Question 1

China has used a fixed yuan exchange rate and a crawling peg exchange rate.In both cases,China pegs its currency to the

Accepted Answer

A) U.S.dollar. 
B) Japanese yen. 
C) euro. 
D) Mexican peso. 
E) Russian ruble. 
A) U.S.dollar. 
B) Japanese yen. 
C) euro. 
D) Mexican peso. 
E) Russian ruble.

Question 2

Suppose the dollar-yen foreign exchange rate changes from 140 yen per dollar to 130 yen per dollar.Then the yen has

Accepted Answer

A) depreciated against the dollar, and the dollar has appreciated against the yen. 
B) depreciated against the dollar, and the dollar has depreciated against the yen. 
C) appreciated against the dollar, and the dollar has appreciated against the yen. 
D) appreciated against the dollar, and the dollar has depreciated against the yen. 
E) neither appreciated nor depreciated, but the dollar has depreciated against the yen. 
A) depreciated against the dollar, and the dollar has appreciated against the yen. 
B) depreciated against the dollar, and the dollar has depreciated against the yen. 
C) appreciated against the dollar, and the dollar has appreciated against the yen. 
D) appreciated against the dollar, and the dollar has depreciated against the yen. 
E) neither appreciated nor depreciated, but the dollar has depreciated against the yen.

Question 3

The law of supply of foreign exchange tells us that other things remaining the same,

Accepted Answer

A) the lower the exchange rate, the greater is the quantity of Canadian dollars supplied. 
B) the higher the exchange rate, the greater is the quantity of Canadian dollars supplied. 
C) the higher the exchange rate, the greater is the supply of Canadian dollars 
D) the lower the exchange rate, the greater is the supply of Canadian dollars. 
E) the lower the exchange rate, the smaller is the supply of Canadian dollars. 
A) the lower the exchange rate, the greater is the quantity of Canadian dollars supplied. 
B) the higher the exchange rate, the greater is the quantity of Canadian dollars supplied. 
C) the higher the exchange rate, the greater is the supply of Canadian dollars 
D) the lower the exchange rate, the greater is the supply of Canadian dollars. 
E) the lower the exchange rate, the smaller is the supply of Canadian dollars.

Question 4

Suppose that Canada's demand for imports decreases.All other things equal,

Accepted Answer

A) the demand for Canadian dollars decreases and the supply of Canadian dollars increases. 
B) the demand for Canadian dollars increases. 
C) both the supply of and demand for Canadian dollars decreases. 
D) the supply of Canadian dollars decreases. 
E) the supply of Canadian dollars decreases and demand for Canadian dollars increases. 
A) the demand for Canadian dollars decreases and the supply of Canadian dollars increases. 
B) the demand for Canadian dollars increases. 
C) both the supply of and demand for Canadian dollars decreases. 
D) the supply of Canadian dollars decreases. 
E) the supply of Canadian dollars decreases and demand for Canadian dollars increases.

Question 5

Suppose that the following situation exists in the foreign exchange market.1 Canadian dollar buys 5.77 South African rand.If the price of a bottle of South African wine is 32 rand,what is the price in Canadian dollars if purchase power parity exists?

Accepted Answer

A) $184.64 
B) $32.00 
C) $5.55 
D) $18.46 
E) $18.02 
A) $184.64 
B) $32.00 
C) $5.55 
D) $18.46 
E) $18.02

Question 6

Which of the following factors influence the demand for Canadian dollars?

Accepted Answer

A) The exchange rate and the world demand for Canadian exports. 
B) Interest rates in Canada and other countries, and the expected future exchange rate. 
C) The world demand for Canadian exports and Canadian demand for imports. 
D) Both A and B. 
E) Both B and C. 
A) The exchange rate and the world demand for Canadian exports. 
B) Interest rates in Canada and other countries, and the expected future exchange rate. 
C) The world demand for Canadian exports and Canadian demand for imports. 
D) Both A and B. 
E) Both B and C.

Question 7

Suppose the interest rate in Canada falls and the interest rate in Japan remains the same.Interest rate parity implies that given equal risk

Accepted Answer

A) the inflation rate is higher in Japan. 
B) Japanese financial investments are more profitable. 
C) the yen is expected to depreciate against the dollar. 
D) the yen is expected to appreciate against the dollar. 
E) Canadian financial investments are less profitable. 
A) the inflation rate is higher in Japan. 
B) Japanese financial investments are more profitable. 
C) the yen is expected to depreciate against the dollar. 
D) the yen is expected to appreciate against the dollar. 
E) Canadian financial investments are less profitable.

Question 8

Which of the following shifts the supply curve of Canadian 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) U.S.interest rates fall. 
E) None of the above. 
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) U.S.interest rates fall. 
E) None of the above.

Question 9

The exchange rate is volatile because

Accepted Answer

A) government policy promotes interest rate fluctuation. 
B) the demand curve for foreign exchange is very flat. 
C) the demand curve for foreign exchange is very steep. 
D) the supply curve of dollars is vertical. 
E) the supply of dollars and demand for dollars are influenced by similar events. 
A) government policy promotes interest rate fluctuation. 
B) the demand curve for foreign exchange is very flat. 
C) the demand curve for foreign exchange is very steep. 
D) the supply curve of dollars is vertical. 
E) the supply of dollars and demand for dollars are influenced by similar events.

Question 10

Currency depreciation is a reduction in the

Accepted Answer

A) precious metal content in coins, such as the replacement of silver with copper in quarters. 
B) goods and services a currency can purchase within its own country, usually the result of a period of inflation. 
C) amount of foreign currency that can be obtained in trade for each unit of domestic currency. 
D) amount of domestic currency that must be exchanged for a unit of foreign exchange. 
E) amount of domestic goods foreign currency can purchase. 
A) precious metal content in coins, such as the replacement of silver with copper in quarters. 
B) goods and services a currency can purchase within its own country, usually the result of a period of inflation. 
C) amount of foreign currency that can be obtained in trade for each unit of domestic currency. 
D) amount of domestic currency that must be exchanged for a unit of foreign exchange. 
E) amount of domestic goods foreign currency can purchase.

Question 11

If Northland is currently a net lender and a debtor nation,

Accepted Answer

A) it has loaned more than it borrowed from the rest of the world this year, but borrowed more than it loaned during its history. 
B) it has borrowed more from the rest of the world than it loaned this year and also borrowed more than it loaned during its history. 
C) it has loaned more than it borrowed from the rest of the world this year and has loaned more than it borrowed during its history. 
D) its accounting system must be in error if it shows the nation to be a net lender and a debtor nation at the same time. 
E) its debts must be currently growing. 
A) it has loaned more than it borrowed from the rest of the world this year, but borrowed more than it loaned during its history. 
B) it has borrowed more from the rest of the world than it loaned this year and also borrowed more than it loaned during its history. 
C) it has loaned more than it borrowed from the rest of the world this year and has loaned more than it borrowed during its history. 
D) its accounting system must be in error if it shows the nation to be a net lender and a debtor nation at the same time. 
E) its debts must be currently growing.

Question 12

Initially the exchange rate between the South Korean won and the Canadian dollar is 950 won per dollar.If the exchange rate rises to 1,000 won per dollar and the Canadian and South Korean price levels do not change,then in the short run the real exchange rate ________.

Accepted Answer

A) rises 
B) falls 
C) does not change 
D) either rises, falls, or remains the same but we don't know for sure 
E) is 1,000 won per dollar 
A) rises 
B) falls 
C) does not change 
D) either rises, falls, or remains the same but we don't know for sure 
E) is 1,000 won per dollar

Question 13

Foreign currency is

Accepted Answer

A) the market for foreign exchange. 
B) the price at which one currency exchanges for another currency. 
C) foreign notes, coins and bank deposits. 
D) foreign notes and coins only. 
E) the purchasing power of foreign money. 
A) the market for foreign exchange. 
B) the price at which one currency exchanges for another currency. 
C) foreign notes, coins and bank deposits. 
D) foreign notes and coins only. 
E) the purchasing power of foreign money.

Question 14

Suppose interest rates are 3 percent in Japan and 6 percent in Canada.The current value of the exchange rate is 110 Japanese yen per dollar,and it is generally expected that in one year the exchange rate will be 106.7 yen per dollar.Under these circumstances,

Accepted Answer

A) interest rate parity is violated. 
B) an international investor could make money by borrowing in Japan and lending in Canada, assuming no transaction costs. 
C) an international investor could make money by borrowing in Canada and lending in Japan, assuming no transaction costs. 
D) interest rate parity is not violated. 
E) A and C are true. 
A) interest rate parity is violated. 
B) an international investor could make money by borrowing in Japan and lending in Canada, assuming no transaction costs. 
C) an international investor could make money by borrowing in Canada and lending in Japan, assuming no transaction costs. 
D) interest rate parity is not violated. 
E) A and C are true.

Question 15

The demand curve for dollars shifts rightward if

Accepted Answer

A) the Canadian exchange rate falls. 
B) the price of Canadian goods and services increases. 
C) Canadian interest rates rise. 
D) foreign interest rates rise. 
E) the expected future value of the dollar falls. 
A) the Canadian exchange rate falls. 
B) the price of Canadian goods and services increases. 
C) Canadian interest rates rise. 
D) foreign interest rates rise. 
E) the expected future value of the dollar falls.

Question 16

Suppose that people expect that the Canadian exchange rate will decrease in the near future.How will this situation affect the Canadian exchange rate?

Accepted Answer

A) The supply of Canadian dollars decreases, the demand for Canadian dollars increases and the exchange rate rises. 
B) The supply of Canadian dollars increases, the demand for Canadian dollars decreases and the exchange rate falls. 
C) The supply of Canadian dollars decreases, the demand for Canadian dollars decreases and the exchange rate falls. 
D) The supply of Canadian dollars increases, the demand for Canadian dollars decreases and the exchange rate rises. 
E) Neither the supply of Canadian dollars nor the demand for Canadian dollars changes. 
A) The supply of Canadian dollars decreases, the demand for Canadian dollars increases and the exchange rate rises. 
B) The supply of Canadian dollars increases, the demand for Canadian dollars decreases and the exchange rate falls. 
C) The supply of Canadian dollars decreases, the demand for Canadian dollars decreases and the exchange rate falls. 
D) The supply of Canadian dollars increases, the demand for Canadian dollars decreases and the exchange rate rises. 
E) Neither the supply of Canadian dollars nor the demand for Canadian dollars changes.

Question 17

Between 2002 and 2007,the Canadian dollar

Accepted Answer

A) depreciated against the U.S.dollar. 
B) appreciated against the U.S.dollar. 
C) remained constant against the U.S.dollar. 
D) was not able to vary against the U.S.dollar, because the exchange rate was fixed against the Japanese yen. 
E) bought the same number of U.S.dollars as the Euro. 
A) depreciated against the U.S.dollar. 
B) appreciated against the U.S.dollar. 
C) remained constant against the U.S.dollar. 
D) was not able to vary against the U.S.dollar, because the exchange rate was fixed against the Japanese yen. 
E) bought the same number of U.S.dollars as the Euro.

Question 18

If a country's currency appreciates and its official holdings of foreign currency increase.The central bank is ________ foreign currency to limit the appreciation,and the official settlements account balance is ________.

Accepted Answer

A) buying;negative 
B) selling negative 
C) buying;positive 
D) selling;positive 
E) buying;zero 
A) buying;negative 
B) selling negative 
C) buying;positive 
D) selling;positive 
E) buying;zero

Question 19

Which one of the following transactions would be recorded as a positive entry in the Canadian balance of payment accounts?

Accepted Answer

A) A Canadian tourist spends $3,000 while visiting France. 
B) A Canadian tourist spends $3,000 while visiting Banff. 
C) A Canadian citizen purchases a U.K.government bond. 
D) A Canadian corporation sends interest payments on outstanding bonds to U.S.citizens. 
E) A French tourist spends $3,000 while visiting Banff. 
A) A Canadian tourist spends $3,000 while visiting France. 
B) A Canadian tourist spends $3,000 while visiting Banff. 
C) A Canadian citizen purchases a U.K.government bond. 
D) A Canadian corporation sends interest payments on outstanding bonds to U.S.citizens. 
E) A French tourist spends $3,000 while visiting Banff.

Question 20

If the current account is in surplus and the capital and financial account is also in surplus,then the official settlements account balance is

Accepted Answer

A) negative. 
B) positive. 
C) probably close to zero, but could be either negative or positive. 
D) zero. 
E) equal to the sum of the current account and the capital account. 
A) negative. 
B) positive. 
C) probably close to zero, but could be either negative or positive. 
D) zero. 
E) equal to the sum of the current account and the capital account.

Exam 25: The Exchange Rate and the Balance of Payments

China has used a fixed yuan exchange rate and a crawling peg exchange rate.In both cases,China pegs its currency to the

Suppose the dollar-yen foreign exchange rate changes from 140 yen per dollar to 130 yen per dollar.Then the yen has

The law of supply of foreign exchange tells us that other things remaining the same,

Suppose that Canada's demand for imports decreases.All other things equal,

Suppose that the following situation exists in the foreign exchange market.1 Canadian dollar buys 5.77 South African rand.If the price of a bottle of South African wine is 32 rand,what is the price in Canadian dollars if purchase power parity exists?

Which of the following factors influence the demand for Canadian dollars?

Suppose the interest rate in Canada falls and the interest rate in Japan remains the same.Interest rate parity implies that given equal risk

Which of the following shifts the supply curve of Canadian dollars rightward?

The exchange rate is volatile because

Currency depreciation is a reduction in the

If Northland is currently a net lender and a debtor nation,

Initially the exchange rate between the South Korean won and the Canadian dollar is 950 won per dollar.If the exchange rate rises to 1,000 won per dollar and the Canadian and South Korean price levels do not change,then in the short run the real exchange rate ________.

Foreign currency is

Suppose interest rates are 3 percent in Japan and 6 percent in Canada.The current value of the exchange rate is 110 Japanese yen per dollar,and it is generally expected that in one year the exchange rate will be 106.7 yen per dollar.Under these circumstances,

The demand curve for dollars shifts rightward if

Suppose that people expect that the Canadian exchange rate will decrease in the near future.How will this situation affect the Canadian exchange rate?

Between 2002 and 2007,the Canadian dollar

If a country's currency appreciates and its official holdings of foreign currency increase.The central bank is ________ foreign currency to limit the appreciation,and the official settlements account balance is ________.

Which one of the following transactions would be recorded as a positive entry in the Canadian balance of payment accounts?

If the current account is in surplus and the capital and financial account is also in surplus,then the official settlements account balance is

What Is Economics?

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

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

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

If a country's currency appreciates and its official holdings of foreign currency increase.The central bank is foreign currency to limit the appreciation,and the official settlements account balance is .