Question 1

When the dollar depreciates against the Japanese yen, U.S. capital markets become less attractive to Japanese investors.

Accepted Answer

A) True 
 B)False

Question 2

As long as central bankers do not attempt to influence exchange rates, the equilibrium exchange rate is determined by the market forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 3

The merchandise trade balance is the most comprehensive component of the balance of payments.

Accepted Answer

A) True 
 B)False

Question 4

Table 17.1 U.S. International Transactions
 
$\begin{array}{lr}
\text {Transaction}&\text {Amount}\
&\text {(billions of}\
&\text { dollars)}\
\text { Merchandise imports } & 110 \
\text { Services, net } & 15 \
\text { Unilateral transfers, net } & -20 \
\text { U.S. private assets abroad } & -50 \
\text { Merchandise exports } & 115 \
\text { Investment income, net } & 10 \
\text { Foreign private assets in the U.S. } & 25
\end{array}$

-Referring to Table 17.1, the current account shows a

Accepted Answer

A)  surplus of $5 billion 
B)  surplus of $10 billion 
C)  deficit of $5 billion 
D)  deficit of $10 billion 
A)  surplus of $5 billion 
B)  surplus of $10 billion 
C)  deficit of $5 billion 
D)  deficit of $10 billion

Question 5

A weak U.S. dollar is a bonanza for European tourists who come to Washington D.C. for vacation.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would result in inflows to the U.S.?

Accepted Answer

A)  U.S. imports of German steel 
B)  investment funds flowing out of the U.S. 
C)  U.S. unilateral transfers to less-developed countries 
D)  U.S. firms selling insurance to British shipping companies 
A)  U.S. imports of German steel 
B)  investment funds flowing out of the U.S. 
C)  U.S. unilateral transfers to less-developed countries 
D)  U.S. firms selling insurance to British shipping companies

Question 7

Critics of a floating exchange rate system say that

Accepted Answer

A)  it can generate wide swings in currency values that discourage trade and investment 
B)  central bankers cannot do better than the market in deciding what exchange rates should be 
C)  it results in persistent surpluses and shortages of currencies 
D)  exchange rates respond slowly to changing supply and demand conditions 
A)  it can generate wide swings in currency values that discourage trade and investment 
B)  central bankers cannot do better than the market in deciding what exchange rates should be 
C)  it results in persistent surpluses and shortages of currencies 
D)  exchange rates respond slowly to changing supply and demand conditions

Question 8

Figure 17.1 Supply and Demand Curves for the Swiss Franc
  
-Refer to Figure 17.1. Suppose the exchange rate is $0.30 per franc. At this exchange rate there is an ______ of francs that leads to a ______ in the dollar price of the franc, a(n) ______ in the quantity of francs supplied, and a(n) ______ in the quantity of francs demanded.

Accepted Answer

A)  excess demand, rise, increase, decrease 
B)  excess demand, rise, decrease, increase 
C)  excess supply, fall, decrease, increase 
D)  excess supply, fall, increase, decrease 
A)  excess demand, rise, increase, decrease 
B)  excess demand, rise, decrease, increase 
C)  excess supply, fall, decrease, increase 
D)  excess supply, fall, increase, decrease

Question 9

Under managed floating exchange rates, the Federal Reserve attempts to stabilize the dollar's exchange rate according to its long-run equilibrium value.

Accepted Answer

A) True 
 B)False

Question 10

Foreign exchange market transactions primarily take place

Accepted Answer

A)  on the central floor of the New York Stock Exchange 
B)  in European central banks 
C)  electronically in the world of cyberspace 
D)  on street corners around the world 
A)  on the central floor of the New York Stock Exchange 
B)  in European central banks 
C)  electronically in the world of cyberspace 
D)  on street corners around the world

Question 11

The Euro

Accepted Answer

A)  will become the official currency of Europe in 2010 
B)  was adopted by 11 European countries in 2002 
C)  failed to be accepted and was phased out in 2007 
D)  is a strong contender to the franc as a key currency for the global financial system 
A)  will become the official currency of Europe in 2010 
B)  was adopted by 11 European countries in 2002 
C)  failed to be accepted and was phased out in 2007 
D)  is a strong contender to the franc as a key currency for the global financial system

Question 12

To offset a depreciation of the dollar, the Federal Reserve can adopt a restrictive monetary policy that boosts interest rates in the United States relative to those of foreign countries.

Accepted Answer

A) True 
 B)False

Question 13

The International Monetary Fund (IMF) makes short-term loans to member nations so as to allow them to

Accepted Answer

A)  reduce their excessive economic growth rates 
B)  correct temporary balance of payments disequilibriums 
C)  build roads and bridges to improve their infrastructure 
D)  stimulate private business investment 
A)  reduce their excessive economic growth rates 
B)  correct temporary balance of payments disequilibriums 
C)  build roads and bridges to improve their infrastructure 
D)  stimulate private business investment

Question 14

To temporarily offset a depreciation in the dollar's exchange value, the Federal Reserve could cause a(n) ______ in the U.S. money supply that would promote a(n) ______ in U.S. interest rates and a(n) ______ in investment flows to the U.S.

Accepted Answer

A)  increase, decrease, decrease 
B)  increase, increase, increase 
C)  decrease, decrease, increase 
D)  decrease, increase, increase 
A)  increase, decrease, decrease 
B)  increase, increase, increase 
C)  decrease, decrease, increase 
D)  decrease, increase, increase

Question 15

When the dollar depreciates in the foreign exchange market, it will buy fewer units of a foreign currency than previously.

Accepted Answer

A) True 
 B)False

Question 16

Fixed exchange rates are often used by developing nations that maintain pegs to a key currency such as the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 17

In the balance of payments, a current account deficit is balanced by a capital account surplus.

Accepted Answer

A) True 
 B)False

Question 18

In the past two decades, the U.S. has consistently realized surpluses in its current account.

Accepted Answer

A) True 
 B)False

Question 19

In the U.S. balance of payments, inflows of funds from foreigners to the United States are noted as receipts, with a plus sign.

Accepted Answer

A) True 
 B)False

Question 20

With managed-floating exchange rates,

Accepted Answer

A)  all exchange rates fluctuate according to changing supply and demand conditions for currencies 
B)  all exchange rates are tied to fluctuations in the price of gold 
C)  participating nations convene annually to decide the equilibrium exchange rate for the next year 
D)  exchange rates are largely flexible, but government can initiate policies to offset disorderly exchange rate movements 
A)  all exchange rates fluctuate according to changing supply and demand conditions for currencies 
B)  all exchange rates are tied to fluctuations in the price of gold 
C)  participating nations convene annually to decide the equilibrium exchange rate for the next year 
D)  exchange rates are largely flexible, but government can initiate policies to offset disorderly exchange rate movements

When the dollar depreciates against the Japanese yen, U.S. capital markets become less attractive to Japanese investors.

As long as central bankers do not attempt to influence exchange rates, the equilibrium exchange rate is determined by the market forces of supply and demand.

The merchandise trade balance is the most comprehensive component of the balance of payments.

A weak U.S. dollar is a bonanza for European tourists who come to Washington D.C. for vacation.

Which of the following would result in inflows to the U.S.?

Critics of a floating exchange rate system say that

Under managed floating exchange rates, the Federal Reserve attempts to stabilize the dollar's exchange rate according to its long-run equilibrium value.

Foreign exchange market transactions primarily take place

The Euro

To offset a depreciation of the dollar, the Federal Reserve can adopt a restrictive monetary policy that boosts interest rates in the United States relative to those of foreign countries.

The International Monetary Fund (IMF) makes short-term loans to member nations so as to allow them to

To temporarily offset a depreciation in the dollar's exchange value, the Federal Reserve could cause a(n) in the U.S. money supply that would promote a(n) in U.S. interest rates and a(n) __ in investment flows to the U.S.

When the dollar depreciates in the foreign exchange market, it will buy fewer units of a foreign currency than previously.

Fixed exchange rates are often used by developing nations that maintain pegs to a key currency such as the U.S. dollar.

In the balance of payments, a current account deficit is balanced by a capital account surplus.

In the past two decades, the U.S. has consistently realized surpluses in its current account.

In the U.S. balance of payments, inflows of funds from foreigners to the United States are noted as receipts, with a plus sign.

With managed-floating exchange rates,

Scarcity and Choice

Market Transactions: Demand and Supply Analysis

Demand and Supply Applications

Production and the Costs of Production

Competition and Monopoly: Virtues and Vices

Imperfect Competition

Labor Markets

Government and Markets

The Mixed Economy of the United States

Gross Domestic Product and Economic Growth

The Business Cycle, Unemployment, and Inflation

Macroeconomic Instability: Aggregate Demand and Aggregate Supply

Fiscal Policy and the Federal Budget

Money and the Banking System

The Federal Reserve and Monetary Policy

The United States and the Global Economy

Economic Systems and Developing Countries

Filters

Exam 17: International Finance

When the dollar depreciates against the Japanese yen, U.S. capital markets become less attractive to Japanese investors.

As long as central bankers do not attempt to influence exchange rates, the equilibrium exchange rate is determined by the market forces of supply and demand.

The merchandise trade balance is the most comprehensive component of the balance of payments.

A weak U.S. dollar is a bonanza for European tourists who come to Washington D.C. for vacation.

Which of the following would result in inflows to the U.S.?

Critics of a floating exchange rate system say that

Under managed floating exchange rates, the Federal Reserve attempts to stabilize the dollar's exchange rate according to its long-run equilibrium value.

Foreign exchange market transactions primarily take place

The Euro

To offset a depreciation of the dollar, the Federal Reserve can adopt a restrictive monetary policy that boosts interest rates in the United States relative to those of foreign countries.

The International Monetary Fund (IMF) makes short-term loans to member nations so as to allow them to

To temporarily offset a depreciation in the dollar's exchange value, the Federal Reserve could cause a(n) ______ in the U.S. money supply that would promote a(n) ______ in U.S. interest rates and a(n) ______ in investment flows to the U.S.

When the dollar depreciates in the foreign exchange market, it will buy fewer units of a foreign currency than previously.

Fixed exchange rates are often used by developing nations that maintain pegs to a key currency such as the U.S. dollar.

In the balance of payments, a current account deficit is balanced by a capital account surplus.

In the past two decades, the U.S. has consistently realized surpluses in its current account.

In the U.S. balance of payments, inflows of funds from foreigners to the United States are noted as receipts, with a plus sign.

With managed-floating exchange rates,

Scarcity and Choice

Market Transactions: Demand and Supply Analysis

Demand and Supply Applications

Production and the Costs of Production

Competition and Monopoly: Virtues and Vices

Imperfect Competition

Labor Markets

Government and Markets

The Mixed Economy of the United States

Gross Domestic Product and Economic Growth

The Business Cycle, Unemployment, and Inflation

Macroeconomic Instability: Aggregate Demand and Aggregate Supply

Fiscal Policy and the Federal Budget

Money and the Banking System

The Federal Reserve and Monetary Policy

The United States and the Global Economy

Economic Systems and Developing Countries

Filters

To temporarily offset a depreciation in the dollar's exchange value, the Federal Reserve could cause a(n) in the U.S. money supply that would promote a(n) in U.S. interest rates and a(n) __ in investment flows to the U.S.