International Variables Are Linked Through Trade and Financial Flows

question 142

Multiple Choice

International variables are linked through trade and financial flows. Therefore, what trilemma is faced by a nation that wishes to keep its exchange rates with other nations fixed?

• A) It can have fixed exchange rates only when it allows free flows of capital and maintains control of its interest rates.
• B) If it wants to control its own monetary policy under fixed exchange rates, then it must restrict foreign investment.
• C) Fixed exchange rates are not possible if the nation allows free flows of capital both into and out of the nation.
• D) Fixed exchange rates are not possible if the nation also wants to control its monetary policy.

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Definitions:

Gross Profit

The financial gain obtained after subtracting the cost of goods sold from total sales revenue.

Inventory

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Long-Term Construction

A method in accounting that recognizes the revenues and expenses of long-term construction projects as progress is made on the project.

Completed Contract

A method in accounting where all revenue and expenses of a contract are recognized only when the contract is completed.