Question 1

Under what conditions could a country have a sizable deficit in its trade balance and still have an appreciating currency?

Accepted Answer

Such has been the case for the United States for many years. The dollar has generally strengthened even though the U.S. has had a current account deficit for years. The deficit should decrease the value of the dollar relative to its trading partners, but investors' financial flows into the U.S. financial markets have, at times, more than offset the glut of dollars into forex markets from the trade deficit. Some of this has been due to the safe haven status of the U.S., some is due to good investment opportunities in real assets in the U.S. and some is due to foreign central banks accumulating dollars to keep their own currency values competitive in order to support their export markets. The extra dollars have typically wound up being invested in the U.S.

Question 2

Governments whose country imports a lot encourage long-term foreign investment in their countries because it helps balance their balance of payments.

Accepted Answer

A) True 
 B)False  True

Question 3

A foreign currency will, on average over the long term, appreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceedsthat of the United States if purchasing power parity holds.

Accepted Answer

A) True 
 B)False  True

Question 4

If merchandise imports exceed merchandise exports, the trade balance is in a surplus position.

Accepted Answer

A) True 
 B)False

Question 5

A country's forward exchange rate will represent a higher home currency value relative to its spot exchange rate when people expect it to have more inflation than other countries.

Accepted Answer

A) True 
 B)False

Question 6

Explain how and why the U.S. forward exchange rates against the Euro are related to short-term interest rates in the United States and Germany.

Accepted Answer

Interest rate differentials between deve

Question 7

When the foreign demand for a country's goods and services increases, the demand for the foreign country's currency also increases.

Accepted Answer

A) True 
 B)False

Question 8

A strong dollar would make imports cheaper, and may eventually force domestic producers of goods with import substitutes to lower prices.

Accepted Answer

A) True 
 B)False

Question 9

If a government buys its domestic currency from foreigners, its exchange rate will rise allelse equal.

Accepted Answer

A) True 
 B)False

Question 10

A deficit in the trade balance of payments puts downward pressure on the exchange rate.

Accepted Answer

A) True 
 B)False

Question 11

If a Canadian dollar costs $0.83 in U.S. dollars, a U.S. dollar costs a Canadian $1.17 in Canadian dollars.

Accepted Answer

A) True 
 B)False

Question 12

Eurobonds are bearer bonds and do not have to be registered and often pay interest annually rather than semiannually.

Accepted Answer

A) True 
 B)False

Question 13

A Canadian dollar cost $0.84 in U.S. dollars and later costs $0.86. The U.S. dollar has depreciated relative to the Canadian dollar.

Accepted Answer

A) True 
 B)False

Question 14

In the balance of payments, the difference between current account flows, capital and financial account flows is shown as a statistical discrepancy.

Accepted Answer

A) True 
 B)False

Question 15

If interest rates are higher in Japan than in the United States, the cost of a yen per U.S. dollar in the spot market will typically be higher than in the forward market.

Accepted Answer

A) True 
 B)False

Question 16

If a U.S. exporter agrees to receive payment in 60 days in pounds, the British importer has assumed the exchange rate risk in the transaction.

Accepted Answer

A) True 
 B)False

Question 17

Explain why a decline in a country's exchange rate will generally increase the demand for its goods and reduce its demand for foreign goods.

Accepted Answer

A decline in a country's exchange rate,

Question 18

Exports grow when foreign currencies depreciate relative to the dollar.

Accepted Answer

A) True 
 B)False

Question 19

A weak U. S. dollar will lead to increased foreign demand for U.S goods.

Accepted Answer

A) True 
 B)False

Question 20

Increased U.S. inflation, relative to other trading partner nations, should have what impact on the value of the U.S. dollar? Explain in terms of purchasing power parity.

Accepted Answer

Increased U.S. inflation and higher U.S.

Under what conditions could a country have a sizable deficit in its trade balance and still have an appreciating currency?

Governments whose country imports a lot encourage long-term foreign investment in their countries because it helps balance their balance of payments.

A foreign currency will, on average over the long term, appreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceedsthat of the United States if purchasing power parity holds.

If merchandise imports exceed merchandise exports, the trade balance is in a surplus position.

A country's forward exchange rate will represent a higher home currency value relative to its spot exchange rate when people expect it to have more inflation than other countries.

Explain how and why the U.S. forward exchange rates against the Euro are related to short-term interest rates in the United States and Germany.

When the foreign demand for a country's goods and services increases, the demand for the foreign country's currency also increases.

A strong dollar would make imports cheaper, and may eventually force domestic producers of goods with import substitutes to lower prices.

If a government buys its domestic currency from foreigners, its exchange rate will rise allelse equal.

A deficit in the trade balance of payments puts downward pressure on the exchange rate.

If a Canadian dollar costs $0.83 in U.S. dollars, a U.S. dollar costs a Canadian $1.17 in Canadian dollars.

Eurobonds are bearer bonds and do not have to be registered and often pay interest annually rather than semiannually.

A Canadian dollar cost $0.84 in U.S. dollars and later costs $0.86. The U.S. dollar has depreciated relative to the Canadian dollar.

In the balance of payments, the difference between current account flows, capital and financial account flows is shown as a statistical discrepancy.

If interest rates are higher in Japan than in the United States, the cost of a yen per U.S. dollar in the spot market will typically be higher than in the forward market.

If a U.S. exporter agrees to receive payment in 60 days in pounds, the British importer has assumed the exchange rate risk in the transaction.

Explain why a decline in a country's exchange rate will generally increase the demand for its goods and reduce its demand for foreign goods.

Exports grow when foreign currencies depreciate relative to the dollar.

A weak U. S. dollar will lead to increased foreign demand for U.S goods.

Increased U.S. inflation, relative to other trading partner nations, should have what impact on the value of the U.S. dollar? Explain in terms of purchasing power parity.

An Overview of Financial Markets and Institutions

The Federal Reserve and Its Powers

The Fed and Interest Rates

The Level of Interest Rates

Bond Prices and Interest Rate Risk

The Structure of Interest Rates

Money Markets 1

Bond Markets

Mortgage Markets and Mortgagebacked Securities

Equity Markets

Derivatives Markets

Commercial Bank Operations

International Banking

Regulation of Financial Institutions

Thrift Institutions and Finance Companies

Insurance Companies and Pension Funds

Investment Banking

Investment Companies

Risk Management in Financial Institutions

Filters

Exam 12: International Markets

Under what conditions could a country have a sizable deficit in its trade balance and still have an appreciating currency?

Governments whose country imports a lot encourage long-term foreign investment in their countries because it helps balance their balance of payments.

A foreign currency will, on average over the long term, appreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceedsthat of the United States if purchasing power parity holds.

If merchandise imports exceed merchandise exports, the trade balance is in a surplus position.

A country's forward exchange rate will represent a higher home currency value relative to its spot exchange rate when people expect it to have more inflation than other countries.

Explain how and why the U.S. forward exchange rates against the Euro are related to short-term interest rates in the United States and Germany.

When the foreign demand for a country's goods and services increases, the demand for the foreign country's currency also increases.

A strong dollar would make imports cheaper, and may eventually force domestic producers of goods with import substitutes to lower prices.

If a government buys its domestic currency from foreigners, its exchange rate will rise allelse equal.

A deficit in the trade balance of payments puts downward pressure on the exchange rate.

If a Canadian dollar costs $0.83 in U.S. dollars, a U.S. dollar costs a Canadian $1.17 in Canadian dollars.

Eurobonds are bearer bonds and do not have to be registered and often pay interest annually rather than semiannually.

A Canadian dollar cost $0.84 in U.S. dollars and later costs $0.86. The U.S. dollar has depreciated relative to the Canadian dollar.

In the balance of payments, the difference between current account flows, capital and financial account flows is shown as a statistical discrepancy.

If interest rates are higher in Japan than in the United States, the cost of a yen per U.S. dollar in the spot market will typically be higher than in the forward market.

If a U.S. exporter agrees to receive payment in 60 days in pounds, the British importer has assumed the exchange rate risk in the transaction.

Explain why a decline in a country's exchange rate will generally increase the demand for its goods and reduce its demand for foreign goods.

Exports grow when foreign currencies depreciate relative to the dollar.

A weak U. S. dollar will lead to increased foreign demand for U.S goods.

Increased U.S. inflation, relative to other trading partner nations, should have what impact on the value of the U.S. dollar? Explain in terms of purchasing power parity.

An Overview of Financial Markets and Institutions

The Federal Reserve and Its Powers

The Fed and Interest Rates

The Level of Interest Rates

Bond Prices and Interest Rate Risk

The Structure of Interest Rates

Money Markets 1

Bond Markets

Mortgage Markets and Mortgagebacked Securities

Equity Markets

Derivatives Markets

Commercial Bank Operations

International Banking

Regulation of Financial Institutions

Thrift Institutions and Finance Companies

Insurance Companies and Pension Funds

Investment Banking

Investment Companies

Risk Management in Financial Institutions

Filters