Question

21) Under an international regime of fixed exchange rates, countries with a BOP ________ should consider ________ their currency while countries with a BOP ________ should consider ________ their currency.

A) deficit, revaluing; surplus, revaluing

B) deficit, devaluing; surplus, devaluing

C) surplus, devaluing; deficit, revaluing

D) surplus, revaluing; deficit, devaluing

22) Use the following terms for this question:

(X-M) = Current Account Balance

(CI-CO) = Capital Account Balance

(FI-FO) = Financial Account Balance

(I-S) = Investment-Saving Balance

FXB = Reserve Balance

BOP = balance of payments

GDP = gross domestic product

C = consumption

I = capital investment spending

G = government spending

The static equation for the BOP is:

A) BOP = (X-M) - (CI-CO) - (FI-FO) + FXB

B) BOP = (X-M) + (I-S) + (FI-FO) + FXB

C) BOP = (X-M) + (CI-CO) + (FI-FO) + FXB

D) BOP = GDP - [C + I +G] + (FI-FO)

23) The problems that may arise due to the separation of ownership and management in large business organizations are known as:

A) separation anxiety.

B) the agency problem.

C) corporate disconnect theory.

D) none of the above

24) "Maximize corporate wealth":

A) is the primary objective of the non-Anglo-American model of management.

B) as a management objective treats shareholders on a par with other corporate stakeholders such as creditors, labor, and local community.

C) has a broader definition than just financial wealth.

D) all of the above

Answer 1

21: D

Countries which have a surplus balance of payments should revalue their currency while countries which have a deficit balance of payments should devalue their currency to encourage more exports.

22: C

Balance of payments is the sum of current account balance, capital account balance, financial account balance and reserve surplus.

23: C

The agency problem arises when the management is expected to act on behalf of the shareholders but they act in their personal interests. This arises mainly due to separation of management and shareholders in large corporations. Other options are not relevant to the statement.

24: D

Maximizing corporate wealth focuses on wealth such as goodwill, technical, economic and human resources rather than just the financial wealth. For this purpose it keeps all stakeholders at par. It is the primary objective of the non-Anglo-American model of management. Abover shareholder wealth management.