollar has the highest inflation rate.
  • It is the only currency accepted globally.

How does a 1 percent rise in the dollar typically affect global trade?

  • Increases global trade by 0.7 percent.
  • Knocks around 0.7 percent off global trade. (correct)
  • Has no significant impact on global trade.
  • Creates a 1 percent increase in import costs.

What is a direct consequence of rising dollar value for borrowers in other countries?

  • It simplifies their debt repayment processes.
  • It reduces their interest rates on dollar loans.
  • It stabilizes their local currencies.
  • It increases their debt service charges. (correct)

Which of the following countries is indicated to already be in a crisis due to economic conditions?

<p>Sri Lanka (C)</p> Signup and view all the answers

What impact is likely to occur as the FED raises interest rates?

<p>An increase in dollar value against other currencies. (B)</p> Signup and view all the answers

Which of the following economic issues are low-income borrower countries facing?

<p>Debt distress or potential crisis. (B)</p> Signup and view all the answers

What was the status of the euro and yen in relation to the dollar recently?

<p>Both currencies have been reduced to record lows. (D)</p> Signup and view all the answers

What is a possible effect of tightening credit conditions on the dollar-based financial system?

<p>Higher risks of the financial system snapping. (D)</p> Signup and view all the answers

Which statement best illustrates the impact of higher wages in rich countries on the cost of living?

<p>Higher wages lead to a higher cost of goods and services. (D)</p> Signup and view all the answers

What is a potential consequence of countries like Russia and China seeking to build an alternative currency system?

<p>It could create a viable competition against the dollar and euro. (B)</p> Signup and view all the answers

What role do interest rates play in influencing the global economy as highlighted in the context?

<p>They change the conditions under which the world economy operates. (A)</p> Signup and view all the answers

What is indicated about China’s economic situation in relation to foreign capital as of mid-2022?

<p>China is experiencing a faster outflow of foreign capital than during the 2015-2016 crisis. (B)</p> Signup and view all the answers

The adjusted Big Mac index serves to illustrate what economic principle?

<p>Differences in purchasing power across countries based on GDP per capita. (B)</p> Signup and view all the answers

What impact does the Federal Reserve's tightening of policy have on the global economy?

<p>It influences global conditions through currency fluctuations and credit supply. (C)</p> Signup and view all the answers

What has been a major challenge for Russia in maintaining its economy amid foreign exchange reserves?

<p>Closure of its financial system to external markets. (C)</p> Signup and view all the answers

What does increased demand for oil, gas, and coal indicate about the global market?

<p>There is still significant reliance on fossil fuels despite other commodities declining. (D)</p> Signup and view all the answers

What effect might digital currencies issued by central banks have on the status of global currencies?

<p>They may allow multiple currencies to share global reserve status. (D)</p> Signup and view all the answers

Which currency system allows for occasional central bank intervention while market forces primarily dictate the currency's value?

<p>Managed floating exchange rate (C)</p> Signup and view all the answers

What is a notable characteristic of a free-floating currency system?

<p>There is no central bank intervention in setting the currency's value. (A)</p> Signup and view all the answers

Which of the following currencies most likely operates under a semi/fully-fixed currency system?

<p>Hong Kong Dollar (A)</p> Signup and view all the answers

What is the primary reason for Europe's discontent with the dollar's status in international finance?

<p>They resent the 'exorbitant privilege' that the dollar provides to the U.S. (C)</p> Signup and view all the answers

Which currency might gain global significance due to its aspirations and potential convertibility issues?

<p>Chinese Yuan (D)</p> Signup and view all the answers

Which exchange rate system prominently features the government's intervention at times resulting in an 'official' rate?

<p>Semi/fully-fixed currency system (A)</p> Signup and view all the answers

How does the managed floating exchange rate system primarily determine the currency value?

<p>Based on supply and demand factors. (B)</p> Signup and view all the answers

Flashcards

PPP and Currency Exchange Rates

Purchasing Power Parity (PPP) suggests that the exchange rate between two countries' currencies should reflect the relative cost of goods and services. Rich countries are often more expensive than poor ones, even for non-productive sectors, due to higher wages.

Adjusted Big Mac Index

A measure that adjusts the Big Mac price in a foreign currency relative to the predicted price based on a country's GDP per capita.

Russia's Foreign Exchange Reserves

Russia holds substantial foreign exchange reserves primarily in US dollars or Euros, limiting alternative investment choices.

Alternative Currency System

A potential system to replace the US dollar as the global reserve currency, possibly centered on commodities and traded in Chinese Renminbi.

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Dim Sum Bond Market

A Hong Kong-based market where issuers from around the world can issue offshore Renminbi debt.

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Global Economic Slowdown

The world economy is slowing down, with commodity prices, like iron ore dropping despite some commodity demands like Oil, Gas, and Coal still remaining.

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Hemorrhage of Foreign Capital

China is experiencing a faster loss of foreign investment than during a past crisis (2015-2016).

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US Federal Reserve Policy

The US Federal Reserve's actions to tighten monetary policy in response to inflation and a strong US dollar.

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Dollar's dominance in global trade

The US dollar is heavily used in international transactions, approximately 90% of all currency trades.

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Rising dollar effect on other currencies

A stronger dollar leads to weaker values of other currencies in comparison.

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Dollar's impact on global borrowers

A rising dollar increases the cost of servicing dollar-denominated debt for global borrowers.

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Dollar's impact on exports

A strong dollar makes exports priced in dollars less competitive in the global market.

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Global trade impact of a rising dollar

A 1% rise in the dollar can decrease global trade by about 0.7% within a year.

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Dollar's recent surge

The dollar significantly increased by 15% against other currencies, starting approximately mid-2021.

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Risks associated with a strong dollar

A strong dollar can create financial difficulties for economies relying heavily on dollar-denominated debt or exports, potentially leading to debt crises or defaults.

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Debt distress impact

Many low-income countries face significant risk of debt distress or default due to rising global interest rates and the dollar.

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Free Floating Currency

Currency value determined solely by market forces (supply and demand).

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Managed Floating Exchange Rate

Currency value mostly determined by markets, but central banks may intervene occasionally.

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Semi/Fully Fixed Currency

Currency value fixed to one or more currencies, requiring foreign exchange reserves for intervention in markets.

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Adjustable Peg

Semi/Fully fixed exchange rate, but with occasional official realignments (agreed with the IMF).

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Reserve Currency

A currency widely held by central banks as a store of value and for international transactions.

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Exorbitant Privilege

The special status of a currency, allowing its use in international transactions with advantages for the issuing country.

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Digital Currencies

Digital forms of money, potentially issued by central banks.

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Convertibility of Currency

The ability to exchange a domestic currency for another currency or precious metal.

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Study Notes

Commercial Aviation

  • A plane introduced in the 1930s changed commercial aviation: Douglas DC-3

Pandemic Shutdown

  • Carnival cruise line had 38 ships out of service

Ship Size Issues

  • Large ships have problems like being too big for some destinations

Global Finance

  • Money is defined as a generally accepted medium of exchange enabling trade without barter.
  • It's also a store of value used as a medium of exchange.
  • Coins and banknotes are a medium of exchange, along with written/printed/electronic ownership records.
  • Coins are valued by their metal content as representative tokens.
  • Paper money represents ownership, from ancient China to modern times.
  • Digital currency is an information-based form of exchange.
  • All these forms of money rely on a shared value consensus.

Types of Money

  • Commodity money: Gold/silver coins, shells, grain, or items of agreed value (e.g., the gold standard).
  • Token money: Coins or paper exchangeable for gold or silver at their face value.

Potosi and Silver

  • Potosi, Bolivia, was a significant city for capitalism, supplying the primary ingredient—silver.
  • Spanish conquest led to aggressive campaigns and enslavement for silver mining and refining from Potosi mountains
  • Increased Spanish colonial power.
  • Influenced global economies, transitioning from barter to cash-based systems.
  • Increased trade with China and other Asian countries
  • Now a source of lithium for modern batteries (e.g. electric cars)

Banks and Central Banks

  • The Bank of England was a model for later central banks, formed in 1694.
  • Central banks play major roles in regulating finances.
  • They raise money for the government.
  • The Federal Reserve (FED) was created in response to the 1907 financial crisis, in 1913.

Other Central Banks

  • The Bank of Canada was established in 1935, in response to the Great Depression and adjusting Canada's finance system.

1967 Bank Act Revision

  • Relaxed interest rate restrictions, helping banks enter mortgage markets.

Euro Introduction

  • The adoption of the euro as a common currency in the European Union in 1999
  • The euro has faced challenges maintaining its value.

Currency Systems

  • Free-floating currency: Exchange rates based on market forces (supply and demand)
  • Managed floating currency: The government's central bank has some influence on exchange rates, but market forces still drive value..
  • Semi-fixed currency (crawling peg): Central banks peg the value of one or more currencies and intervene when exchange rates move outside acceptable bands.
  • Fully-fixed currency (currency board): Domestic currency is pegged to another, typically supported by enough foreign reserve currency.

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Global Finance Lecture Notes PDF

Description

Test your knowledge on the evolution of commercial aviation, focusing on the Douglas DC-3. Additionally, explore the dynamics of global finance, including the definitions and types of money, from traditional coins to digital currency. This quiz covers key aspects of both industries in detail.

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