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1. Most economic theories of exchange rate movements agreethat three factors have an important impact on future exchange ratemovements in a country’s currency. Which of the following is not ofthe three main factors?

A. The country’s price inflation

B. The country’s interest rate

C. Market psychology

D. The country’s legal system

2. Which of the following statement is true?

A. In general, FDI occurs whenever a local citizen,organization, or affiliated group takes an interest of 50 percentof more in a foreign business entity

B. Foreign portfolio investment is a form of FDI becauseforeign portfolio investment involves obtaining a managementcontrol

C. When a firm exports its products to a foreign country,foreign direct investment ( FDI) occurs

D. When a firm undertakes FDI, it becomes a multinationalenterprise

3. Prior research on the determinants of exchange rate suggestthat relative inflation rates and nominal interest ratedifferentials are all moderately good predictors of short-runchanges in exchange rates, but predictors of long-run changes inexchange rates

True

False

4. If the value of the U.S. dollar rises sharply against theChinese yuan, this exchange rate movements is likely to boostChina’s exports to the U.S., holding other things constant

True

False