Ch. 6 intro to business finance

false The United Nations operates a world central bank that provides a world monetary unit to accommodate commerce across national boundaries.
true Foreign exchange markets are electronic communication systems connecting the major financial centers of the world.
false The direct quotation method expresses the number of foreign currency units needed to buy one U.S. dollar
true A nation with a relatively lower inflation rate than other countries will have a relatively stronger currency holding other factors constant.
true Arbitrage is the simultaneous buying of securities in one market and selling them in another to make a profit from price differences in the two markets.
true The balance of payments is a summary of all economic transactions between one country and the rest of the world.
false slow economic growth in investments in another country would be an example of political risk.
true The capital account balance includes all foreign private and government investment in the United States netted against U.S. investments in foreign countries.
true The current account balance shows the flow of income into and out of the United States during a specified time period.
true Under a floating exchange rate system, the value of one currency relative to another is determined by the forces of supply and demand.
true In foreign exchange, variations in quotations among countries at any time are quickly brought into alignment through arbitrage activites.
true under the system of flexible exchange rates, exchange rates are determined by the actual process of supply and demand in the foreign exchange market.
true Political risk is the risk associated with possible actions by a sovereign nation to interrupt or change the value of cash flows accruing to foreign investors.
false Political risk is the risk associated with possible slow or negative economic growth, as well as with the likelihood of variability.
true Economic risk is the risk associated with possible slow or negative economic growth, as well as with the likelihood of variability.
true A documentary draft is a draft that is accompanied by an order bill of lading and other documents.
true An order bill of lading is a document given by a transportation company that lists goods to be transported and terms of the shipping agreement.
d. arbitrage activities Quotations of foreign exchange rates in the many cities of the world are identical or nearly so because of: a.) central bank controlb.) price fixingc.)clearinghouse activitiesd.) arbitrage activities
b. the domestic currency The exchange rate is the rate at which a given unit of foreign currency is quoted in terms of: a.) commodity pricesb.) the domestic currencyc.) the foreign currencyd.) gold
c.) repossesses the merchandise on the basis of its holding of title to the merchandise Should a business fail after receiving shipping documents form its bank on the basis of a trust receipt, the bank:a.) become a preferred creditor to the extent of the amount due less cash deposits with the bankb.) repossesses the merchandise on the basis of a specific lien thereon c.) repossesses the merchandise on the basis of its holding of title to the merchandised.) has a prior claim relative to other general creditors
a.) purchasing agents making purchases in foreign countries The Traveler’s letter of credit is usually used by:a.) purchasing agents making purchases in foreign countriesb.) individuals traveling aboard c.) importers’ banksd.) correspondent banks, in order to reduce shipment of gold between counties.
a.) a normal responsibility of foreign exchange specialist Foreign exchange hedging by a multinational corporation is:a.) a normal responsibility of foreign exchange specialistb.) not ordinarily considered to be prudent businessc.) usually described in speculative termsd.) permitted only for defensive purposes
b.) balance of payments The _________ includes ALL international transactions.a.) balance of tradeb.) balance of paymentsc.) current account balanced.) capital account balance
d.) all of the above A weaker U.S. dollar generally a.) helps U.S. exporting firmsb.) reduces an existing U.S. trade deficitc.) leads to higher inflation in the U.S.d.) all of the abovee.) none of the above
b.) major financial centers connected by good communications systems Foreign exchange markets may be described as:a.) specific locations in major industrial citiesb.) major financial centers connected by good communications systemsc.) money markets outside of the U.S.d.) facilities of central banks for foreign exchange
a) issued by a bank and addressed to a list of banks in other countries Traveler’s letters of credit are:a) issued by a bank and addressed to a list of banks in other countriesb.) especially popular with tourist c.) convertible into cash at most large banksd.) of special value of exporters
b.) The International Monetary Fund ______________________________ was created to promote world trade through monitoring and maintaining fixed exchange rates and by making loans to counties with payments problems. a.) The World Bankb.) The International Monetary Fundc.) The international Bank for Reconstruction and Development d.) none of these
a.) The World Bank ____________________________ was created to help economic growth in developing countries.a.) The World Bankb.) The International Monetary Fundc.) The Export-Import Bankd.) The Agency for International Development
c.) The Bretton Woods System ______________________ was an international monetary system in which the U.S. dollar was valued in gold and other exchange rates were pegged to the dollara.) The gold standardb.) The flexible exchange rate systemc.) The Bretton Woods Systemd.) non of the above
a.) direct quotation method The currency quotation method that indicates the amount of a home country’s currency needed to purchase one unit of a foreign currency is called the a.) direct quotation methodb.) indirect quotation methodc.) floating exchange rate methodd.) none of the above
d.) all of the above influence exchange rates Key factors that influence currency exchange rates include all of the following EXCEPT:a.) supply and demand relationshipsb.) inflation ratesc.) interest ratesd.) all of the above influence exchange rates
a.) bill of exchange An unconditional order for the payment of money from one person to another is called a(n):a.) bill of exchangeb.) sight draftc.)time draftd.) documentary drafts
d.) documentary draft A draft that is accompanied by an order bill lading and other documents is called a(n):a.) bill of exchangeb.) sight draftc.) time draftd.) documentary draft
b.) sight draft A draft requiring immediate payment is called a (n):a.) bill of exchangeb.) sight draftc.) time draftd.) documentary draft
b.) commercial letter of credit A statement of a bank guaranteeing acceptance and payment of a draft up to a stated amount is called a (n):a.) bill of exchangeb.) commercial letter of creditc.) time draftd.) documentary draft
c.) trust receipt An instrument through which a bank retains title to goods until they are paid for is called a (n):a.) bill of exchangeb.) commercial letter of creditc.) trust receiptd.) documentary draft
c.) banker’s acceptance A promise of future payment issued by a firm guaranteed by a bank is called a (n): a.) bill of exchangeb.) commercial letter of creditc.) banker’s acceptanced.) documentary draft

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