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Questions and Answers
What does "International Finance" primarily focus on?
What does "International Finance" primarily focus on?
Free trade allows for the movement of which of the following without restrictions?
Free trade allows for the movement of which of the following without restrictions?
___ is a commerce activity that are not subject to any market frictions (tariffs, quotas, ...etc.) when such activities cross borders.
___ is a commerce activity that are not subject to any market frictions (tariffs, quotas, ...etc.) when such activities cross borders.
Which of the following is an example of "Free Trade" in practice?
Which of the following is an example of "Free Trade" in practice?
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Which of the following is NOT a feature of Free Trade?
Which of the following is NOT a feature of Free Trade?
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The theory suggesting countries should specialize in goods they produce most efficiently is called
The theory suggesting countries should specialize in goods they produce most efficiently is called
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The measure of all economic transactions between residents of a country and the rest of the world is known as the _______.
The measure of all economic transactions between residents of a country and the rest of the world is known as the _______.
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Which term describes a situation where the total payments for imports exceed the receipts from exports?
Which term describes a situation where the total payments for imports exceed the receipts from exports?
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Which of the following is an example of a "Current Account" transaction in the Balance of Payments?
Which of the following is an example of a "Current Account" transaction in the Balance of Payments?
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Which of the following is an example of a "Debit" in the current account of the Balance of Payments?
Which of the following is an example of a "Debit" in the current account of the Balance of Payments?
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Which of the following is a "Credit" in the current account of the Balance of Payments?
Which of the following is a "Credit" in the current account of the Balance of Payments?
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Which of the following explains a "surplus" in the Balance of Payments?
Which of the following explains a "surplus" in the Balance of Payments?
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A Saudi bank lends $50 million to a company in India for a five-year period. How is this transaction recorded in Saudi Arabia's Balance of Payments?
A Saudi bank lends $50 million to a company in India for a five-year period. How is this transaction recorded in Saudi Arabia's Balance of Payments?
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Which of the following would improve a country's current account balance?
Which of the following would improve a country's current account balance?
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When a country has a surplus in its Balance of Payments, it usually means...
When a country has a surplus in its Balance of Payments, it usually means...
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Which of the following terms best describes the difference in interest rates between two countries affecting currency demand?
Which of the following terms best describes the difference in interest rates between two countries affecting currency demand?
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____ is the risk that exchange rate changes between the initiation of a contract and its settlement can increase or decrease the cost of international transactions.
____ is the risk that exchange rate changes between the initiation of a contract and its settlement can increase or decrease the cost of international transactions.
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____ arises when a company’s financial statements are consolidated from foreign subsidiaries. The exchange rate fluctuations affect the value of these foreign operations.
____ arises when a company’s financial statements are consolidated from foreign subsidiaries. The exchange rate fluctuations affect the value of these foreign operations.
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____ relates to long-term changes in exchange rates, which affect a country’s international competitiveness and economic structure.
____ relates to long-term changes in exchange rates, which affect a country’s international competitiveness and economic structure.
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Which of these is NOT considered part of the current account in the Balance of Payments?
Which of these is NOT considered part of the current account in the Balance of Payments?
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What impact would a devaluation of currency have according to the J-Curve?
What impact would a devaluation of currency have according to the J-Curve?
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When a country’s inflation rate is higher than that of its trade partners, its exports become
When a country’s inflation rate is higher than that of its trade partners, its exports become
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Which of the following best describes a “trade deficit”?
Which of the following best describes a “trade deficit”?
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In fixed exchange rate___.
In fixed exchange rate___.
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Exchange rates refer to___.
Exchange rates refer to___.
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Which of the following is a feature of a “Fixed Exchange Rate” system?
Which of the following is a feature of a “Fixed Exchange Rate” system?
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Which of the following is a key role of a country’s central bank in a fixed exchange rate system?
Which of the following is a key role of a country’s central bank in a fixed exchange rate system?
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Which of the following describes a “Managed Float Exchange Rate” system?
Which of the following describes a “Managed Float Exchange Rate” system?
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Which of the following is the main advantage of a “Floating Exchange Rate” system?
Which of the following is the main advantage of a “Floating Exchange Rate” system?
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Which of the following is an example of “Currency Depreciation”?
Which of the following is an example of “Currency Depreciation”?
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Which of the following is a characteristic of a “Currency Crisis”?
Which of the following is a characteristic of a “Currency Crisis”?
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Which of the following correctly describes the spot rate?
Which of the following correctly describes the spot rate?
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Which of the following is NOT a method of managing foreign exchange risk?
Which of the following is NOT a method of managing foreign exchange risk?
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If the SAR/USD exchange rate changes from 3.75 to 4.00, what has happened to the value of the SAR relative to the USD?
If the SAR/USD exchange rate changes from 3.75 to 4.00, what has happened to the value of the SAR relative to the USD?
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If the real interest rate in Saudi Arabia is 3% and the inflation rate is 2%, what is the nominal interest rate according to the Fisher Effect?
If the real interest rate in Saudi Arabia is 3% and the inflation rate is 2%, what is the nominal interest rate according to the Fisher Effect?
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Which of the following conditions links inflation, interest rates, and exchange rates?
Which of the following conditions links inflation, interest rates, and exchange rates?
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Which of the following would be classified as a Credit in the Financial Account of the Balance of Payments?
Which of the following would be classified as a Credit in the Financial Account of the Balance of Payments?
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A Saudi government bond is purchased by a foreign investor. How is this transaction recorded in the Saudi Balance of Payments?
A Saudi government bond is purchased by a foreign investor. How is this transaction recorded in the Saudi Balance of Payments?
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____ is a financial strategy used by individuals, businesses, and financial institutions to protect themselves against potential losses caused by unfavourable changes in market conditions.
____ is a financial strategy used by individuals, businesses, and financial institutions to protect themselves against potential losses caused by unfavourable changes in market conditions.
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Which of the following is the main objective of hedging foreign exchange risk?
Which of the following is the main objective of hedging foreign exchange risk?
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If a Saudi importer agrees to pay €1 million in six months to avoid the risk of the euro strengthening against the SAR, this is called___
If a Saudi importer agrees to pay €1 million in six months to avoid the risk of the euro strengthening against the SAR, this is called___
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If a Saudi airline hedges against rising jet fuel prices by entering into futures contracts for fuel at a fixed price, this is called___
If a Saudi airline hedges against rising jet fuel prices by entering into futures contracts for fuel at a fixed price, this is called___
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If a Saudi bank hedges its exposure to rising interest rates by using interest rate swaps, this is called___
If a Saudi bank hedges its exposure to rising interest rates by using interest rate swaps, this is called___
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____ is a private agreement between two parties to exchange a fixed amount of currency at a predetermined rate on a specified future date.
____ is a private agreement between two parties to exchange a fixed amount of currency at a predetermined rate on a specified future date.
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____ gives the holder the right, but not the obligation, to buy or sell a currency at a predetermined rate on or before a specific date.
____ gives the holder the right, but not the obligation, to buy or sell a currency at a predetermined rate on or before a specific date.
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............ involves transferring the responsibility of foreign exchange risk to another party, typically a trading partner, through contractual terms.
............ involves transferring the responsibility of foreign exchange risk to another party, typically a trading partner, through contractual terms.
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____ is a collaborative approach where both parties agree to share the burden of exchange rate fluctuations beyond a certain range.
____ is a collaborative approach where both parties agree to share the burden of exchange rate fluctuations beyond a certain range.
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____ involves consolidating and offsetting multiple currency exposures within a company to determine the net exposure that needs to be hedged.
____ involves consolidating and offsetting multiple currency exposures within a company to determine the net exposure that needs to be hedged.
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Which of the following instruments allows a company to limit its maximum loss from unfavorable exchange rate movements while still benefiting from favorable movements?
Which of the following instruments allows a company to limit its maximum loss from unfavorable exchange rate movements while still benefiting from favorable movements?
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Study Notes
Part I: Multiple Choice Questions
- International Finance: Primarily focuses on exchange rate fluctuations and risk management.
- Free Trade: Allows the movement of goods, services, and inputs (labor and capital) without restrictions.
- Free Trade Example: Saudi Arabia removing tariffs and quotas on imported goods from its trade partners.
- Free Trade Feature (Not): Protection of domestic industries through tariffs is not a feature of free trade.
- Comparative Advantage: Theory suggesting countries should specialize in goods they produce most efficiently.
- Balance of Payments: Measurement of all economic transactions between a country and the rest of the world.
- Trade Deficit: Occurs when total payments for imports exceed receipts from exports.
- Current Account Transaction: Export of oil to another country is an example.
- Current Account Debit: Payments for imports of goods from another country.
- Current Account Credit: Exports of goods and services to another country.
- Balance of Payments Surplus: When total exports exceed total imports.
- Hedging Foreign Exchange Risk: Methods include buying forward contracts, put/call options, or in some cases buying stocks of foreign companies. This is a method to manage risk.
- Spot Rate: Current exchange rate.
- Forward Rate: Exchange rate agreed upon today for a future date.
- Forward Premium: Occurs when the forward rate is higher than the spot rate.
- Forward Discount: Occurs when the forward rate is lower than the spot rate
- Currency Depreciation: A decrease in the value of a currency relative to another.
- Currency Appreciation: An increase in the value of a currency relative to another.
- Currency Crisis: Characterized by a sharp depreciation of a country's currency.
- Interest Rate Parity (IRP): Theory linking interest rates, inflation, and exchange rates.
Part II: Problems
- Comparative Advantage: Saudi Arabia has a comparative advantage in coffee production, and Malaysia has one in dates.
- Opportunity Cost of Dates (Saudi Arabia): Producing 40 units of dates means forgoing 0.80 units of coffee.
- Opportunity Cost of Dates (Malaysia): Producing 8 units of dates means forgoing 0.06 units of coffee.
- Opportunity Cost of Coffee (Saudi Arabia): Producing 0.80 units of coffee means forgoing 50 units of dates.
- **Opportunity Cost of Coffee (Malaysia):**Producing 0.06 units of coffee means forgoing 133.33 units of dates.
- Specialization After Trade: Malaysia specializes in dates and Saudi Arabia focuses on coffee.
- Cost of 1 Unit of Dates (Saudi Arabia): 0.20 Saudi Riyal per unit.
- Cost of 1 Unit of Coffee (Saudi Arabia): 10 Saudi Riyal per unit.
- Cost of 1 Unit of Dates (Malaysia): 1.25 Malaysian Ringgit per unit.
- Cost of 1 Unit of Coffee (Malaysia): 166.67 Malaysian Ringgit per unit.
Part III: Balance of Payments
- Calculate Current Account Balance: Subtracting imports from exports.
- Calculate Financial Account Balance: FDI inflow, FDI outflow, and Portfolio Investment
- Balance of Payment (BOP): Sum of Current Account and Financial Accounts.
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Description
Test your knowledge on international finance concepts, including exchange rates, free trade, and balance of payments. This quiz covers various key principles such as comparative advantage and trade deficits. Perfect for students studying economics or finance topics.
