Question 1

The exchange rate is the _____

Accepted Answer

A)  opportunity cost of producing exportable goods in a country. 
B)  total monetary value of exports minus imports. 
C)  amount of a country's currency that can be exchanged for one ounce of gold. 
D)  sum of net unilateral transfers. 
E)  price of one country's currency in terms of another country's currency. 
A)  opportunity cost of producing exportable goods in a country. 
B)  total monetary value of exports minus imports. 
C)  amount of a country's currency that can be exchanged for one ounce of gold. 
D)  sum of net unilateral transfers. 
E)  price of one country's currency in terms of another country's currency.

Question 2

If the purchasing power parity theory were literally true, _____

Accepted Answer

A)  we would see some nations devaluing their currencies relative to the U.S. dollar, while other nations would revalue their currencies. 
B)  the price of a traded good would be the same everywhere in the world. 
C)  the price of a Big Mac would be different everywhere in the world. 
D)  the exchange rate would be the same between all countries. 
E)  prices would tend toward equality with exchange rates. 
A)  we would see some nations devaluing their currencies relative to the U.S. dollar, while other nations would revalue their currencies. 
B)  the price of a traded good would be the same everywhere in the world. 
C)  the price of a Big Mac would be different everywhere in the world. 
D)  the exchange rate would be the same between all countries. 
E)  prices would tend toward equality with exchange rates.

Question 3

When net unilateral transfers are added to the net exports of goods and services, the result is called the _____

Accepted Answer

A)  merchandise trade balance. 
B)  official reserve transactions account. 
C)  balance of payments. 
D)  balance on capital account. 
E)  balance on current account. 
A)  merchandise trade balance. 
B)  official reserve transactions account. 
C)  balance of payments. 
D)  balance on capital account. 
E)  balance on current account.

Question 4

Any increase in the demand for foreign exchange, other things constant, will _____

Accepted Answer

A)  increase the number of dollars required to purchase one unit of foreign exchange. 
B)  decrease the number of dollars required to purchase one unit of foreign exchange. 
C)  cause the dollar to appreciate. 
D)  cause the foreign currency to depreciate. 
E)  have no effect. 
A)  increase the number of dollars required to purchase one unit of foreign exchange. 
B)  decrease the number of dollars required to purchase one unit of foreign exchange. 
C)  cause the dollar to appreciate. 
D)  cause the foreign currency to depreciate. 
E)  have no effect.

Question 5

The purchasing power parity theory helps explain long-run trends in exchange rates, but not short-run fluctuations.

Accepted Answer

A) True 
 B)False

Question 6

Because of the accounting techniques used, the balance of payments shows that debits equal credits only if exports equal imports.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the exchange rate is such that 1 U.S. dollar equals 1 euro in New York and 0.9 euros in Paris. An arbitrageur would sell euros _____

Accepted Answer

A)  in New York and buy U.S. dollars in Paris. 
B)  in both Paris and New York at different prices. 
C)  in New York while buying them in Paris. 
D)  in Paris while buying them in New York. 
E)  at the same price in both cities. 
A)  in New York and buy U.S. dollars in Paris. 
B)  in both Paris and New York at different prices. 
C)  in New York while buying them in Paris. 
D)  in Paris while buying them in New York. 
E)  at the same price in both cities.

Question 8

For the United States, a drop in the price of foreign exchange means that _____

Accepted Answer

A)  fewer U.S. dollars are needed to purchase foreign currency. 
B)  more U.S. dollars are needed to purchase foreign currency. 
C)  imports will become more expensive worldwide. 
D)  exports will become cheaper worldwide. 
E)  transaction costs in international markets will decrease. 
A)  fewer U.S. dollars are needed to purchase foreign currency. 
B)  more U.S. dollars are needed to purchase foreign currency. 
C)  imports will become more expensive worldwide. 
D)  exports will become cheaper worldwide. 
E)  transaction costs in international markets will decrease.

Question 9

The purchasing power parity (PPP) theory says that in the long run, the exchange rate between two currencies should move toward _____ the _____ in each country of an identical basket of internationally traded goods.

Accepted Answer

A)  equalizing; cost 
B)  minimizing; price 
C)  maximizing; cost 
D)  maximizing; price 
E)  minimizing; cost 
A)  equalizing; cost 
B)  minimizing; price 
C)  maximizing; cost 
D)  maximizing; price 
E)  minimizing; cost

Question 10

Which of the following contributed to the collapse of the Bretton Woods system?

Accepted Answer

A)  chronic U.S. trade surpluses 
B)  fixed exchange rates 
C)  an insufficient gold supply 
D)  West Germany allowing the dollar to float against the mark 
E)  West Germany not wanting the dollar to appreciate 
A)  chronic U.S. trade surpluses 
B)  fixed exchange rates 
C)  an insufficient gold supply 
D)  West Germany allowing the dollar to float against the mark 
E)  West Germany not wanting the dollar to appreciate

Question 11

Exhibit 18.1
  
-Refer to Exhibit 18.1. What does the intersection of the demand curve for foreign exchange, D, and the supply curve for foreign exchange, S, determine?

Accepted Answer

A)  The exchange rate, E. 
B)  The exchange rate, E'. 
C)  The price of imports in foreign currency. 
D)  The price of exports in domestic currency. 
E)  The interest rates in various countries. 
A)  The exchange rate, E. 
B)  The exchange rate, E'. 
C)  The price of imports in foreign currency. 
D)  The price of exports in domestic currency. 
E)  The interest rates in various countries.

Question 12

A rightward shift of a country's demand curve for foreign exchange will _____

Accepted Answer

A)  decrease the price of foreign exchange in the country. 
B)  decrease the value of its currency. 
C)  increase the value of its currency. 
D)  make foreign goods less expensive in the domestic market. 
E)  make its goods more expensive in foreign markets. 
A)  decrease the price of foreign exchange in the country. 
B)  decrease the value of its currency. 
C)  increase the value of its currency. 
D)  make foreign goods less expensive in the domestic market. 
E)  make its goods more expensive in foreign markets.

Question 13

The foreign exchange rate is _____

Accepted Answer

A)  an entry in the current account. 
B)  the price of a foreign good in the world market. 
C)  an entry in the capital account. 
D)  an entry in the balance of trade. 
E)  the cost of one currency in terms of another. 
A)  an entry in the current account. 
B)  the price of a foreign good in the world market. 
C)  an entry in the capital account. 
D)  an entry in the balance of trade. 
E)  the cost of one currency in terms of another.

Question 14

One difference between arbitrageurs and speculators is that _____

Accepted Answer

A)  arbitrageurs buy and sell foreign exchange, while speculators do not. 
B)  speculators buy foreign exchange but do not sell it. 
C)  arbitrageurs take more risks than do speculators. 
D)  speculators take more risks than do arbitrageurs. 
E)  arbitrageurs buy foreign exchange in the hope that its value will increase. 
A)  arbitrageurs buy and sell foreign exchange, while speculators do not. 
B)  speculators buy foreign exchange but do not sell it. 
C)  arbitrageurs take more risks than do speculators. 
D)  speculators take more risks than do arbitrageurs. 
E)  arbitrageurs buy foreign exchange in the hope that its value will increase.

Question 15

The demand for U.S. dollars by foreign nations increases as _____

Accepted Answer

A)  more Americans travel abroad. 
B)  foreigners increase their purchase of American goods. 
C)  Americans increase their purchase of foreign goods. 
D)  Americans increase their investments in foreign stocks or bonds. 
E)  Americans send more gifts abroad. 
A)  more Americans travel abroad. 
B)  foreigners increase their purchase of American goods. 
C)  Americans increase their purchase of foreign goods. 
D)  Americans increase their investments in foreign stocks or bonds. 
E)  Americans send more gifts abroad.

Question 16

Suppose a basket of goods that costs $400 in the United States costs only £200 in Britain and the current exchange rate is $1 per pound. According to the purchasing power parity theory, which of the following statements explains the reason behind a higher equilibrium exchange rate than $1 per pound?

Accepted Answer

A)  The same basket of goods could be purchased in Britain for £200 and sold in the United States for $400, and the $400 could be used to purchase £400 for a £200 profit. 
B)  The basket of goods could be purchased in Britain for £200 and sold in the United States for $200, and the $200 could be used to buy £200 for a £500 profit. 
C)  The basket of goods could be purchased in the United States for $400 and sold in Britain for £400, and the £400 could be used to buy $1,400 for a £1,000 profit. 
D)  The basket of goods could be purchased in the United States for $200 and sold in Britain for £400, and the £400 could be used to buy $800 for a $400 profit. 
E)  The basket of goods could be purchased in the United States for $200 and sold in Britain for £400, and the £400 could be used to buy $900 for a £500 profit. 
A)  The same basket of goods could be purchased in Britain for £200 and sold in the United States for $400, and the $400 could be used to purchase £400 for a £200 profit. 
B)  The basket of goods could be purchased in Britain for £200 and sold in the United States for $200, and the $200 could be used to buy £200 for a £500 profit. 
C)  The basket of goods could be purchased in the United States for $400 and sold in Britain for £400, and the £400 could be used to buy $1,400 for a £1,000 profit. 
D)  The basket of goods could be purchased in the United States for $200 and sold in Britain for £400, and the £400 could be used to buy $800 for a $400 profit. 
E)  The basket of goods could be purchased in the United States for $200 and sold in Britain for £400, and the £400 could be used to buy $900 for a £500 profit.

Question 17

The current international monetary system is a _____

Accepted Answer

A)  flexible exchange rate system. 
B)  fixed exchange rate system. 
C)  managed float system. 
D)  gold standard. 
E)  gold exchange rate system. 
A)  flexible exchange rate system. 
B)  fixed exchange rate system. 
C)  managed float system. 
D)  gold standard. 
E)  gold exchange rate system.

Question 18

Which of the following is true of unilateral transfers in the U.S. balance of payments?

Accepted Answer

A)  Unilateral transfers have been positive since World War II. 
B)  Unilateral transfers have been negative since World War II. 
C)  Unilateral transfers have been negative every year since World War II, except during the war in Iraq. 
D)  The United States places tight restrictions on its currency being sent out of the country. 
E)  Developing countries ordinarily place no restrictions on its currency being sent to the United States. 
A)  Unilateral transfers have been positive since World War II. 
B)  Unilateral transfers have been negative since World War II. 
C)  Unilateral transfers have been negative every year since World War II, except during the war in Iraq. 
D)  The United States places tight restrictions on its currency being sent out of the country. 
E)  Developing countries ordinarily place no restrictions on its currency being sent to the United States.

Question 19

The merchandise trade balance _____

Accepted Answer

A)  reflects trade in intangibles like insurance and tourism. 
B)  includes personal gifts to friends abroad. 
C)  records the flow of financial assets like stocks and bonds. 
D)  equals the value of imports in goods and services minus the value of exports in goods and services. 
E)  equals the value of tangible products exported minus the value of tangible products imported. 
A)  reflects trade in intangibles like insurance and tourism. 
B)  includes personal gifts to friends abroad. 
C)  records the flow of financial assets like stocks and bonds. 
D)  equals the value of imports in goods and services minus the value of exports in goods and services. 
E)  equals the value of tangible products exported minus the value of tangible products imported.

Question 20

Foreign exchange is foreign money _____

Accepted Answer

A)  used as an entry in the current account. 
B)  used to price of foreign goods. 
C)  used as an entry in the capital account. 
D)  used as an entry in the balance of trade. 
E)  needed to carry out international transactions. 
A)  used as an entry in the current account. 
B)  used to price of foreign goods. 
C)  used as an entry in the capital account. 
D)  used as an entry in the balance of trade. 
E)  needed to carry out international transactions.

The exchange rate is the _____

If the purchasing power parity theory were literally true, _____

When net unilateral transfers are added to the net exports of goods and services, the result is called the _____

Any increase in the demand for foreign exchange, other things constant, will _____

The purchasing power parity theory helps explain long-run trends in exchange rates, but not short-run fluctuations.

Because of the accounting techniques used, the balance of payments shows that debits equal credits only if exports equal imports.

Suppose the exchange rate is such that 1 U.S. dollar equals 1 euro in New York and 0.9 euros in Paris. An arbitrageur would sell euros _____

For the United States, a drop in the price of foreign exchange means that _____

The purchasing power parity (PPP) theory says that in the long run, the exchange rate between two currencies should move toward _ the _ in each country of an identical basket of internationally traded goods.

Which of the following contributed to the collapse of the Bretton Woods system?

Exhibit 18.1 -Refer to Exhibit 18.1. What does the intersection of the demand curve for foreign exchange, D, and the supply curve for foreign exchange, S, determine?

A rightward shift of a country's demand curve for foreign exchange will _____

The foreign exchange rate is _____

One difference between arbitrageurs and speculators is that _____

The demand for U.S. dollars by foreign nations increases as _____

The current international monetary system is a _____

Which of the following is true of unilateral transfers in the U.S. balance of payments?

The merchandise trade balance _____

Foreign exchange is foreign money _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

Economic Development.

Filters

Exam 18: International Finance.

The exchange rate is the _____

If the purchasing power parity theory were literally true, _____

When net unilateral transfers are added to the net exports of goods and services, the result is called the _____

Any increase in the demand for foreign exchange, other things constant, will _____

The purchasing power parity theory helps explain long-run trends in exchange rates, but not short-run fluctuations.

Because of the accounting techniques used, the balance of payments shows that debits equal credits only if exports equal imports.

Suppose the exchange rate is such that 1 U.S. dollar equals 1 euro in New York and 0.9 euros in Paris. An arbitrageur would sell euros _____

For the United States, a drop in the price of foreign exchange means that _____

The purchasing power parity (PPP) theory says that in the long run, the exchange rate between two currencies should move toward _____ the _____ in each country of an identical basket of internationally traded goods.

Which of the following contributed to the collapse of the Bretton Woods system?

Exhibit 18.1 -Refer to Exhibit 18.1. What does the intersection of the demand curve for foreign exchange, D, and the supply curve for foreign exchange, S, determine?

A rightward shift of a country's demand curve for foreign exchange will _____

The foreign exchange rate is _____

One difference between arbitrageurs and speculators is that _____

The demand for U.S. dollars by foreign nations increases as _____

The current international monetary system is a _____

Which of the following is true of unilateral transfers in the U.S. balance of payments?

The merchandise trade balance _____

Foreign exchange is foreign money _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

Economic Development.

Filters

The purchasing power parity (PPP) theory says that in the long run, the exchange rate between two currencies should move toward _ the _ in each country of an identical basket of internationally traded goods.