Question 1

Suppose the exchange rate is such that 1 U.S.dollar equals 1 euro in New York and 0.9 euros in Paris.An arbitrageur would sell euros

Accepted Answer

A) in New York and buy U.S.dollars in Paris 
B) in Paris and buy U.S.dollars in New York 
C) in New York while buying them in Paris 
D) in Paris while buying them in New York 
E) at the same price in both cities 
A) in New York and buy U.S.dollars in Paris 
B) in Paris and buy U.S.dollars in New York 
C) in New York while buying them in Paris 
D) in Paris while buying them in New York 
E) at the same price in both cities

Question 2

If the Irish pound declines in value against other major currencies, which of the following happens?

Accepted Answer

A) The Irish trade deficit will increase. 
B) The Irish trade deficit will be unaffected. 
C) The Irish trade deficit will decrease. 
D) Irish products will become more expensive to foreigners. 
E) Foreign goods will become cheaper in Ireland. 
A) The Irish trade deficit will increase. 
B) The Irish trade deficit will be unaffected. 
C) The Irish trade deficit will decrease. 
D) Irish products will become more expensive to foreigners. 
E) Foreign goods will become cheaper in Ireland.

Question 3

A fixed exchange rate is enforced by

Accepted Answer

A) national governments, who establish appropriate trade barriers for each country with whom they trade 
B) national governments, who manipulate gold reserves appropriately 
C) central banks, who buy and sell appropriate currencies 
D) the International Monetary Fund, which offers loans to appropriate countries 
E) local governments, who manipulate capital reserves appropriately 
A) national governments, who establish appropriate trade barriers for each country with whom they trade 
B) national governments, who manipulate gold reserves appropriately 
C) central banks, who buy and sell appropriate currencies 
D) the International Monetary Fund, which offers loans to appropriate countries 
E) local governments, who manipulate capital reserves appropriately

Question 4

An arbitrageur in foreign exchange is a person who

Accepted Answer

A) buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date 
B) earns illegal profit by manipulating foreign exchange 
C) causes differences in exchange rates in different geographic markets 
D) simultaneously buys large amounts of a currency in one market and sells it in another market 
E) mediates disputes when there is no agreement on exchange rates in international currency markets 
A) buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date 
B) earns illegal profit by manipulating foreign exchange 
C) causes differences in exchange rates in different geographic markets 
D) simultaneously buys large amounts of a currency in one market and sells it in another market 
E) mediates disputes when there is no agreement on exchange rates in international currency markets

Question 5

The reason for calling the current exchange rate system a "managed float" is

Accepted Answer

A) it is managed by the IMF 
B) it is basically a misnomer because it is impossible to "manage" exchange rates 
C) it recognizes that there will be some intervention by central banks 
D) only the forces of supply and demand determine the exchange rates 
E) Congress passed a law declaring that the exchange rate system be legally termed "managed float" 
A) it is managed by the IMF 
B) it is basically a misnomer because it is impossible to "manage" exchange rates 
C) it recognizes that there will be some intervention by central banks 
D) only the forces of supply and demand determine the exchange rates 
E) Congress passed a law declaring that the exchange rate system be legally termed "managed float"

Question 6

When faced with a continual excess demand for foreign exchange, which of the following options can the government choose to eliminate the disequilibrium situation?

Accepted Answer

A) increase the peg or devalue 
B) engage in fiscal policy and raise the country's income level 
C) engage in monetary policy and lower interest rates 
D) increase the inflation rate 
E) decrease the peg or revalue 
A) increase the peg or devalue 
B) engage in fiscal policy and raise the country's income level 
C) engage in monetary policy and lower interest rates 
D) increase the inflation rate 
E) decrease the peg or revalue

Question 7

Which of the following is a credit item (+)in the U.S.balance of payments?

Accepted Answer

A) U.S.companies sell merchandise abroad. 
B) Foreign companies sell merchandise to U.S.consumers. 
C) U.S.consumers send money to foreign companies. 
D) Immigrants to the United States send presents of money back to their families in their native countries. 
E) Immigrants to the United States send presents of goods back to their families in their native countries. 
A) U.S.companies sell merchandise abroad. 
B) Foreign companies sell merchandise to U.S.consumers. 
C) U.S.consumers send money to foreign companies. 
D) Immigrants to the United States send presents of money back to their families in their native countries. 
E) Immigrants to the United States send presents of goods back to their families in their native countries.

Question 8

Which of the following statements is not true of fixed and flexible exchange rate systems?

Accepted Answer

A) Under fixed exchange rates, government officials have little direct role in the foreign exchange market. 
B) Under fixed exchange rates, the government must select an appropriate exchange rate. 
C) Under fixed exchange rates, active central bank intervention is necessary to maintain the fixed exchange rate. 
D) Under fixed exchange rates, the governments must stand ready to buy all foreign exchange offered to it and supply all foreign exchange demanded from it. 
E) Flexible exchange rates rely on market forces to set the exchange rate, but fixed exchange rates are set by central banks. 
A) Under fixed exchange rates, government officials have little direct role in the foreign exchange market. 
B) Under fixed exchange rates, the government must select an appropriate exchange rate. 
C) Under fixed exchange rates, active central bank intervention is necessary to maintain the fixed exchange rate. 
D) Under fixed exchange rates, the governments must stand ready to buy all foreign exchange offered to it and supply all foreign exchange demanded from it. 
E) Flexible exchange rates rely on market forces to set the exchange rate, but fixed exchange rates are set by central banks.

Question 9

When an American buys a Swedish financial asset,

Accepted Answer

A) both c and d 
B) the U.S.balance of goods and services worsens 
C) the U.S.capital account balance declines 
D) the U.S.balance of payments worsens 
E) the U.S.trade balance worsens 
A) both c and d 
B) the U.S.balance of goods and services worsens 
C) the U.S.capital account balance declines 
D) the U.S.balance of payments worsens 
E) the U.S.trade balance worsens

Question 10

A drop in dollar price of British pounds means that

Accepted Answer

A) fewer dollars are needed to buy British pounds 
B) more dollars are needed to buy British pounds 
C) the mark has appreciated 
D) the dollar has depreciated 
E) British goods are now more expensive to Americans 
A) fewer dollars are needed to buy British pounds 
B) more dollars are needed to buy British pounds 
C) the mark has appreciated 
D) the dollar has depreciated 
E) British goods are now more expensive to Americans

Question 11

Under the gold standard, each country had little control over its own monetary policies.

Accepted Answer

A) True 
 B)False

Question 12

In 2011, the United States largest balance of trade deficit was with

Accepted Answer

A) the European Union 
B) Canada 
C) China 
D) Mexico 
E) Brazil 
A) the European Union 
B) Canada 
C) China 
D) Mexico 
E) Brazil

Question 13

If on Tuesday you can buy 125 yen per U.S.dollar and on Wednesday you can buy 120 yen per U.S.dollar,

Accepted Answer

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

Question 14

Which of the following is not assumed constant along the U.S.demand curve for foreign exchange?

Accepted Answer

A) the exchange rate 
B) U.S.interest rates 
C) expected U.S.inflation 
D) expected foreign inflation 
E) increase in U.S.income 
A) the exchange rate 
B) U.S.interest rates 
C) expected U.S.inflation 
D) expected foreign inflation 
E) increase in U.S.income

Question 15

Suppose a basket of goods costs $400 in the United States and £200 in Britain.If the exchange rate is $1/pound, what will happen in the foreign exchange market, according to the purchasing power parity theory?

Accepted Answer

A) The market will go further out of equilibrium because of increased activity. 
B) An increase in demand for pounds will lead to an increase in the price of pounds. 
C) An increase in demand for dollars will lead to an increase in the price of dollars. 
D) An increase in demand for dollars will lead to a decrease in the price of dollars. 
E) An increase in demand for pounds will lead to a decrease in the price of pounds. 
A) The market will go further out of equilibrium because of increased activity. 
B) An increase in demand for pounds will lead to an increase in the price of pounds. 
C) An increase in demand for dollars will lead to an increase in the price of dollars. 
D) An increase in demand for dollars will lead to a decrease in the price of dollars. 
E) An increase in demand for pounds will lead to a decrease in the price of pounds.

Question 16

The demand for foreign currency in the United States

Accepted Answer

A) increases as the level of imports increases 
B) increases as the level of exports increases 
C) decreases with the lowering of the inflation rate abroad 
D) decreases as foreign interest rates rise 
E) is unaffected by U.S.demand for goods and services abroad 
A) increases as the level of imports increases 
B) increases as the level of exports increases 
C) decreases with the lowering of the inflation rate abroad 
D) decreases as foreign interest rates rise 
E) is unaffected by U.S.demand for goods and services abroad

Question 17

The demand curve for foreign exchange

Accepted Answer

A) slopes downward 
B) slopes upward 
C) is horizontal, because no individual country can influence the price of foreign exchange 
D) is vertical, because no individual country can influence the price of foreign exchange 
E) may slope downward or upward 
A) slopes downward 
B) slopes upward 
C) is horizontal, because no individual country can influence the price of foreign exchange 
D) is vertical, because no individual country can influence the price of foreign exchange 
E) may slope downward or upward

Question 18

A rightward shift of the Canadian demand curve for foreign exchange will

Accepted Answer

A) decrease the price of foreign exchange in Canada 
B) decrease the value of the Canadian dollar 
C) increase the value of the Canadian dollar 
D) make foreign goods less expensive in terms of Canadian dollars 
E) make Canadian goods more expensive in terms of foreign exchange 
A) decrease the price of foreign exchange in Canada 
B) decrease the value of the Canadian dollar 
C) increase the value of the Canadian dollar 
D) make foreign goods less expensive in terms of Canadian dollars 
E) make Canadian goods more expensive in terms of foreign exchange

Question 19

The merchandise trade balance

Accepted Answer

A) reflects trade in intangibles like insurance and tourism 
B) includes personal gifts to friends abroad 
C) records the flow of financial assets like stocks and bonds 
D) equals the value of imports minus the value of exports 
E) equals the value of tangible products exported minus the value of tangible products imported 
A) reflects trade in intangibles like insurance and tourism 
B) includes personal gifts to friends abroad 
C) records the flow of financial assets like stocks and bonds 
D) equals the value of imports minus the value of exports 
E) equals the value of tangible products exported minus the value of tangible products imported

Question 20

The actions taken by arbitrageurs in the foreign exchange markets

Accepted Answer

A) destabilize foreign exchange markets 
B) are highly risky 
C) have no effect on exchange rates 
D) help assure that exchange rates are equalized across all markets 
E) are the same as those undertaken by speculators 
A) destabilize foreign exchange markets 
B) are highly risky 
C) have no effect on exchange rates 
D) help assure that exchange rates are equalized across all markets 
E) are the same as those undertaken by speculators

Exam 20: International Finance

Suppose the exchange rate is such that 1 U.S.dollar equals 1 euro in New York and 0.9 euros in Paris.An arbitrageur would sell euros

If the Irish pound declines in value against other major currencies, which of the following happens?

A fixed exchange rate is enforced by

An arbitrageur in foreign exchange is a person who

The reason for calling the current exchange rate system a "managed float" is

When faced with a continual excess demand for foreign exchange, which of the following options can the government choose to eliminate the disequilibrium situation?

Which of the following is a credit item (+)in the U.S.balance of payments?

Which of the following statements is not true of fixed and flexible exchange rate systems?

When an American buys a Swedish financial asset,

A drop in dollar price of British pounds means that

Under the gold standard, each country had little control over its own monetary policies.

In 2011, the United States largest balance of trade deficit was with

If on Tuesday you can buy 125 yen per U.S.dollar and on Wednesday you can buy 120 yen per U.S.dollar,

Which of the following is not assumed constant along the U.S.demand curve for foreign exchange?

Suppose a basket of goods costs $400 in the United States and £200 in Britain.If the exchange rate is $1/pound, what will happen in the foreign exchange market, according to the purchasing power parity theory?

The demand for foreign currency in the United States

The demand curve for foreign exchange

A rightward shift of the Canadian demand curve for foreign exchange will

The merchandise trade balance

The actions taken by arbitrageurs in the foreign exchange markets

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

Filters