International Business Chapter 4

What is the statement of account that shows all transactions between the residents of one country and the rest of the world for a given period of time called?

a. services balance

b. income balance

c. balance of payments

d. trade balance

c. balance of payments

How many major accounts comprise the balance of payments (BOP)?

a. two

b. three

c. four

d. five

d. five

What concept best describes a country that imports more than it exports?

a. trade balance

b. financial account

c. income balance

d. trade deficit

d. trade deficit

How many subaccounts does the current account have?

a. two

b. three

c. four

d. five

c. four

What is the net of investment income from abroad and investment payments to foreigners called?

a. income balance

b. financial account

c. trade balance

d. services balance

a. income balance

How many subaccounts does the financial account of the balance of payments (BOP) have?

a. two

b. three

c. four

d. five

c. four

What is a global network of international banks and currency traders that trade different countries' currencies called?

a. foreign exchange contract

b. spot market

c. World Bank

d. foreign exchange market

d. foreign exchange market

Approximately how many different currencies are used to make international payments for goods and services?

a. 50

b. 100

c. 150

d. 200

c. 150

What type of monetary system utilizes varying degrees of government intervention to maintain a range of acceptable values against other currencies?

a. dollarization

b. a special drawing right

c. clean float currency

d. dirty float currency

d. dirty float currency

What theory states that a basket of goods should have approximately the same prices across different countries?

a. the law of different prices

b. the Big Mac Index

c. purchasing power parity

d. arbitrage

c. purchasing power parity

What is the practice of buying goods in a lower priced market and selling them in a higher priced market to make a profit called?

a. the Big Mac Index

b. inflation

c. arbitrage

d. purchasing power parity

c. arbitrage

Which three currencies make up roughly 60% of the world's currency transactions in global business?

a. the dollar, ruble, and yuan

b. the dollar, euro, and yen

c. the dollar, yen, and yuan

d. the dollar, euro, and rupee

b. the dollar, euro, and yen

Which theory suggests that forecasts of relative inflation rates in two countries can be used to estimate the future exchange rate of a certain amount of domestic currency relative to foreign currencies?

a. multiple regression

b. historical data

c. purchasing power parity (PPP)

d. interest rate parity (IRP)

c. purchasing power parity (PPP)

Which of the following theories can be used to forecast exchange rates?

a. interest rate parity (IRP)and gross domestic product (GDP)

b. purchasing power parity (PPP) and gross national income (GNI)

c. purchasing power parity (PPP) and interest rate parity (IRP)

d. gross domestic product (GDP) and gross national income (GNI)

c. purchasing power parity (PPP) and interest rate parity (IRP)

A country that conducts international transactions with only one major country may find it more beneficial to do what?

a. to use a managed float

b. to use dollarization

c. to allow its currency to free float

d. to fix its currency to a basket of currencies

b. to use dollarization