Question 1

If on Monday you can buy 13 Mexican pesos per U.S.dollar and on Wednesday you can buy 15 Mexican pesos per U.S.dollar,

Accepted Answer

A) both the U.S.dollar and the Mexican peso have appreciated 
B) both the U.S.dollar and the Mexican peso have depreciated 
C) the U.S.dollar has appreciated and the Mexican peso has depreciated 
D) the U.S.dollar has depreciated and the Mexican peso has appreciated 
E) the Mexican peso has appreciated and the U.S.dollar has remained constant 
A) both the U.S.dollar and the Mexican peso have appreciated 
B) both the U.S.dollar and the Mexican peso have depreciated 
C) the U.S.dollar has appreciated and the Mexican peso has depreciated 
D) the U.S.dollar has depreciated and the Mexican peso has appreciated 
E) the Mexican peso has appreciated and the U.S.dollar has remained constant

Question 2

According to the purchasing power parity theory, in the long run

Accepted Answer

A) the exchange rate between any two currencies should be equal all over the world 
B) the value of the dollar should equal the value of the pound which should equal the value of the yen 
C) inflation rates should equalize around the world 
D) interest rates should equalize around the world 
E) the exchange rate between the Canadian dollar and the British pound should reflect differences in price levels between Canada and Britain 
A) the exchange rate between any two currencies should be equal all over the world 
B) the value of the dollar should equal the value of the pound which should equal the value of the yen 
C) inflation rates should equalize around the world 
D) interest rates should equalize around the world 
E) the exchange rate between the Canadian dollar and the British pound should reflect differences in price levels between Canada and Britain

Question 3

Which of the following is not true about the U.S.trade balance since 1979?

Accepted Answer

A) The balance of trade has been in deficit. 
B) During recessions the balance has usually been flat. 
C) The balance of trade has been in surplus. 
D) When the economy expanded, the demand for imports increased. 
E) When the economy expanded, the trade balance worsened. 
A) The balance of trade has been in deficit. 
B) During recessions the balance has usually been flat. 
C) The balance of trade has been in surplus. 
D) When the economy expanded, the demand for imports increased. 
E) When the economy expanded, the trade balance worsened.

Question 4

The current international financial system is a managed float system.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not considered a unilateral transfer?

Accepted Answer

A) foreign aid from one government to another 
B) income earned from foreign investments 
C) personal gifts to friends in foreign countries 
D) donations to foreign countries from non-government domestic charities 
E) government transfers to foreign residents 
A) foreign aid from one government to another 
B) income earned from foreign investments 
C) personal gifts to friends in foreign countries 
D) donations to foreign countries from non-government domestic charities 
E) government transfers to foreign residents

Question 6

One signal that the U.S.dollar was overvalued in the early 1970s was

Accepted Answer

A) the stable price of gold 
B) the volume of international trade 
C) the recurring balance of trade deficits in the United States 
D) the recurring balance of trade deficits in European countries 
E) reduced deposits in the World Bank 
A) the stable price of gold 
B) the volume of international trade 
C) the recurring balance of trade deficits in the United States 
D) the recurring balance of trade deficits in European countries 
E) reduced deposits in the World Bank

Question 7

In determining the exchange rate between the Canadian dollar and British pound, if Canadian income increases, then

Accepted Answer

A) the Canadian demand for pounds increases 
B) the price of pounds decreases 
C) the Canadian demand for pounds decreases 
D) the Canadian supply of pounds increases 
E) the supply of Canadian dollars decreases 
A) the Canadian demand for pounds increases 
B) the price of pounds decreases 
C) the Canadian demand for pounds decreases 
D) the Canadian supply of pounds increases 
E) the supply of Canadian dollars decreases

Question 8

One feature of the gold standard was that

Accepted Answer

A) countries had almost complete control over their own monetary policies 
B) surplus could cause the money supply to decrease 
C) slow gold production could lead to deflation 
D) exchange rates were unstable 
E) each currency was worth the same as other currencies 
A) countries had almost complete control over their own monetary policies 
B) surplus could cause the money supply to decrease 
C) slow gold production could lead to deflation 
D) exchange rates were unstable 
E) each currency was worth the same as other currencies

Question 9

If the U.S.dollar depreciates, it becomes cheaper for U.S.residents to travel in foreign countries.

Accepted Answer

A) True 
 B)False

Question 10

Exchange rates

Accepted Answer

A) are always fixed 
B) fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied 
C) fluctuate to equate imports and exports 
D) fluctuate to equate interest rates in various countries 
E) fluctuate according to agreements between the governments of various countries 
A) are always fixed 
B) fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied 
C) fluctuate to equate imports and exports 
D) fluctuate to equate interest rates in various countries 
E) fluctuate according to agreements between the governments of various countries

Question 11

As long as trade across borders is unrestricted and exchange rates adjust freely, the purchasing power parity theory predicts that the exchange rate between two national currencies will adjust in the

Accepted Answer

A) short run because of the actions of arbitrageurs 
B) long run to reflect differences in the nations' price levels 
C) long run to reflect changes in the governments' trade policies 
D) short run because of the actions of speculators 
E) long run to reflect differences in military power 
A) short run because of the actions of arbitrageurs 
B) long run to reflect differences in the nations' price levels 
C) long run to reflect changes in the governments' trade policies 
D) short run because of the actions of speculators 
E) long run to reflect differences in military power

Question 12

Flexible exchange rates are more volatile than floating ones.

Accepted Answer

A) True 
 B)False

Question 13

If the current account is in deficit, imports of goods and services exceed exports of goods and services (plus net unilateral transfers).

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would contribute, directly or indirectly, to a deficit in the capital account of the U.S.balance of payments?

Accepted Answer

A) A British citizen buys stock in Ford. 
B) A British citizen buys a bond from Ford. 
C) Interest rates fall in the United States relative to their level in the rest of the world. 
D) Australian publisher Rupert Murdoch buys The New York Times. 
E) Developing countries become more stable and so borrow less from U.S.banks. 
A) A British citizen buys stock in Ford. 
B) A British citizen buys a bond from Ford. 
C) Interest rates fall in the United States relative to their level in the rest of the world. 
D) Australian publisher Rupert Murdoch buys The New York Times. 
E) Developing countries become more stable and so borrow less from U.S.banks.

Question 15

The balance of goods and services is

Accepted Answer

A) the same as the merchandise trade balance, since services cannot be traded 
B) equivalent to the trade balance 
C) the value of all goods and services exported minus the value of all goods and services imported 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference 
A) the same as the merchandise trade balance, since services cannot be traded 
B) equivalent to the trade balance 
C) the value of all goods and services exported minus the value of all goods and services imported 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference

Question 16

Which of the following is true?

Accepted Answer

A) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
B) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners. 
C) If the Australian dollar depreciates, the Australian trade deficit increases, since Australian products become more expensive to foreigners. 
D) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
E) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners. 
A) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
B) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners. 
C) If the Australian dollar depreciates, the Australian trade deficit increases, since Australian products become more expensive to foreigners. 
D) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
E) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners.

Question 17

Current account transactions are records of the income and expenditures from exports and imports, plus international financial investments and borrowing.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements concerning speculators is true?

Accepted Answer

A) There is no risk involved in speculative activity. 
B) They simultaneously buy and sell a currency in different markets. 
C) They hope to profit by trading a currency at a different exchange rate later. 
D) Their actions do not affect exchange rates. 
E) Their actions are exactly like those of arbitrageurs. 
A) There is no risk involved in speculative activity. 
B) They simultaneously buy and sell a currency in different markets. 
C) They hope to profit by trading a currency at a different exchange rate later. 
D) Their actions do not affect exchange rates. 
E) Their actions are exactly like those of arbitrageurs.

Question 19

If the same basket of goods costs $400 in the United States and 200 pounds in Britain, then according to the purchasing power parity theory,

Accepted Answer

A) goods and services must cost half as much in Britain as in the U.S. 
B) the exchange rate should approach $2/pound 
C) the exchange rate should approach $0.50/pound 
D) goods and services must cost twice as much in Britain as in the U.S. 
E) we cannot say anything about prices in the two countries unless we know the exchange rate 
A) goods and services must cost half as much in Britain as in the U.S. 
B) the exchange rate should approach $2/pound 
C) the exchange rate should approach $0.50/pound 
D) goods and services must cost twice as much in Britain as in the U.S. 
E) we cannot say anything about prices in the two countries unless we know the exchange rate

Question 20

The Bretton Woods system

Accepted Answer

A) established a worldwide gold standard 
B) established a worldwide system of fixed exchange rates 
C) established a worldwide system of flexible exchange rates 
D) harmonized tariff systems 
E) was restricted to industrialized nations 
A) established a worldwide gold standard 
B) established a worldwide system of fixed exchange rates 
C) established a worldwide system of flexible exchange rates 
D) harmonized tariff systems 
E) was restricted to industrialized nations

Exam 20: International Finance

If on Monday you can buy 13 Mexican pesos per U.S.dollar and on Wednesday you can buy 15 Mexican pesos per U.S.dollar,

According to the purchasing power parity theory, in the long run

Which of the following is not true about the U.S.trade balance since 1979?

The current international financial system is a managed float system.

Which of the following is not considered a unilateral transfer?

One signal that the U.S.dollar was overvalued in the early 1970s was

In determining the exchange rate between the Canadian dollar and British pound, if Canadian income increases, then

One feature of the gold standard was that

If the U.S.dollar depreciates, it becomes cheaper for U.S.residents to travel in foreign countries.

Exchange rates

As long as trade across borders is unrestricted and exchange rates adjust freely, the purchasing power parity theory predicts that the exchange rate between two national currencies will adjust in the

Flexible exchange rates are more volatile than floating ones.

If the current account is in deficit, imports of goods and services exceed exports of goods and services (plus net unilateral transfers).

Which of the following would contribute, directly or indirectly, to a deficit in the capital account of the U.S.balance of payments?

The balance of goods and services is

Which of the following is true?

Current account transactions are records of the income and expenditures from exports and imports, plus international financial investments and borrowing.

Which of the following statements concerning speculators is true?

If the same basket of goods costs $400 in the United States and 200 pounds in Britain, then according to the purchasing power parity theory,

The Bretton Woods system

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

Economic Development

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