Exam 4: The International Flow of Funds and Exchange Rates

Whether the trade balance is positive (surplus)or negative (deficit)is important because it provides a measure of the financing needs of a particular country. Hence, the trade balance is more important than current account balance.

An example of inflation is, if the amount of money in a country doubled, but the production of goods and services stayed the same, the price of all goods and services would decline by about half, assuming that other factors, such as external trade, were constant.

The forex market consists of spot, forward, and discount markets.

One factor affecting change in currency values is different price levels in different countries for the same goods and services.

The EMU introduced the euro as a new currency to replace the currencies of the member countries in the Eurozone, which has since grown to 29 members.

Which of the following is NOT a subaccount of the current account?

Indirect quotes give the number of dollars per one unit of foreign currency.