Test bank International Finance MCQ wordChap 6.docx
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TestbankInternationalFinanceMCQwordChap6
FundamentalsofMultinationalFinance,3e（Moffett）
Chapter6
InternationalParityConditions
6.1
MultipleChoiceandTrue/FalseQuestions
1）
Ifanidenticalproductcanbesoldintwodifferentmarkets,andnorestrictionsexistonthesaleortransportationcosts,theproduct'spriceshouldbethesameinbothmarkets.Thisisknowas
A）
relativepurchasingpowerparity.
B）
interestrateparity.
C）
thelawofoneprice.
D）
equilibrium.
Answer:
C
Topic:
TheLawofOnePrice
Skill:
Recognition
2）
________statesthatthespotexchangerateisdeterminedbytherelativepricesofsimilarbasketsofgoods.
A）
Absolutepurchasingpowerparity
B）
Relativepurchasingpowerparity
C）
Interestrateparity
D）
TheFisherEffect
Answer:
A
Topic:
PPP
Skill:
Recognition
3）
TheEconomistpublishesannuallythe"BigMacIndex"bywhichtheycomparethepricesoftheMcDonald'sCorporation'sBigMachamburgeraroundtheworld.Theindexestimatestheexchangeratesforcurrenciesbasedontheassumptionthattheburgersinquestionarethesameacrosstheworldandtherefore,thepriceshouldbethesame.IfaBigMaccosts$2.54intheUnitedStatesand294yeninJapan,whatistheestimatedexchangerateofyenperdollarashypothesizedbytheHamburgerindex?
A）
$0.0086/¥
B）
124¥/$
C）
$0.0081/¥
D）
115.75¥/$
Answer:
D
Topic:
PPP
Skill:
Analytical
4）
Ifthecurrentexchangerateis113JapaneseyenperU.S.dollar,thepriceofaBigMachamburgerintheUnitedStatesis$3.41,andthepriceofaBigMachamburgerinJapanis280yen,thenotherthingsequal,theBigMachamburgerinJapanis________.
A）
correctlypriced
B）
underpriced
C）
overpriced
D）
notenoughinformationtodetermineifthepriceisappropriateornot
Answer:
B
Topic:
PPP
Skill:
Analytical
5）
ThepriceofaBigMacintheU.S.is$3.41andthepriceinMexicoisPeso29.0.WhatistheimpliedPPPofthePesoperdollar?
A）
Peso8.50/$1
B）
Peso10.8/$1
C）
Peso11.76/$1
D）
Noneoftheabove
Answer:
A
Topic:
PPP
Skill:
Analytical
6）
TheimpliedPPPrateofexchangeofMexicanPesosperU.S.dollaris8.50accordingtotheBigMacIndex.ThecurrentexchangerateisPeso10.8/$1.Thus,accordingtoPPPandtheLawofOnePrice,atthecurrentexchangeratethepesois________.
A）
overvalued
B）
undervalued
C）
correctlyvalued
D）
notenoughinformationtoanswerthisquestion
Answer:
B
Topic:
PPP
Skill:
Analytical
7）
AccordingtotheBigMacIndex,theimpliedPPPexchangerateisMexicanpeso8.50/$1buttheactualexchangerateispeso10.80/$1.Thus,atcurrentexchangeratesthepesoappearstobe________by________.
A）
overvalued;approximately21%
B）
overvalued;approximately27%
C）
undervalued;approximately21%
D）
undervalued;approximately27%
Answer:
C
Topic:
PPP
Skill:
Analytical
8）
Ifamarketbasketofgoodscost$100istheUSand70eurosinFrance,thenthePPPexchangeratewouldbe$.70/euro.
Answer:
FALSE
Topic:
PPP
Skill:
Analytical
9）
IfaccordingtothelawofonepricethecurrentexchangerateofdollarsperBritishpoundis$1.75/£,thenatanexchangerateof$1.85/£,thedollaris________.
A）
overvalued
B）
undervalued
C）
correctlyvalued
D）
unknownrelativevaluation
Answer:
B
Topic:
LawofOnePrice
Skill:
Analytical
10）
Generallyspeaking,thetheoryofabsolutepurchasingpowerparityworksbetterforsinglegoodsthanforamarketbasketofgoods.
Answer:
FALSE
Topic:
PPP
Skill:
Recognition
11）
Otherthingsequal,andassumingefficientmarkets,ifaHondaAccordcosts$21,375intheU.S.thenatanexchangerateof$1.98/£,theHondaAccordshouldcost________inGreatBritain.
A）
£21,375
B）
£18,365
C）
£10,795
D）
£42,322
Answer:
C
Topic:
LawofOnePrice
Skill:
Analytical
12）
TheassumptionsforrelativePPParemorerigidthantheassumptionsforabsolutePPP.
Answer:
FALSE
Topic:
PPP
Skill:
Conceptual
13）
________statesthatdifferentialratesofinflationbetweentwocountriestendtobeoffsetovertimebyanequalbutoppositechangeinthespotexchangerate.
A）
TheFisherEffect
B）
TheInternationalFisherEffect
C）
AbsolutePurchasingPowerParity
D）
RelativePurchasingPowerParity
Answer:
D
Topic:
PPP
Skill:
Recognition
14）
OneyearagothespotrateofU.S.dollarsforCanadiandollarswas$1/C$1.SincethattimetherateofinflationintheU.S.hasbeen4%greaterthanthatinCanada.BasedonthetheoryofRelativePPP,thecurrentspotexchangerateofU.S.dollarsforCanadiandollarsshouldbeapproximately________.
A）
$0.96/C$
B）
$1/C$1
C）
$1.04/C$1
D）
relativePPPprovidesnoguideforthistypeofquestion
Answer:
C
Topic:
PPP
Skill:
Analytical
15）
EmpiricaltestsprovethatPPPisanaccuratepredictoroffutureexchangerates.
Answer:
FALSE
Topic:
PPP
Skill:
Recognition
16）
Twogeneralconclusionscanbemadefromtheempiricaltestsofpurchasingpowerparity（PPP）:
A）
PPPholdsupwellovertheshortrunbutpoorlyforthelongrunandthetheoryholdsbetterforcountrieswithrelativelylowratesofinflation.
B）
PPPholdsupwellovertheshortrunbutpoorlyforthelongrunandthetheoryholdsbetterforcountrieswithrelativelyhighratesofinflation.
C）
PPPholdsupwelloverthelongrunbutpoorlyfortheshortrunandthetheoryholdsbetterforcountrieswithrelativelylowratesofinflation.
D）
PPPholdsupwelloverthelongrunbutpoorlyfortheshortrunandthetheoryholdsbetterforcountrieswithrelativelyhighratesofinflation.
Answer:
D
Topic:
PPP
Skill:
Recognition
17）
Acountry'scurrencythatstrengthenedrelativetoanothercountry'scurrencybymorethanthatjustifiedbythedifferentialininflationissaidtobe________intermsofPPP.
A）
overvalued
B）
overcompensating
C）
undervalued
D）
undercompensating
Answer:
A
Topic:
CurrencyValuation
Skill:
Conceptual
18）
Ifacountry'srealeffectiveexchangerateindexweretobelessthan100,thiswouldsuggestan________currency.
A）
overvalued
B）
overcompensating
C）
undervalued
D）
undercompensating
Answer:
C
Topic:
RealEffectiveExchangeRate
Skill:
Conceptual
19）
IfwesettherealeffectiveexchangerateindexbetweenCanadaandtheUnitedStatesequalto100in1998,andfindthattheU.S.dollarhasrisentoavalueof112.6,thenfromacompetitiveperspectivetheU.S.dollaris
A）
overvalued.
B）
undervalued.
C）
verycompetitive.
D）
Thereisnotenoughinformationtoanswerthisquestion.
Answer:
A
Topic:
RealEffectiveExchangeRate
Skill:
Analytical
20）
IfwesettherealeffectiveexchangerateindexbetweentheUnitedKingdomandtheUnitedStatesequalto100in2005,andfindthattheU.S.dollarhaschangedtoavalueof91.4,thenfromacompetitiveperspectivetheU.S.dollaris________.
A）
overvalued
B）
undervalued
C）
equallyvalued
D）
Thereisnotenoughinformationtoanswerthisquestion.
Answer:
B
Topic:
RealEffectiveExchangeRate
Skill:
Conceptual
21）
ThegovernmentjustreleasedinternationalexchangeratestatisticsandreportedthattherealeffectiveexchangerateindexfortheU.S.dollarvstheJapaneseyendecreasedfrom105lastyearto95currentlyandisexpectedtofallstillfurtherinthecomingyear.OtherthingsequalU.S.________to/fromJapanthinkthisisgoodnewsandU.S.________to/fromJapanthinkthisisbadnews.
A）
importers;exporters
B）
importers;importers
C）
exporters;exporters
D）
exporters;importers
Answer:
D
Topic:
RealEffectiveExchangeRate
Skill:
Conceptual
22）
Exchangeratepass-throughmaybedefinedas
A）
thebid/askspreadoncurrencyexchangeratetransactions.
B）
thedegreetowhichthepricesofimportedandexportedgoodschangeasaresultofexchangeratechanges.
C）
thePPPoflesser-developedcountries.
D）
thepracticebyGreatBritainofmaintainingtherelativestrengthofthecurrenciesoftheCommonwealthcountriesunderthecurrentfloatingexchangerateregime.
Answer:
B
Topic:
ExchangeRatePass-through
Skill:
Recognition
23）
PhillipsNVproducesDVDplayersandexportsthemtotheUnitedStates.Lastyeartheexchangeratewas$1.25/euroandPlillipscharged120europerplayerinEurolandand$150perDVDplayerintheUnitedStates.Currentlythespotexchangerateis$1.45/euroandPhillipsischarging$160perDVDplayer.WhatisthedegreeofpassthroughbyPhillipsNVontheirDVDplayers?
A）
92%
B）
33.3%
C）
41.7%
D）
4.1%
Answer:
C
Topic:
ExchangeRatePass-through
Skill:
Analytical
24）
JaguarhasfullmanufacturingcostsoftheirS-typesedanof£22,803.TheyselltheS-typeintheUKwitha20%marginforapriceof£27,363.TodaythesecarsareavailableintheUSfor$55,000whichistheUKpricemultipliedbythecurrentexchangerateof$2.01/£.JaguarhascommittedtokeepingtheUSpriceat$55,000forthenextsixmonths.IftheUKpoundappreciatesagainsttheUSDtoanexchangerateof$2.15/£,andJaguarhasnothedgedagainstcurrencychanges,whatistheamountthecompanywillreceiveinpoundsatthenewexchangerate?
A）
£22,803
B）
£25,581
C）
£27,363
D）
£55,000
Answer:
B
Topic:
ExchangeRatePass-through
Skill:
Analytical
25）
JaguarhasfullmanufacturingcostsoftheirS-
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