problem 1: All other things being equivalent, which of the given would not cause the price of a foreign currency to drop?

a. Rise in the home countries expected inflation rate.
b. Rise in the foreign countries expected inflation rate.
c. Drop in the foreign country’s real income.
d. Increase in the foreign country’s money supply.

problem 2: If a country’s nominal interest rate rises by the same percentage that the inflation rate has risen:

a. International investors will withdraw their funds from the country.
b. International investors will pour more funds to the country.
c. International investors will demand a raise in the real interest rate they are paid.
d. None of the above.

problem 3: A government might want to devalue its currency if:

a. Exporters have a strong lobbying arm.
b. Import buyers have a strong lobbying arm.
c. Policymakers worry around high domestic inflation rates.
d. Foreign governments tell it not to.

problem 4: The benefit of a fixed exchange rate system is that:

a. Economy is likely to be more stable.
b. Value of the foreign reserves of the country will not change much as the exchange rate is fixed.
c. Destabilizing speculation is unlikely if officials are committed to keeping the exchange rates fixed.
d. Prices are kept fixed under a fixed exchange rate.

problem 5: When Argentina pegged its peso to the U.S. dollar:

a. It decreased people’s expectations of further inflation in the country.
b. It lost independent control over its money supply.
c. It decreased inflation from an annual rate of 3000% in 1989 to 4% (the same rate as in the United States) in the year 1994.
d. All the above.

problem 6: The dominant international borrower in the past decade has been:

a. Developing countries.
b. European Community.
c. Former Soviet Union.
d. United States.

problem 7: 5% ownership participation by General Motors in an Irish software developer is considered:

a. Direct foreign investment.
b. Portfolio investment.
c. Official aid.
d. Short-term lending.