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1. In order to reduce its currentaccount deficit, the United States must do which of the following?

a. reduce the federal budget deficit

b. raise national product relative to national spending

c. increase savings relative to domestic investment

d. all of the above will help

2. If I use the market approach to exchange rate forecasting, which of the following would I use to predict future spot rates.

1. Past spot rates
2. GNP differences between countries
3. Forward Rates
4. Todays rate is the expected future rate
5. Charting techniques

3. A large government deficit relative to GDP, a high rate of money expansion accompanied by fixed exchange rates, along with substantial government expenditures are some of the common characteristics of _________ risk.

1. exchange rate
2. interest rate
3. country
4. investment

4. The supply of Eurodollar deposits is the result of

a. Federal Reserve Board policy

b. World Bank policy

c. a resolution of the member governments of the Organization of Economic Cooperation and Development (OECD.

d. none of the above

5. Suppose that the current 90day London interbank offer rate is 11% (all rates are stated on an annualized basis..If next period's LIBOR is 10.5%, then a Eurodollar rate priced at LIBOR plus 1% will cost

a. 12% this period and 11.5% next period

b. 11% this period and 10.5% next period

c. 12% this period and 12% next period

d. 11% this period and 11% next period

6. Which of the following payment methods provides both parties with a strong measure of protection against commercial and political risks?

a. Cash in advance

b. Letter of credit

c. Draft

d. Consignment

7. A documentary draft is typically accompanied by a

a. bill of lading in negotiable form

b. commercial invoice

c. insurance certificate

d. all of the above

8. By shipping goods under documentary time drafts for acceptance

a. the exporter is extending credit to the importer

b. the exporter is relinquishing control of the goods in return for a signature on the acceptance to assure it of payment

c. the importer guarantees that it will pay cash on delivery

d. a and b only

9. Since a large percentage of multinational fund transfers are subsidiary-to-subsidiary, the payoff from ____________ can be large.

1. wire transfers
2. multiple bank accounts
3. multilateral netting
4. local cash management authority

8 Intel has the choice of borrowing dollars at 9.5% or yen at 7% for one year. The current exchange rate is 152 = $1. At what endofyear exchange rate would the yen costs of these two loans be equal? Hint( think interest rateparity)

a. 156.0 = $1

b. 149.2 = $1

c. 153.6 = $1

d. 148.5 = $1

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