6.Which of the following is considered an impediment to international capital mobility?

A)   Interest rate risk.

B)   Market risk.

C)   Foreign currency risk.

D)   Greek risk.

7.John Swanson is an economic advisor for the international division of BMC Investments. He has been asked to gather economic data and present a seminar to other analysts regarding international economic concerns. The following three issues were raised in the seminar. Choose the most reasonable statement that Swanson should make in replying to the questions raised.

The issue of growth rates across various countries was discussed and there was some disagreement regarding future expectations for growth rates across countries. Which of the following statements most accurately describe expectations of future growth rates under neoclassical theory?

A)   High-growth countries that have historically made high investment for growth will ultimately enter a steady state.

B)   The best method for measuring the difference in growth rates internationally is using endogenous growth theory.

C)   Conditional convergence is predicted for countries with similar economic attributes, including savings and population growth rates.

D)   There is little empirical evidence to suggest that countries that invest more will grow faster.

8.The vice president of equity analysis believes that Japan is an integrated world market with few impediments to international flow of capital. Which of the following factors would NOT cause Swanson to question the international efficiency of Japan?

A)   Japan has higher taxes on foreign investments than locally generated investments.

B)   Foreign currency risk is not completely hedged away.

C)   The gross domestic product (GDP) is less for Japan than the local GDP.

D)   The accounting system in Japan is not in accordance with Generally Accepted Accounting Principles (GAAP).

9.Swanson has reason to believe that Japan will soon be making monetary policy changes that will cause the yen to suddenly depreciate 1 percent. If the value of a Japanese firm falls when the yen depreciates, the asset return and currency movement are:

A)   positively correlated from a U.S. investor's perspective and this lessens the currency movement impact.

B)   positively correlated from a U.S. investor's perspective and this exaggerates the currency movement impact.

C)   negatively correlated from a U.S. investor's perspective and this exaggerates the currency movement impact.

D)   negatively correlated from a U.S. investor's perspective and this lessens the currency movement impact.

6.Which of the following is considered an impediment to international capital mobility?

A)   Interest rate risk.

B)   Market risk.

C)   Foreign currency risk.

D)   Greek risk.

The correct answer was C)

Foreign currency risk is an impediment to international capital mobility. The other risks listed exist in any market, domestic or international (note: Greek risk refers to derivative securities models).

7.John Swanson is an economic advisor for the international division of BMC Investments. He has been asked to gather economic data and present a seminar to other analysts regarding international economic concerns. The following three issues were raised in the seminar. Choose the most reasonable statement that Swanson should make in replying to the questions raised.

The issue of growth rates across various countries was discussed and there was some disagreement regarding future expectations for growth rates across countries. Which of the following statements most accurately describe expectations of future growth rates under neoclassical theory?

A)   High-growth countries that have historically made high investment for growth will ultimately enter a steady state.

B)   The best method for measuring the difference in growth rates internationally is using endogenous growth theory.

C)   Conditional convergence is predicted for countries with similar economic attributes, including savings and population growth rates.

D)   There is little empirical evidence to suggest that countries that invest more will grow faster.

The correct answer was A)

Under neoclassical theory the concept of convergence implies that high-growth countries that have historically made high investment for growth will ultimately enter a steady state. Absolute convergence, not conditional convergence, is predicted for countries with similar economic attributes, including savings and population growth rates. There is empirical evidence to suggest that countries that invest more will grow faster, but the accelerated growth is not permanent. Endogenous growth theory is not of much value in explaining differences in growth rates internationally.

8.The vice president of equity analysis believes that Japan is an integrated world market with few impediments to international flow of capital. Which of the following factors would NOT cause Swanson to question the international efficiency of Japan?

A)   Japan has higher taxes on foreign investments than locally generated investments.

B)   Foreign currency risk is not completely hedged away.

C)   The gross domestic product (GDP) is less for Japan than the local GDP.

D)   The accounting system in Japan is not in accordance with Generally Accepted Accounting Principles (GAAP).

The correct answer was C)

The level of GDP is not a factor in questioning the international efficiency of a country. In addition to the other factors mentioned in this question, there are several other impediments to international flow of capital. The six potential impediments to international flow of capital are psychological barriers, legal restrictions, transaction cost, discriminatory taxation, political risks, and foreign currency risk.

9.Swanson has reason to believe that Japan will soon be making monetary policy changes that will cause the yen to suddenly depreciate 1 percent. If the value of a Japanese firm falls when the yen depreciates, the asset return and currency movement are:

A)   positively correlated from a U.S. investor's perspective and this lessens the currency movement impact.

B)   positively correlated from a U.S. investor's perspective and this exaggerates the currency movement impact.

C)   negatively correlated from a U.S. investor's perspective and this exaggerates the currency movement impact.

D)   negatively correlated from a U.S. investor's perspective and this lessens the currency movement impact.

The correct answer was B)

If the value of a Japanese firm falls when the yen depreciates, the asset return and currency movement are positively correlated from a U.S. investor’s perspective, and this exaggerates the currency movement impact.