Information Asymmetry – Political Science Test 2
The key terms of Political Science Test include, Information Asymmetry.
Accounting transparency
promises to reduce the information asymmetry between corporate insiders and the public
Purchasing Power Parity (PPP) theory states that:
the exchange rate between currencies of two countries should be equal to the ratio of the countries’ price levels
The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$. The forward premium (discount) is which of the following?
The dollar is trading at an 8% discount to the Swiss franc for delivery in 180 days.
If the interest rate in the U.S. is i$ = 5 percent for the next year and the interest rate in the U.K. is i£ = 8 percent for the next year, uncovered IRP suggests that
the pound is expected to depreciate against the dollar by about 3 percent & the dollar is expected to appreciate against the pound by about 3 percent
What major dimension sets apart international finance from domestic finance?
foreign exchange, political risks,
market imperfections,
expanded opportunity set
If the United States imports more than it exports, then
the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus
Intervention in the foreign exchange market is the process of:
a central bank buying or selling its currency in order to influence its value
The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows:
Bimetallism, Classical gold standard, Interwar period, Bretton Woods system, Flexible exchange rate regime
A country’s international transactions can be grouped into the following three main types:
current account, capital account, and official reserve account
English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries because
the former countries tend to protect property rights better than the latter
A purely domestic firm that sources its products, sells its products, and raises its funds domestically
can face stiff competition from a multinational corporation that can source its products in one country, sell them in several countries, and raise its funds in a third country &
can be more competitive than a MNC on its home turf due to superior knowledge of the local market &
can still face exchange rate risk
The international monetary system can be defined as the institutional framework within which:
international payments are made &
movement of capital is accommodated &
exchange rates among currencies are determined
The spot market
involves the almost-immediate purchase or sale of foreign exchange
The Fisher effect states that:
an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country
Forward parity states that
any forward premium or discount is equal to the expected change in the exchange rate
Production of goods and services has become globalized to a large extent as a result of
multinational corporations’ efforts to source inputs and locate production anywhere where costs are lower and profits higher
The “J-curve effect” shows:
the initial deterioration and the eventual improvement of a country’s trade balance following a currency depreciation
Corporate governance can be defined as:
the rules and regulations adopted by boards of directors specifying how to manage companies
Accounting transparency
promises to reduce the information asymmetry between corporate insiders and the public
Purchasing Power Parity (PPP) theory states that:
the exchange rate between currencies of two countries should be equal to the ratio of the countries’ price levels
The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$. The forward premium (discount) is which of the following?
The dollar is trading at an 8% discount to the Swiss franc for delivery in 180 days.
If the interest rate in the U.S. is i$ = 5 percent for the next year and the interest rate in the U.K. is i£ = 8 percent for the next year, uncovered IRP suggests that
the pound is expected to depreciate against the dollar by about 3 percent & the dollar is expected to appreciate against the pound by about 3 percent
What major dimension sets apart international finance from domestic finance?
foreign exchange, political risks,
market imperfections,
expanded opportunity set
If the United States imports more than it exports, then
the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus
Intervention in the foreign exchange market is the process of:
a central bank buying or selling its currency in order to influence its value
The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows:
Bimetallism, Classical gold standard, Interwar period, Bretton Woods system, Flexible exchange rate regime
A country’s international transactions can be grouped into the following three main types:
current account, capital account, and official reserve account
English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries because
the former countries tend to protect property rights better than the latter
A purely domestic firm that sources its products, sells its products, and raises its funds domestically
can face stiff competition from a multinational corporation that can source its products in one country, sell them in several countries, and raise its funds in a third country &
can be more competitive than a MNC on its home turf due to superior knowledge of the local market &
can still face exchange rate risk
The international monetary system can be defined as the institutional framework within which:
international payments are made &
movement of capital is accommodated &
exchange rates among currencies are determined
The spot market
involves the almost-immediate purchase or sale of foreign exchange
The Fisher effect states that:
an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country
Forward parity states that
any forward premium or discount is equal to the expected change in the exchange rate
Production of goods and services has become globalized to a large extent as a result of
multinational corporations’ efforts to source inputs and locate production anywhere where costs are lower and profits higher
The “J-curve effect” shows:
the initial deterioration and the eventual improvement of a country’s trade balance following a currency depreciation
Corporate governance can be defined as:
the rules and regulations adopted by boards of directors specifying how to manage companies