Question 1

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

Accepted Answer

A) decrease the price of foreign exchange in Mexico 
B) increase the value of the peso 
C) make foreign goods less expensive in terms of pesos 
D) make foreign goods more expensive in terms of pesos 
E) make Mexican goods more expensive in terms of foreign exchange 
A) decrease the price of foreign exchange in Mexico 
B) increase the value of the peso 
C) make foreign goods less expensive in terms of pesos 
D) make foreign goods more expensive in terms of pesos 
E) make Mexican goods more expensive in terms of foreign exchange

Question 2

Mary Green takes a summer course in London, England.She doesn't buy British pounds at the U.S.airport, where the rate is 1 pound = $1.60.Upon arrival in London, she finds that she can buy pounds for $1.65 each.Which of the following is true?

Accepted Answer

A) Green would have been better off if she had bought pounds in the United States where U.S.dollars were cheaper. 
B) Green would have been better off if she had bought pounds in the United States where pounds were less expensive. 
C) The pounds were more expensive in London because a currency is always most valued in its home country. 
D) The pounds were more expensive in the United States because they are less available there. 
E) It doesn't matter where she buys the pounds, since she can't use U.S.money anyway once she's in England. 
A) Green would have been better off if she had bought pounds in the United States where U.S.dollars were cheaper. 
B) Green would have been better off if she had bought pounds in the United States where pounds were less expensive. 
C) The pounds were more expensive in London because a currency is always most valued in its home country. 
D) The pounds were more expensive in the United States because they are less available there. 
E) It doesn't matter where she buys the pounds, since she can't use U.S.money anyway once she's in England.

Question 3

Between 1917 and 1982, the US ran a financial account deficit.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) the demand for pounds will increase, leading to depreciation of the Canadian dollar, assuming exchange rates are allowed to float 
B) the demand for pounds will increase, leading to depreciation of the Canadian dollar, assuming exchange rates are fixed 
C) the demand for pounds will increase, leading to appreciation of the Canadian dollar, assuming exchange rates are allowed to float 
D) the demand for pounds will increase, leading to appreciation of the Canadian dollar, assuming exchange rates are fixed 
E) the supply of pounds will shift to the left, causing appreciation of the Canadian dollar, assuming exchange rates are fixed 
A) the demand for pounds will increase, leading to depreciation of the Canadian dollar, assuming exchange rates are allowed to float 
B) the demand for pounds will increase, leading to depreciation of the Canadian dollar, assuming exchange rates are fixed 
C) the demand for pounds will increase, leading to appreciation of the Canadian dollar, assuming exchange rates are allowed to float 
D) the demand for pounds will increase, leading to appreciation of the Canadian dollar, assuming exchange rates are fixed 
E) the supply of pounds will shift to the left, causing appreciation of the Canadian dollar, assuming exchange rates are fixed

Question 5

Contractionary policies help correct a balance of payments deficit by

Accepted Answer

A) lowering domestic incomes but raising demand for imports 
B) raising domestic incomes but lowering demand for imports 
C) raising both domestic incomes and demand for imports 
D) lowering both domestic incomes and demand for imports 
E) lowering interest rates and increasing aggregate spending 
A) lowering domestic incomes but raising demand for imports 
B) raising domestic incomes but lowering demand for imports 
C) raising both domestic incomes and demand for imports 
D) lowering both domestic incomes and demand for imports 
E) lowering interest rates and increasing aggregate spending

Question 6

The exchange rate is the

Accepted Answer

A) ratio of exports to imports 
B) interest rate the U.S.government charges on international transactions 
C) pricing policy of goods scheduled for export 
D) price of one nation's currency in terms of another nation's currency 
E) price that central banks charge each other for currency exchanges 
A) ratio of exports to imports 
B) interest rate the U.S.government charges on international transactions 
C) pricing policy of goods scheduled for export 
D) price of one nation's currency in terms of another nation's currency 
E) price that central banks charge each other for currency exchanges

Question 7

Under fixed exchange rates, a central bank

Accepted Answer

A) adjusts the money supply automatically and immediately to changes in the demand and supply of foreign exchange 
B) need hold no reserves of foreign exchange 
C) enforces the fixed exchange rate by refusing to buy or sell foreign exchange whenever changes occur in demand or supply 
D) may find its reserves fluctuating as demand and supply conditions change 
E) has no authority to buy or sell foreign exchange 
A) adjusts the money supply automatically and immediately to changes in the demand and supply of foreign exchange 
B) need hold no reserves of foreign exchange 
C) enforces the fixed exchange rate by refusing to buy or sell foreign exchange whenever changes occur in demand or supply 
D) may find its reserves fluctuating as demand and supply conditions change 
E) has no authority to buy or sell foreign exchange

Question 8

Speculators profit by taking risks, while the actions of arbitrageurs involve no risk.

Accepted Answer

A) True 
 B)False

Question 9

When the exchange rate is allowed to adjust to market forces, all of the following are true except one.Which is the exception?

Accepted Answer

A) The foreign exchange market clears continually. 
B) The quantities of foreign exchange demanded and supplied are equal. 
C) The exchange rate will only change if the central bank alters the exchange rate. 
D) The exchange rate will remain constant until a change occurs in one of the factors that affect supply or demand. 
E) The forces of demand and supply determine the exchange rate. 
A) The foreign exchange market clears continually. 
B) The quantities of foreign exchange demanded and supplied are equal. 
C) The exchange rate will only change if the central bank alters the exchange rate. 
D) The exchange rate will remain constant until a change occurs in one of the factors that affect supply or demand. 
E) The forces of demand and supply determine the exchange rate.

Question 10

Under the gold standard, all except one of the following are true.Which is not true?

Accepted Answer

A) Paper currency was convertible into gold at a fixed rate. 
B) A balance-of-payments deficit would result in a loss of gold. 
C) A balance-of-payments surplus would result in an inflow in gold. 
D) The money supply of any country was largely determined by flows of gold. 
E) A surplus country experienced a rise in its money supply and a drop in its price level. 
A) Paper currency was convertible into gold at a fixed rate. 
B) A balance-of-payments deficit would result in a loss of gold. 
C) A balance-of-payments surplus would result in an inflow in gold. 
D) The money supply of any country was largely determined by flows of gold. 
E) A surplus country experienced a rise in its money supply and a drop in its price level.

Question 11

The trade balance is

Accepted Answer

A) the services balance plus the current account balance plus the capital account balance 
B) merchandise exports minus merchandise imports 
C) the current account balance plus the capital account balance 
D) foreign purchases of domestic assets minus domestic purchases of foreign assets 
E) the services balance plus the capital account balance 
A) the services balance plus the current account balance plus the capital account balance 
B) merchandise exports minus merchandise imports 
C) the current account balance plus the capital account balance 
D) foreign purchases of domestic assets minus domestic purchases of foreign assets 
E) the services balance plus the capital account balance

Question 12

Utopia would be a debtor nation

Accepted Answer

A) if consumers in other countries bought goods and services from Utopia 
B) only if it had a deficit in its current account 
C) only if it had a deficit in its balance of goods and services 
D) if it had a deficit in its balance of trade 
E) if it had a deficit after adding together the balances in both its current account and its capital account 
A) if consumers in other countries bought goods and services from Utopia 
B) only if it had a deficit in its current account 
C) only if it had a deficit in its balance of goods and services 
D) if it had a deficit in its balance of trade 
E) if it had a deficit after adding together the balances in both its current account and its capital account

Question 13

Under a fixed exchange rate system, an increase in Japanese demand for U.S.agricultural goods would

Accepted Answer

A) cause the U.S.balance of trade to worsen 
B) increase the supply of yen relative to the dollar 
C) decrease Japanese demand for dollars 
D) cause the yen to appreciate 
E) cause an immediate revaluation of the yen 
A) cause the U.S.balance of trade to worsen 
B) increase the supply of yen relative to the dollar 
C) decrease Japanese demand for dollars 
D) cause the yen to appreciate 
E) cause an immediate revaluation of the yen

Question 14

The world's largest net debtor nation is

Accepted Answer

A) Russia 
B) China 
C) Brazil 
D) Mexico 
E) the United States 
A) Russia 
B) China 
C) Brazil 
D) Mexico 
E) the United States

Question 15

Assume the United States has only one trading partner.The U.S.demand curve for foreign currency is drawn while holding constant all of the following factors except one.Which is the exception?

Accepted Answer

A) incomes of U.S.consumers 
B) the exchange rate 
C) the expected rate of inflation in the U.S. 
D) the foreign prices of foreign goods 
E) U.S.interest rates relative to foreign interest rates 
A) incomes of U.S.consumers 
B) the exchange rate 
C) the expected rate of inflation in the U.S. 
D) the foreign prices of foreign goods 
E) U.S.interest rates relative to foreign interest rates

Question 16

Exhibit 20-1   Given the hypothetical data in Exhibit 20-1, what is the balance on current account?

Accepted Answer

A) -$1, 500 
B) -$2, 000 
C) -$2, 400 
D) -$2, 420 
E) -$2, 500 
A) -$1, 500 
B) -$2, 000 
C) -$2, 400 
D) -$2, 420 
E) -$2, 500

Question 17

If the exchange rate changes from 75 cents per euro to $1 per euro, the euro

Accepted Answer

A) appreciated, since its value has increased 
B) appreciated, since the price of U.S.dollars has increased 
C) appreciated, making U.S.goods more expensive in Euros 
D) depreciated, since its value has declined 
E) depreciated, since its value has increased 
A) appreciated, since its value has increased 
B) appreciated, since the price of U.S.dollars has increased 
C) appreciated, making U.S.goods more expensive in Euros 
D) depreciated, since its value has declined 
E) depreciated, since its value has increased

Question 18

Exhibit 20-4   Which of the following is represented by Exhibit 20-4?

Accepted Answer

A) An increase in the Canadian demand for Swiss francs. 
B) An increase in the Swiss demand for Canadian dollars. 
C) Canadian exports to Switzerland decrease. 
D) The Swiss franc is devalued. 
E) The Swiss franc depreciates. 
A) An increase in the Canadian demand for Swiss francs. 
B) An increase in the Swiss demand for Canadian dollars. 
C) Canadian exports to Switzerland decrease. 
D) The Swiss franc is devalued. 
E) The Swiss franc depreciates.

Question 19

An increase in U.S.income that increases American demand for all normal goods (including imports from Britain)will shift

Accepted Answer

A) the U.S.demand curve for foreign exchange to the right, causing an increase in the dollar-per-pound exchange rate 
B) the U.S.demand curve for foreign exchange to the left, causing a decrease in the dollar-per-pound exchange rate 
C) the U.S.supply curve for foreign exchange to the right, causing a decrease in the dollar-per-pound exchange rate 
D) the U.S.supply curve for foreign exchange to the left, causing an increase in the dollar-per-pound exchange rate 
E) neither the U.S.demand curve for foreign exchange nor the U.S.supply curve for foreign exchange 
A) the U.S.demand curve for foreign exchange to the right, causing an increase in the dollar-per-pound exchange rate 
B) the U.S.demand curve for foreign exchange to the left, causing a decrease in the dollar-per-pound exchange rate 
C) the U.S.supply curve for foreign exchange to the right, causing a decrease in the dollar-per-pound exchange rate 
D) the U.S.supply curve for foreign exchange to the left, causing an increase in the dollar-per-pound exchange rate 
E) neither the U.S.demand curve for foreign exchange nor the U.S.supply curve for foreign exchange

Question 20

International reserves include all except one of the following.Which is the exception?

Accepted Answer

A) gold 
B) dollars 
C) yen 
D) Special Drawing Rights 
E) oil 
A) gold 
B) dollars 
C) yen 
D) Special Drawing Rights 
E) oil

Exam 20: International Finance

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

Mary Green takes a summer course in London, England.She doesn't buy British pounds at the U.S.airport, where the rate is 1 pound = $1.60.Upon arrival in London, she finds that she can buy pounds for $1.65 each.Which of the following is true?

Between 1917 and 1982, the US ran a financial account deficit.

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

Contractionary policies help correct a balance of payments deficit by

The exchange rate is the

Under fixed exchange rates, a central bank

Speculators profit by taking risks, while the actions of arbitrageurs involve no risk.

When the exchange rate is allowed to adjust to market forces, all of the following are true except one.Which is the exception?

Under the gold standard, all except one of the following are true.Which is not true?

The trade balance is

Utopia would be a debtor nation

Under a fixed exchange rate system, an increase in Japanese demand for U.S.agricultural goods would

The world's largest net debtor nation is

Assume the United States has only one trading partner.The U.S.demand curve for foreign currency is drawn while holding constant all of the following factors except one.Which is the exception?

Exhibit 20-1 Given the hypothetical data in Exhibit 20-1, what is the balance on current account?

If the exchange rate changes from 75 cents per euro to $1 per euro, the euro

Exhibit 20-4 Which of the following is represented by Exhibit 20-4?

An increase in U.S.income that increases American demand for all normal goods (including imports from Britain)will shift

International reserves include all except one of the following.Which is the exception?

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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