ch18 - Chapter 18 International Finance and Trade...

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Chapter 18 International Finance and Trade TRUE-FALSE QUESTIONS F 1. The United Nations operates a world central bank that provides a world monetary unit to accommodate commerce across national boundaries. F 2. If someone needs to make a payment in the currency of another country, they must have actual possession of that currency. T 3. Foreign exchange markets are electronic communication systems connecting the major financial centers of the world. F 4. The direct quotation method expresses the number of foreign currency units needed to buy one U.S. dollar. T 5. The balance in the foreign account of a U.S. bank is subject to constant drain as the bank sells claims to individuals who import goods or obtain services from other countries. T 6. A nation with a relatively lower inflation rate than other countries will have a relatively stronger currency. F 7. A nation with relatively lower interest rate levels than other countries will have a relatively stronger currency. F 8. Economic risks reflect the uncertainty associated with a national government that might affect asset values. T 9. Arbitrage is the simultaneous buying of securities in one market and selling them in another to make a profit from price differences in the two markets. F 10. The banker’s sight draft provides an exchange rate that is lower than either the banker’s time draft or cable rate. F 11. The primary goal of special departments that handle international transactions for large firms is to engage in foreign exchange speculation as opportunities arise.
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T 12. The order bill of lading represents the written acceptance of goods for shipment by a transportation company and the terms under which the goods are to be transported to their destination. F 13. A sight draft is one that is not accompanied by any special documents and is generally used when the exporter has confidence in the importer’s ability to meet the draft when presented. T 14. The bankers’ acceptance is a draft drawn on and accepted by a bank rather than the importing firm. T 15. A commercial letter of credit is a statement by a bank guaranteeing acceptance and payment of a draft up to a stated amount. T 16. A trust receipt is an instrument through which a bank retains title to goods until they are paid for. F 17. The bankers’ acceptance and the documentary draft involve four principal parties: the importer, the importer’s bank, the exporter, and the exporter’s bank. T 18. The Board of Governors of the Federal Reserve System authorizes member banks to accept drafts that arise in the course of certain types of international transactions. F 19. Foreign banks are not permitted to operate agencies and set up subsidiaries in the U.S. F
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This note was uploaded on 11/01/2011 for the course ACC 200 taught by Professor Minliu during the Spring '11 term at Universidad Europea de Madrid.

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ch18 - Chapter 18 International Finance and Trade...

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