1.3.3 International Economic Factors

Question 1

An American investor is looking at the potential impact of rising inflation rates in the Eurozone on their international stock portfolio. Which of the following effects is most likely?

A. Increased value of Eurozone stocks in USD terms
B. Decreased value of Eurozone stocks in USD terms
C. Unchanged value of Eurozone stocks in USD terms
D. Decreased Eurozone inflation rates

Answer 1

B. Decreased value of Eurozone stocks in USD terms

Explanation: Rising inflation in the Eurozone could lead to a weaker Euro relative to the dollar. This depreciation can result in a decrease in the USD value of investments denominated in Euros.

1.3.3 International Economic Factors

Question 2

A Japanese corporation announces a breakthrough in battery technology. What immediate effect might this have on the Japanese Yen?

A. Appreciation
B. Depreciation
C. No change
D. Decreased liquidity

Answer 2

A. Appreciation

Explanation: Positive economic news, such as a technological breakthrough, can lead to appreciation of the home currency due to anticipated economic growth and increased foreign investment.

1.3.3 International Economic Factors

Question 3

A significant increase in U.S. interest rates could likely cause what immediate effect in emerging market economies?

A. Capital inflows
B. Capital outflows
C. Increased stability
D. Decreased export activity

Answer 3

B. Capital outflows

Explanation: Higher U.S. interest rates might attract investors looking for better returns, leading to capital moving out of riskier emerging markets back to U.S. assets.

1.3.3 International Economic Factors

Question 4

If China decides to devalue its currency, the Yuan, how would this most likely impact other global markets?

A. Increase in global commodity prices
B. Decrease in global commodity prices
C. No change in global commodity prices
D. Increased stability in global commodity prices

Answer 4

B. Decrease in global commodity prices

Explanation: A weaker Yuan makes imports more expensive for China, potentially decreasing their demand for commodities, thus leading to lower global commodity prices.

1.3.3 International Economic Factors

Question 5

An increase in geopolitical tensions in the Middle East is most likely to have what effect on oil prices?

A. Increase
B. Decrease
C. No change
D. Predictable fluctuations

Answer 5

A. Increase

Explanation: Geopolitical tensions in oil-rich regions typically lead to fears of supply disruptions, pushing oil prices higher.

1.3.3 International Economic Factors

Question 6

The European Central Bank announces a program of quantitative easing. What is the most likely immediate effect on the Euro?

A. Appreciation
B. Depreciation
C. No change
D. Increase in interest rates

Answer 6

B. Depreciation

**Explanation: **Quantitative easing increases money supply, which can lead to depreciation of the currency due to inflationary pressures and lower interest rates.

1.3.3 International Economic Factors

Question 7

A decrease in the U.S. trade deficit with Mexico is most likely to:

A. Strengthen the Mexican Peso against the U.S. Dollar
B. Weaken the Mexican Peso against the U.S. Dollar
C. Have no effect on currency values
D. Decrease U.S. exports to Mexico

Answer 7

A. Strengthen the Mexican Peso against the U.S. Dollar

Explanation: A smaller U.S. deficit means the U.S. is importing less or exporting more to Mexico, potentially strengthening the Peso due to increased demand for Mexican goods or decreased supply of Pesos.

1.3.3 International Economic Factors

Question 8

The Brexit decision led to significant economic uncertainty in the United Kingdom. What was an immediate effect on the British Pound?

A. Appreciation
B. Depreciation
C. No change
D. Increased stability

Answer 8

B. Depreciation

Explanation: Uncertainty surrounding the economic impacts of Brexit led to a loss of confidence in the British Pound, causing it to depreciate.

1.3.3 International Economic Factors

Question 9

Question: A rise in political stability in Brazil is likely to:

A. Attract more foreign direct investment
B. Result in capital outflows
C. Decrease interest in Brazilian equities
D. Increase inflation rates in Brazil

Answer 9

A. Attract more foreign direct investment

Explanation: Increased political stability generally improves investor confidence, leading to more foreign direct investment.

1.3.3 International Economic Factors

Question 10

Question: An increase in foreign direct investment (FDI) in India is most likely to:

A. Appreciate the Indian Rupee
B. Depreciate the Indian Rupee
C. Have no impact on the Indian Rupee
D. Decrease Indian exports

Answer 10

A. Appreciate the Indian Rupee

Explanation: Increased FDI generally strengthens the local currency through higher demand for domestic currency needed to make investments.

1.3.3 International Economic Factors

Question 10

If Russia significantly increases its interest rates, what is the likely immediate effect on foreign investment?

A. Increase
B. Decrease
C. No change
D. Redirect to other regions

Answer 10

A. Increase

**Explanation: **Higher interest rates typically attract foreign capital looking for higher yields, assuming the political and economic environment is stable enough to support the risk.

1.3.3 International Economic Factors

Question 11

A decrease in global demand for electronic goods would most likely have what effect on South Korean exports?

A. Increase
B. Decrease
C. No change
D. Increase in prices

Answer 11

B. Decrease

Explanation: South Korea is a major exporter of electronic products, so a global decrease in demand for these goods would likely reduce its export volumes.

1.3.3 International Economic Factors

Question 11

The adoption of more stringent environmental regulations in China is likely to:

A. Increase costs for manufacturers
B. Decrease costs for manufacturers
C. Have no impact on costs
D. Decrease export prices

Answer 11

A. Increase costs for manufacturers

**Explanation: **Stricter environmental regulations typically increase production costs due to the need for cleaner technologies and compliance measures.

1.3.3 International Economic Factors

Question 12

A significant improvement in U.S.-China trade relations is most likely to:

A. Decrease the value of the U.S. dollar
B. Increase the value of the U.S. dollar
C. Have no effect on currency values
D. Decrease Chinese imports to the U.S.

Answer 12

B. Increase the value of the U.S. dollar

**Explanation: **Improved trade relations can lead to increased stability and confidence, potentially strengthening the U.S. dollar as trade volumes and investment opportunities increase.

1.3.3 International Economic Factors

Question 13

What is the most likely effect of a sudden increase in the unemployment rate in Germany on the Euro?

A. Appreciation
B. Depreciation
C. No change
D. Increase in Euro liquidity

Answer 13

B. Depreciation

Explanation: Higher unemployment can lead to economic slowdown concerns, reducing the attractiveness of assets denominated in that currency.

1.3.3 International Economic Factors

Question 14

If Canada imposes tariffs on imported automobiles, what is the most likely immediate effect on Canadian consumers?

A. Decrease in car prices
B. Increase in car prices
C. No change in car prices
D. Increased car quality

Answer 14

B. Increase in car prices

Explanation: Tariffs on imported goods generally lead to higher domestic prices as the cost of imports rises.

1.3.3 International Economic Factors

Question 15

An increase in commodity prices is likely to have what effect on the Australian dollar, given Australia’s significant exports of raw materials?

A. Appreciation
B. Depreciation
C. No change
D. Decrease in interest rates

Answer 15

A. Appreciation

Explanation: Higher commodity prices can lead to increased national income from exports, strengthening the Australian

1.3.3 International Economic Factorsdollar

Question 16

The implementation of more liberal trade policies in Vietnam is most likely to result in:

A. An appreciation of the Vietnamese Dong
B. A depreciation of the Vietnamese Dong
C. No change in the value of the Vietnamese Dong
D. Decreased foreign investment

Answer 16

A. An appreciation of the Vietnamese Dong

**Explanation: **Liberal trade policies can enhance trade and investment flows, potentially strengthening the local currency due to increased demand.

1.3.3 International Economic Factors

Question 17

A decrease in investor confidence in the European Union is most likely to lead to what effect on the Euro?

A. Appreciation
B. Depreciation
C. No change
D. Increased stability

Answer 17

B. Depreciation

Explanation: Reduced investor confidence can lead to capital outflows and a weaker currency as investors move their assets to perceived safer havens.

1.3.3 International Economic Factors

Question 18

If the U.S. Federal Reserve signals a more aggressive rate hike path, what is the likely impact on emerging market currencies?

A. Appreciation
B. Depreciation
C. No change
D. Increased volatility

Answer 18

B. Depreciation

Explanation: Aggressive rate hikes in the U.S. could strengthen the dollar, making emerging market currencies weaker in comparison as capital flows into higher-yielding U.S. assets.

1.3.3 International Economic Factors