Question 1

Which of the following transactions directly leads to a surplus on the U.S. capital and financial account?

Accepted Answer

A)  A Japanese resident purchases a U.S. government bond. 
B)  A resident of France visits the United States. 
C)  An American sells wheat to an African nation. 
D)  An American purchases a share of stock on the Tokyo exchange. 
A)  A Japanese resident purchases a U.S. government bond. 
B)  A resident of France visits the United States. 
C)  An American sells wheat to an African nation. 
D)  An American purchases a share of stock on the Tokyo exchange.

Question 2

Suppose the current account of a country is in balance and the official settlements account equals 0. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that

Accepted Answer

A)  the balance of trade is now in surplus. 
B)  the government must make official reserve transactions. 
C)  the capital and financial account is now in deficit. 
D)  the government is running a budget deficit. 
A)  the balance of trade is now in surplus. 
B)  the government must make official reserve transactions. 
C)  the capital and financial account is now in deficit. 
D)  the government is running a budget deficit.

Question 3

In the foreign exchange market, which of the following results in a movement along the supply curve of dollars?

Accepted Answer

A)  a change in the expected future exchange rate 
B)  a change in the current exchange rate 
C)  a change in the U.S. interest rate 
D)  None of the above answers are correct. 
A)  a change in the expected future exchange rate 
B)  a change in the current exchange rate 
C)  a change in the U.S. interest rate 
D)  None of the above answers are correct.

Question 4

Which of the following is included in a nationʹs capital and financial account?
I. the purchase of foreign stocks and bonds
II. the sale of foreign stocks and bonds
III. importing a piece of capital equipment

Accepted Answer

A)  I, II and III 
B)  III only 
C)  I only 
D)  I and II 
A)  I, II and III 
B)  III only 
C)  I only 
D)  I and II

Question 5

The demand for Mexican tomatoes by an American food grocery chain creates a

Accepted Answer

A)  demand for an interest rate differential. 
B)  supply of Mexican pesos. 
C)  demand for the U.S. dollar. 
D)  supply of U.S. dollars. 
A)  demand for an interest rate differential. 
B)  supply of Mexican pesos. 
C)  demand for the U.S. dollar. 
D)  supply of U.S. dollars.

Question 6

The law of demand in the foreign exchange market refers to the relationship between the

Accepted Answer

A)  U.S. price level and the exchange rate 
B)  interest rate and the exchange rate 
C)  exchange rate and the quantity of U.S. dollars demanded 
D)  interest rate and the quantity of U.S. dollars demanded 
A)  U.S. price level and the exchange rate 
B)  interest rate and the exchange rate 
C)  exchange rate and the quantity of U.S. dollars demanded 
D)  interest rate and the quantity of U.S. dollars demanded

Question 7

How will an increase in the expected future exchange rate affect the current supply and demand curves for dollars?

Accepted Answer

An increase in the expected future excha

Question 8

If net interest and net transfers are zero, and a countryʹs exports exceed its imports, the country definitely has .

Accepted Answer

A)  a capital and financial account surplus 
B)  a current account surplus 
C)  an official settlements account surplus 
D)  a current account deficit 
A)  a capital and financial account surplus 
B)  a current account surplus 
C)  an official settlements account surplus 
D)  a current account deficit

Question 9

U.S. residents come to believe that the dollar will appreciate in the future, that is, the exchange rate in the future will be higher than the current exchange rate. As a result,

Accepted Answer

A)  there is a movement downward along the demand curve for dollars. 
B)  the demand curve for dollars shifts rightward. 
C)  the demand curve for dollars shifts leftward. 
D)  None of the above answers are correct. 
A)  there is a movement downward along the demand curve for dollars. 
B)  the demand curve for dollars shifts rightward. 
C)  the demand curve for dollars shifts leftward. 
D)  None of the above answers are correct.

Question 10

If the current account balance is $235 billion and U.S. official reserves increased by $35 billion, what is the official settlements account balance and the capital account balance?

Accepted Answer

The official settlements account equals

Question 11

-In the above figure, suppose the economy is initially at point A. People come to expect the future U.S. exchange rate to be higher. As a result there is a change from point A to a point such as__________

Accepted Answer

A)  point D 
B)  point B 
C)  point C 
D)  point E 
A)  point D 
B)  point B 
C)  point C 
D)  point E

Question 12

Given the U.S. price level P, the foreign country price level P*, and the real exchange rate RER in foreign currency per U.S. dollar, the nominal exchange rate E would be given by

Accepted Answer

A)  E = RER x P/P*) 
B)  E = P x RER/P*) 
C)  E = P/P*) / RER 
D)  E = RER x P*/P) 
A)  E = RER x P/P*) 
B)  E = P x RER/P*) 
C)  E = P/P*) / RER 
D)  E = RER x P*/P)

Question 13

If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher
u.S. interest rate

Accepted Answer

A)  increases the demand for dollars. 
B)  has no effect on the demand for dollars. 
C)  will stop all trading between the currencies of the U.S. and other countries. 
D)  decreases the demand for dollars. 
A)  increases the demand for dollars. 
B)  has no effect on the demand for dollars. 
C)  will stop all trading between the currencies of the U.S. and other countries. 
D)  decreases the demand for dollars.

Question 14

If in Chicago the interest rate is 5 percent a year and in Vancouver it is 4 percent a year, __________.

Accepted Answer

A)  interest rate parity does not exist 
B)  the quantity of Canadian dollars purchased will increase 
C)  the U.S. dollar is expected to depreciate 
D)  the Canadian dollar is expected to depreciate 
A)  interest rate parity does not exist 
B)  the quantity of Canadian dollars purchased will increase 
C)  the U.S. dollar is expected to depreciate 
D)  the Canadian dollar is expected to depreciate

Question 15

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

Accepted Answer

A)  1 percent. 
B)  4 percent. 
C)  2 percent. 
D)  3 percent. 
A)  1 percent. 
B)  4 percent. 
C)  2 percent. 
D)  3 percent.

Question 16

The idea that the value of money is equal across countries is known as

Accepted Answer

A)  exchange rate parity. 
B)  purchasing power parity. 
C)  interest rate parity. 
D)  the expected profit parity effect. 
A)  exchange rate parity. 
B)  purchasing power parity. 
C)  interest rate parity. 
D)  the expected profit parity effect.

Question 17

Consider the market for dollars. The higher the exchange rate, the _________is the expected profit from holding foreign currency and the greater is the_________ .

Accepted Answer

A)  larger; leftward shift in the demand curve for dollars 
B)  smaller; leftward shift in the demand curve for dollars 
C)  smaller; quantity of dollars supplied 
D)  larger; quantity of dollars supplied 
A)  larger; leftward shift in the demand curve for dollars 
B)  smaller; leftward shift in the demand curve for dollars 
C)  smaller; quantity of dollars supplied 
D)  larger; quantity of dollars supplied

Question 18

$$\begin{array} { | l | l | } 
\hline \text { Investor } & \begin{array} { l } 
\text { Expected future value of a } \
\text { dollar (francs per doll ar) }
\end{array} \
\hline \text { Investor A } & 120 \
\hline \text { Investor B } & 100 \
\hline \text { Investor C } & 85 \
\hline
\end{array}$$
-Using the table above, if the current market value of the dollar is 110 francs,

Accepted Answer

A)  investor C expects dollar depreciation, but A and B expect appreciation. 
B)  all three investors expect the dollar to appreciate. 
C)  investor A expects dollar appreciation, but B and C expect depreciation. 
D)  all three investors expect the dollar to depreciate. 
A)  investor C expects dollar depreciation, but A and B expect appreciation. 
B)  all three investors expect the dollar to appreciate. 
C)  investor A expects dollar appreciation, but B and C expect depreciation. 
D)  all three investors expect the dollar to depreciate.

Question 19

Which of the following statements is true?

Accepted Answer

A)  If private investment is greater than private saving, then the private sector has a deficit. 
B)  If private investment is greater than private saving, then either the government or net export sector must have a surplus. 
C)  If private saving is greater than private investment, then the private sector has a surplus. 
D)  All of the above answers are correct. 
A)  If private investment is greater than private saving, then the private sector has a deficit. 
B)  If private investment is greater than private saving, then either the government or net export sector must have a surplus. 
C)  If private saving is greater than private investment, then the private sector has a surplus. 
D)  All of the above answers are correct.

Question 20

A creditor nation means a nation

Accepted Answer

A)  through its history has invested more in the rest of the world than other countries have invested in it. 
B)  whose exports exceed its imports. 
C)  whose current lending to the rest of the world exceeds its borrowing from the rest of the world. 
D)  whose current account is larger than its capital account. 
A)  through its history has invested more in the rest of the world than other countries have invested in it. 
B)  whose exports exceed its imports. 
C)  whose current lending to the rest of the world exceeds its borrowing from the rest of the world. 
D)  whose current account is larger than its capital account.

Which of the following transactions directly leads to a surplus on the U.S. capital and financial account?

Suppose the current account of a country is in balance and the official settlements account equals 0. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that

In the foreign exchange market, which of the following results in a movement along the supply curve of dollars?

Which of the following is included in a nationʹs capital and financial account? I. the purchase of foreign stocks and bonds II. the sale of foreign stocks and bonds III. importing a piece of capital equipment

The demand for Mexican tomatoes by an American food grocery chain creates a

The law of demand in the foreign exchange market refers to the relationship between the

How will an increase in the expected future exchange rate affect the current supply and demand curves for dollars?

If net interest and net transfers are zero, and a countryʹs exports exceed its imports, the country definitely has .

U.S. residents come to believe that the dollar will appreciate in the future, that is, the exchange rate in the future will be higher than the current exchange rate. As a result,

If the current account balance is $235 billion and U.S. official reserves increased by $35 billion, what is the official settlements account balance and the capital account balance?

-In the above figure, suppose the economy is initially at point A. People come to expect the future U.S. exchange rate to be higher. As a result there is a change from point A to a point such as__________

Given the U.S. price level P, the foreign country price level P*, and the real exchange rate RER in foreign currency per U.S. dollar, the nominal exchange rate E would be given by

If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher u.S. interest rate

If in Chicago the interest rate is 5 percent a year and in Vancouver it is 4 percent a year, __________.

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

The idea that the value of money is equal across countries is known as

Consider the market for dollars. The higher the exchange rate, the _is the expected profit from holding foreign currency and the greater is the_ .

Investor Expected future value of a dollar (francs per doll ar) Investor A 120 Investor B 100 Investor C 85 -Using the table above, if the current market value of the dollar is 110 francs,

Which of the following statements is true?

A creditor nation means a nation

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 9: The Exchange Rate and the Balance of Payments

Which of the following transactions directly leads to a surplus on the U.S. capital and financial account?

Suppose the current account of a country is in balance and the official settlements account equals 0. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that

In the foreign exchange market, which of the following results in a movement along the supply curve of dollars?

Which of the following is included in a nationʹs capital and financial account? I. the purchase of foreign stocks and bonds II. the sale of foreign stocks and bonds III. importing a piece of capital equipment

The demand for Mexican tomatoes by an American food grocery chain creates a

The law of demand in the foreign exchange market refers to the relationship between the

How will an increase in the expected future exchange rate affect the current supply and demand curves for dollars?

If net interest and net transfers are zero, and a countryʹs exports exceed its imports, the country definitely has .

U.S. residents come to believe that the dollar will appreciate in the future, that is, the exchange rate in the future will be higher than the current exchange rate. As a result,

If the current account balance is $235 billion and U.S. official reserves increased by $35 billion, what is the official settlements account balance and the capital account balance?

-In the above figure, suppose the economy is initially at point A. People come to expect the future U.S. exchange rate to be higher. As a result there is a change from point A to a point such as__________

Given the U.S. price level P, the foreign country price level P*, and the real exchange rate RER in foreign currency per U.S. dollar, the nominal exchange rate E would be given by

If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher u.S. interest rate

If in Chicago the interest rate is 5 percent a year and in Vancouver it is 4 percent a year, __________.

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

The idea that the value of money is equal across countries is known as

Consider the market for dollars. The higher the exchange rate, the _________is the expected profit from holding foreign currency and the greater is the_________ .

Investor Expected future value of a dollar (francs per doll ar) Investor A 120 Investor B 100 Investor C 85 -Using the table above, if the current market value of the dollar is 110 francs,

Which of the following statements is true?

A creditor nation means a nation

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Consider the market for dollars. The higher the exchange rate, the _is the expected profit from holding foreign currency and the greater is the_ .