A Central Bank Engaging in Sterilization Is Attempting to

question 45

Multiple Choice

A central bank engaging in sterilization is attempting to

• A) counteract the efforts of foreign central banks that fix exchange rates to gain an advantage in international trade.
• B) depreciate its currency relative to foreign currencies.
• C) appreciate its currency relative to foreign currencies.
• D) offset domestic money supply changes that result from fixing its exchange rate against other currencies.

Understand the basic differences between forward contracts and futures contracts.

Comprehend the importance and use of derivatives in hedging financial risks.

Recognize the role of volatility in financial markets and its impact on derivatives trading.

Identify how firms use derivatives to manage exposure to various types of financial risks.

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Definitions:

Net Income

The amount of money remaining after all operating expenses, taxes, and deductions are taken out from total revenue.

Rental Property

Real estate property that is leased or rented to tenants, generating rental income for the owner.

Passive Loss Limitation

Tax rules that limit the amount of passive losses (from activities in which the taxpayer does not materially participate) that can offset other types of income.

Tax Court Method

A legal procedure by which taxpayers can dispute the IRS's determination of their tax liability in the United States Tax Court.