Question 1

The exchange rate is the

Accepted Answer

A) volume of currency exchanged between importers and exporters. 
B) price at which one currency exchanges for another currency. 
C) rate of currency appreciation or depreciation. 
D) percentage change in the volume of currency exchanges. 
E) average rate at which foreign currencies are exchanged. 
A) volume of currency exchanged between importers and exporters. 
B) price at which one currency exchanges for another currency. 
C) rate of currency appreciation or depreciation. 
D) percentage change in the volume of currency exchanges. 
E) average rate at which foreign currencies are exchanged. B

Question 2

The current account records

Accepted Answer

A) net exports, net interest income and net transfers. 
B) net value of Canadian investments and foreign investments. 
C) current government expenditure. 
D) current consumption expenditure. 
E) current investment. 
A) net exports, net interest income and net transfers. 
B) net value of Canadian investments and foreign investments. 
C) current government expenditure. 
D) current consumption expenditure. 
E) current investment. A

Question 3

If the price level in Canada is 120,the price level in South Africa is 140,and the exchange rate is 7 South African rands per dollar,then the real exchange rate is ________.

Accepted Answer

A) 8.2 
B) 7 
C) 6 
D) 8.4 
E) 9.8 
A) 8.2 
B) 7 
C) 6 
D) 8.4 
E) 9.8 C

Question 4

Table 25.1.1
   
Refer to the table below to answer the following questions.
-Refer to Table 25.1.1.Between 2009 and 2010,the yen

Accepted Answer

A) must have depreciated in value versus the euro. 
B) must have appreciated in value versus the euro. 
C) may or may not have appreciated in value versus the euro. 
D) will have appreciated in value versus the euro if the euro has a high weight in CERI. 
E) will have appreciated in value versus the euro if the euro has a lower weight in CERI. 
A) must have depreciated in value versus the euro. 
B) must have appreciated in value versus the euro. 
C) may or may not have appreciated in value versus the euro. 
D) will have appreciated in value versus the euro if the euro has a high weight in CERI. 
E) will have appreciated in value versus the euro if the euro has a lower weight in CERI.

Question 5

If the Bank of Canada sets a target exchange rate that is higher than the current exchange rate,then

Accepted Answer

A) the Bank must sell dollars. 
B) the Bank must buy dollars. 
C) the Bank can do nothing in the short run. 
D) will print more dollars for foreign distribution. 
E) None of the above. 
A) the Bank must sell dollars. 
B) the Bank must buy dollars. 
C) the Bank can do nothing in the short run. 
D) will print more dollars for foreign distribution. 
E) None of the above.

Question 6

Use the table below to answer the following questions.
Table 25.4.1
  
-Refer to Table 25.4.1.If Mengia's official settlement balance was in balance every year,for which year or years can you say for sure there was a current account surplus?

Accepted Answer

A) year 4 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4 
A) year 4 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4

Question 7

The change in Canadian official reserves is recorded in the

Accepted Answer

A) current account. 
B) capital and financial account. 
C) consumption expenditure account. 
D) international investment account. 
E) official settlements account. 
A) current account. 
B) capital and financial account. 
C) consumption expenditure account. 
D) international investment account. 
E) official settlements account.

Question 8

If the exchange rate is higher than the Bank of Canada's target exchange rate,the Bank

Accepted Answer

A) implements purchasing power parity. 
B) implements interest rate parity. 
C) buys dollars. 
D) sells dollars. 
E) none of the above. 
A) implements purchasing power parity. 
B) implements interest rate parity. 
C) buys dollars. 
D) sells dollars. 
E) none of the above.

Question 9

Other things remaining the same,the Canadian interest rate differential increases for sure if the Canadian interest rate ________.

Accepted Answer

A) rises and the U.S.interest rate falls 
B) rises and the U.S.interest rate rises 
C) falls and the U.S.interest rate falls 
D) falls and the U.S.interest rate rises 
E) doesn't change and the U.S.interest rate rises 
A) rises and the U.S.interest rate falls 
B) rises and the U.S.interest rate rises 
C) falls and the U.S.interest rate falls 
D) falls and the U.S.interest rate rises 
E) doesn't change and the U.S.interest rate rises

Question 10

Suppose you think that the Canadian dollar exchange rate will appreciate against the U.S.dollar over the next month.What should you do now in anticipation of profit?

Accepted Answer

A) Buy Canadian dollars. 
B) Buy U.S.dollars. 
C) Sell Canadian dollars. 
D) Sell U.S.dollars. 
E) Do both A and D. 
A) Buy Canadian dollars. 
B) Buy U.S.dollars. 
C) Sell Canadian dollars. 
D) Sell U.S.dollars. 
E) Do both A and D.

Question 11

Refer to the figure below to answer the following questions.
   
Figure 25.3.1
-In Figure 25.3.1,suppose the demand for dollars temporarily increases so that the demand curve shifts to D?.To maintain the target exchange rate,the Bank of Canada

Accepted Answer

A) sells dollars. 
B) buys dollars. 
C) must violate interest rate parity but not purchasing power parity. 
D) must raise the target exchange rate. 
E) must lower the target exchange rate. 
A) sells dollars. 
B) buys dollars. 
C) must violate interest rate parity but not purchasing power parity. 
D) must raise the target exchange rate. 
E) must lower the target exchange rate.

Question 12

The Canadian exchange rate appreciates if

Accepted Answer

A) prices increase in the United States and other countries but remain constant in Canada. 
B) the Canadian interest rate falls. 
C) the U.S.interest rate rises. 
D) all of the above. 
E) none of the above. 
A) prices increase in the United States and other countries but remain constant in Canada. 
B) the Canadian interest rate falls. 
C) the U.S.interest rate rises. 
D) all of the above. 
E) none of the above.

Question 13

Use the information below to answer the following questions.
Fact 25.4.1
You are given the following information about the country of Ecoland, whose currency is the turkey, and whose official settlements balance is zero.
  
-Refer to Fact 25.4.1.What is the net exports?

Accepted Answer

A) -2 billion turkies 
B) -1 billion turkies 
C) 3 billion turkies 
D) -3 billion turkies 
E) 1 billion turkies 
A) -2 billion turkies 
B) -1 billion turkies 
C) 3 billion turkies 
D) -3 billion turkies 
E) 1 billion turkies

Question 14

If a nation's central bank increased domestic interest rates,the nation's exchange rate would change if the country's exchange rate was

Accepted Answer

A) a flexible exchange rate. 
B) a fixed exchange rate. 
C) a crawling peg. 
D) a nominally fixed exchange rate. 
E) none of the above. 
A) a flexible exchange rate. 
B) a fixed exchange rate. 
C) a crawling peg. 
D) a nominally fixed exchange rate. 
E) none of the above.

Question 15

Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?

Accepted Answer

A) The interest rate differential increases or decreases. 
B) The world demand for Canadian exports increases or decreases. 
C) Canadian imports increase or decrease. 
D) The expected future exchange rate rises or falls. 
E) Both A and D above. 
A) The interest rate differential increases or decreases. 
B) The world demand for Canadian exports increases or decreases. 
C) Canadian imports increase or decrease. 
D) The expected future exchange rate rises or falls. 
E) Both A and D above.

Question 16

Suppose the Bank of Canada follows a fixed-exchange rate of 0.50 U.K.pounds per Canadian dollar.If the demand for dollars temporarily decreases,to maintain the target exchange rate,the Bank can

Accepted Answer

A) sell dollars. 
B) buy dollars. 
C) increase Canadian exports. 
D) increase Canadian imports. 
E) violate purchasing power parity. 
A) sell dollars. 
B) buy dollars. 
C) increase Canadian exports. 
D) increase Canadian imports. 
E) violate purchasing power parity.

Question 17

Suppose the price of a burger is $4.50 Canadian in Toronto,and the exchange rate is 103 U.S.cents per Canadian dollar.Then

Accepted Answer

A) the price of a burger is $4.50 U.S.in New York if purchasing power parity holds. 
B) the price of a burger is $4.64 U.S.in New York if interest rate parity holds. 
C) the price of a burger is $4.64 U.S.in New York if purchasing power parity holds. 
D) the Canadian dollar is expected to appreciate according to purchasing power parity. 
E) the Canadian dollar is expected to depreciate according to purchasing power parity. 
A) the price of a burger is $4.50 U.S.in New York if purchasing power parity holds. 
B) the price of a burger is $4.64 U.S.in New York if interest rate parity holds. 
C) the price of a burger is $4.64 U.S.in New York if purchasing power parity holds. 
D) the Canadian dollar is expected to appreciate according to purchasing power parity. 
E) the Canadian dollar is expected to depreciate according to purchasing power parity.

Question 18

Which one of the following shifts the demand curve for dollars rightward?

Accepted Answer

A) An increase in the demand for foreign goods by Canadians. 
B) A decrease in the demand for Canadian goods by foreigners. 
C) The dollar is expected to appreciate. 
D) The dollar is expected to depreciate. 
E) U.S.interest rates rise. 
A) An increase in the demand for foreign goods by Canadians. 
B) A decrease in the demand for Canadian goods by foreigners. 
C) The dollar is expected to appreciate. 
D) The dollar is expected to depreciate. 
E) U.S.interest rates rise.

Question 19

If the price of a burger is $2.90 Canadian in Toronto and $3 U.S.in New York,and if purchasing power parity holds,then the exchange rate is

Accepted Answer

A) $1 U.S.per Canadian dollar. 
B) $3 U.S.per Canadian dollar. 
C) 97 cents U.S.per Canadian dollar. 
D) 103 cents U.S.per Canadian dollar. 
E) none of the above. 
A) $1 U.S.per Canadian dollar. 
B) $3 U.S.per Canadian dollar. 
C) 97 cents U.S.per Canadian dollar. 
D) 103 cents U.S.per Canadian dollar. 
E) none of the above.

Question 20

The market in which the currency of one country is exchanged for the currency of another country is the

Accepted Answer

A) money market. 
B) capital market. 
C) foreign exchange market. 
D) forward exchange market. 
E) international trading market. 
A) money market. 
B) capital market. 
C) foreign exchange market. 
D) forward exchange market. 
E) international trading market.

Exam 25: The Exchange Rate and the Balance of Payments

The exchange rate is the

The current account records

If the price level in Canada is 120,the price level in South Africa is 140,and the exchange rate is 7 South African rands per dollar,then the real exchange rate is ________.

Table 25.1.1 Refer to the table below to answer the following questions. -Refer to Table 25.1.1.Between 2009 and 2010,the yen

If the Bank of Canada sets a target exchange rate that is higher than the current exchange rate,then

Use the table below to answer the following questions. Table 25.4.1 -Refer to Table 25.4.1.If Mengia's official settlement balance was in balance every year,for which year or years can you say for sure there was a current account surplus?

The change in Canadian official reserves is recorded in the

If the exchange rate is higher than the Bank of Canada's target exchange rate,the Bank

Other things remaining the same,the Canadian interest rate differential increases for sure if the Canadian interest rate ________.

Suppose you think that the Canadian dollar exchange rate will appreciate against the U.S.dollar over the next month.What should you do now in anticipation of profit?

Refer to the figure below to answer the following questions. Figure 25.3.1 -In Figure 25.3.1,suppose the demand for dollars temporarily increases so that the demand curve shifts to D?.To maintain the target exchange rate,the Bank of Canada

The Canadian exchange rate appreciates if

Use the information below to answer the following questions. Fact 25.4.1 You are given the following information about the country of Ecoland, whose currency is the turkey, and whose official settlements balance is zero. -Refer to Fact 25.4.1.What is the net exports?

If a nation's central bank increased domestic interest rates,the nation's exchange rate would change if the country's exchange rate was

Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?

Suppose the Bank of Canada follows a fixed-exchange rate of 0.50 U.K.pounds per Canadian dollar.If the demand for dollars temporarily decreases,to maintain the target exchange rate,the Bank can

Suppose the price of a burger is $4.50 Canadian in Toronto,and the exchange rate is 103 U.S.cents per Canadian dollar.Then

Which one of the following shifts the demand curve for dollars rightward?

If the price of a burger is $2.90 Canadian in Toronto and $3 U.S.in New York,and if purchasing power parity holds,then the exchange rate is

The market in which the currency of one country is exchanged for the currency of another country is the

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