A. Fixed exchange rate
B. Independent monetary policy
C. Free mobility of capital
D. Global recessionary tendency
E. Rising inflationary conditions
Choose the correct answer from the options given below:
Understanding the International Finance Trilemma
The question asks about the constituents of the trilemma in international finance, also known as the "impossible trinity". This economic principle states that a country cannot simultaneously achieve all three of the following objectives:
- A. A fixed exchange rate
- B. An independent monetary policy
- C. Free mobility of capital
Countries must choose which two of these three conditions they want to pursue, as achieving all three is impossible. For example, a country with free capital mobility and a fixed exchange rate cannot set its own independent monetary policy. Conversely, a country with an independent monetary policy and free capital mobility must allow its exchange rate to float.
Identifying Trilemma Constituents
Based on the definition of the impossible trinity:
- Option A (Fixed exchange rate): This is a core component of the trilemma.
- Option B (Independent monetary policy): This is another core component.
- Option C (Free mobility of capital): This is the third core component.
- Option D (Global recessionary tendency): This describes a macroeconomic condition, not a policy choice related to the trilemma's framework.
- Option E (Rising inflationary conditions): This also describes a macroeconomic condition, not a policy choice within the trilemma itself.
Therefore, the constituents of the trilemma are options A, B, and C.
Conclusion
The correct combination representing the constituents of the trilemma of international finance is A, B, and C only.
Important Questions from Business Finance
Match List I with List II
List I
List II
Option strategies
Description(s)
A.
Protective put
I.
Buying an asset along with a put on it
B.
Covered call
II.
Buying a call as well as put options on an asset at the same exercise price
C.
Long straddle
III.
Combining two or more options on the same asset with differing exercise prices or times to maturity
D.
Spread
IV.
Writing a call position on an asset along with buying the asset
Choose the correct answer from the options given below:
In order to shorten its operating cycle, a manufacturing company focuses on which of the following decisions ?
A. Reducing operating expenses
B. Enhanced coordination of firm activities
C. Manufacturing automation
D. Longer production schedule
E. Tightening credit policy
Choose the correct answer from the options given below:
Match List I with List II:
List I
List II
A.
Margin of Safety I.
Profit × sales/PV Ratio B.
Break Even Point II.
Difference between total revenue and total variable costs C.
P V Ratio III.
Total Sales-Total Variable Cost / Total Sales D.
Contribution IV.
Equality between contribution and total fixed costs.
Choose the correct answer from the options given below:Identify the components of the credit policy of a business firm from the following:
A. Collection policy
B. Factoring
C. Credit rating
D. Credit analysis
E. Terms of sale
Choose the correct answer from the options given below:
A new issue debt or shares will invariably involve floatation costs in the form of:
(A) Legal fees
(B) Administrative expenses
(C) Brokerage
(D) Underwriting
(E) Risk premium
Choose the most appropriate answer from the options given below:
