Question 1

China has been accused of deliberately undervaluing its currency, the yuan, in order to

Accepted Answer

Undervaluing its currency makes Chinese exports cheaper in foreign markets, which can boost sales and increase demand for Chinese goods.

Question 2

Shares of stock and long-term debt, including corporate and government bonds and bank loans, are bought and sold on

Accepted Answer

Shares of stock and long-term debt are bought and sold in the capital markets. The stock market specifically deals with the buying and selling of shares of stock, while the broader capital markets deal with a range of investment products including corporate and government bonds and bank loans. The foreign exchange markets deal with currencies, commodity markets deal with physical goods, and the market for loanable funds deals with short-term loans.

Question 3

If interest rates in Canada rise,

Accepted Answer

When interest rates in Canada rise, it becomes more attractive for foreign investors to hold Canadian investments because they can earn a higher return. This increased demand for Canadian dollars to invest in Canada drives up the value of the Canadian dollar.

Question 4

Why are foreign investors more likely to invest in Canadian government bonds than in Canadian corporate bonds?

Accepted Answer

The answer of Why are foreign investors more likely to...

Question 5

Which of the following statements about capital markets is true?

Accepted Answer

The statement that the U.S. capital market is currently larger than all other capital markets combined is not true. While the U.S. capital market is still massive, other regions such as Europe and Asia have seen significant growth in their capital markets over the years. Therefore, option B is the correct choice. The statements in options C, D, and E are all false.

Question 6

Investors in which country accounted for more than half of all foreign purchases of Canadian stocks and bonds in 2015?

Accepted Answer

The United States accounted for 53% of all foreign purchases of Canadian stocks and bonds in 2015, which is more than half. The other countries listed (the United Kingdom, China, Mexico, and Germany) may have also made foreign purchases of Canadian stocks and bonds, but they did not account for more than half of the total foreign purchases.

Question 7

Between 1995 and 2013, foreign purchases of Canadian corporate stocks and bonds

Accepted Answer

According to the information given, foreign purchases of Canadian corporate stocks and bonds "grew" between 1995 and 2013.

Question 8

Before 1980, most Canadian corporations raised funds

Accepted Answer

Before 1980, most Canadian corporations primarily raised funds through Canadian stock and bond markets or in Canadian banks, reflecting the domestic focus of corporate financing during that period.

Question 9

Before 1980, Canadian investors rarely invested in foreign capital markets.

Accepted Answer

Before 1980, Canadian investors were restricted by regulations and currency controls, which made it difficult for them to invest in foreign capital markets. It wasn't until the removal of these restrictions and the liberalization of Canadian financial markets that Canadian investors began to invest more heavily in foreign capital markets.

Question 10

During 2015, investors in ________ accounted for more than half of all foreign purchases of Canadian bonds and money market instruments.

Accepted Answer

During 2015, investors from the United States accounted for more than half of all foreign purchases of Canadian bonds and money market instruments. This reflects the close economic ties and the high level of investment activity between the two countries.

Question 11

What do reports that the Canadian dollar is "undervalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically.

Accepted Answer

The answer of What do reports that the Canadian dollar...

Question 12

If the U.S.government places tariffs on imports from countries that have been accused of deliberately undervaluing their currencies, the price of these imports will ________ and the demand for the undervalued currency will ________.

Accepted Answer

When the U.S. government imposes tariffs on imports, the cost of these goods increases for consumers in the U.S., leading to a rise in the price of imports. As the imports become more expensive, demand for them tends to decrease, which in turn reduces the demand for the currency of the country exporting those goods, since fewer people or businesses are converting their money to buy those now more expensive imports.

Question 13

If interest rates in Canada fall,

Accepted Answer

When interest rates fall in Canada, foreign investors are less interested in holding Canadian investments as they will yield lower returns. Therefore, they will sell their Canadian investments, leading to a decrease in demand for Canadian dollars and a fall in the value of the currency.

Question 14

The three most important international financial centres today are

Accepted Answer

These three cities are widely considered to be the most important international financial centres due to their high levels of economic and financial activity, deep and liquid capital markets, and significant concentration of financial institutions and professionals. Other cities may also play important roles in specific areas of finance or regions, but Tokyo, London, and New York are recognized as the primary hubs of global finance.

Question 15

Explain why international capital markets have expanded since the 1980s.

Accepted Answer

The answer of Explain why international capital markets have expanded...

Question 16

Foreign portfolio investment in Canada has continually declined since 1995.

Accepted Answer

According to Statistics Canada, foreign portfolio investment in Canada has actually increased since 1995, reaching its highest level in 2017.

Question 17

Among countries that purchased Canadian stocks and bonds in 2011, China was the biggest customer, accounting for over 50 percent of all purchases.

Accepted Answer

In 2011, the largest purchaser of Canadian stocks and bonds was not China, but rather investors from the United States, who have traditionally been the biggest buyers of Canadian securities.

Question 18

Figure 15.11  Alt text for Figure 15.11: In figure 15.11, a graph illustrates the quantity of riyal traded against the exchange rate.
Long description for Figure 15.11: The x-axis is labelled, quantity of riyal traded in millions per day.The y-axis is labelled, exchange rate, dollar against the riyal.Supply curve S is a straight line which slopes up from the bottom right corner to the top left corner.Demand curve D is a straight line which slopes down from the top left corner to the bottom right corner.Curves S and D intersect at point (80, $0.27).The point (60, $0.35)is plotted near the top of curve D.The point (130, $0.35)is plotted near the top of curve S.All points are connected to their corresponding values on the x and y-axes with dotted lines.
-Refer to Figure 15.11.According to the graph, is there a surplus or shortage of Saudi Arabian riyal in exchange for Canadian dollars? To maintain the pegged exchange rate, will the Saudi central bank need to buy riyal in exchange for dollars or sell riyal in exchange for dollars? How many riyal will the Saudi central bank need to buy or sell?

Accepted Answer

The answer of Figure 15.11  Alt text for Figure...

Question 19

According to the theory of purchasing power parity, if the inflation rate in the United States is greater than the inflation rate in Canada, what should happen to the exchange rate between the U.S.dollar and the Canadian dollar?

Accepted Answer

The answer of According to the theory of purchasing power...

Question 20

Table 15.1  Source: "The Big Mac Index," Economist, July 28, 2011.
-Refer to Table 15.1.Fill in the missing values in the above table.Assume the Big Mac is selling for $4.07 in Canada.Explain whether the Canadian dollar is overvalued or undervalued relative to each of the other currencies and predict what will happen in the future to each exchange rate.

Accepted Answer

The answer of Table 15.1  Source: "The Big Mac...

Quiz 15: The International Financial System