International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Why might a foreign government’s policies be closely monitored by investors in other countries, even if the investors plan no investments in that country? Explain how monetary policy in one country can affect interest rates in other countries.
If a country’s par exchange rate is overvalued, what kind of intervention would that country’s central bank be forced to undertake, and what kind of effect would it have on its international reserves? What must happen if this country’s central bank decides not to intervene anymore?
What type of banking risk includes deterioration of the value of the local currency in terms of the bank’s base currency; convertibility or transfer risks.
a.
Credit Risk
b.
Liquidity Risk
c.
Foreign Exchange Risk
d.
Interest Rate Risk
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- The deterioration of economic conditions; deterioration of the value of the local currency in terms of the bank’s base currency; convertibility or transfer risks; market crisis are examples of what kinds of risk? Select one: a. Solvency risk b. Foreign exchange risk c. Sovereign risk d. Credit riskarrow_forwardWhich of the following is not an argument for central bank intervention? Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.arrow_forwardWhy do governments intervene in the foreign exchange market? Check all that apply: To maintain exchange rate boundaries To reduce fear in financial markets To smooth out the business cycle To smooth out exchange rate movements To earn a profit for the governmentarrow_forward
- Explain the managed floating exchange rate regime. How can the monetary authorities prevent effects of these exchange rate regime on money supply level and why the most of the emerging countries prefer to use this policy?arrow_forwardWhich of the following is NOT a benefit of investing in ADRs? The dividends are received in U.S. currency. Currency risk is minimized. ADRs are subject to anti-fraud rules. The transactions are done in U.S. currency.arrow_forward
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