Exam 23: International Financial Transactions and Balance of Payments

Compared to earlier years, U.S. investors found investment abroad more attractive than domestic investment during the 1990s.

Policies aimed at paying compensation to cover currency losses of exporters or to safeguard foreign investments are examples of:

One of the features of the historical gold standard was that nations agreed to exchange paper money or gold coins for gold bullion in unlimited amounts at fixed, predetermined prices.

An increase in foreign tourism has a:

The global market for foreign currencies is predominantly a/an _____ market.

Importer of goods typically use a buying hedge in the currency futures market.

The Bretton Woods System was dismantled in the early 1970s when the U.S. dollar was devalued by the Nixon Administration and the gold convertibility of the dollar was suspended.

International transactions which bring about inflows of foreign currency into the home country would be recorded in the balance of payments accounts as credits (+).

A decline in inflation in the U.S. relative to other countries should make American products:

The market for trading foreign currencies is largely an over-the-counter market rather than one in which organized exchanges predominate with set trading hours.

Most foreign currency futures contracts are made with the ultimate intention of actually delivering the currencies mentioned in the contracts.

Using the the description or the definition below, identify each of the key terms and concepts presented in this chapter a. An official monetary reserve unit developed by the International Monetary Fund (IMF) to settle international claims between nations. b. A system of payments and exchange rates in which the value of any nation's currency is determined by demand and supply forces in the marketplace with governments only occasionally intervening to stabilize the value of their currencies. c. Channels for trading national currencies and determining relative currency prices. d. The prices of foreign currencies expressed in terms of other currencies.

In 1995 the Japanese yen was trading at 93.96 yen per dollar and by the summer of 1998 the yen/dollar exchange rate stood at 140.79, having risen in every year of the 1995-98 period. What economic and financial factors would likely have contributed the most to this sharp fall in the exchange value of the Japanese yen against the U. S. dollar? Using the demand and supply framework shown in Exhibit 25-5 illustrate diagrammatically how the economic and financial factors you cited above would have lowered the international value of the yen vis-à-vis the American dollar. Should the Bank of Japan have intervened more aggressively during this period of erosion in the value of the yen? Why or why not?

Dollarization:

Suppose the dollar-pound exchange rate is $/? = 2.00 and the euro-pound exchange rate is €/? = 1.50. What, then, is the prevailing mark-dollar currency exchange rate?

All of the following were stated problems with the gold standard except:

The primary purpose of central bank intervention in the currency markets is to:

Financial institutions active in the foreign-exchange markets include:

The sale of U.S. tractors to a French agricultural cooperative is an export of merchandise and a debit entry in the U.S. balance of payments.

The modified exchange standard was adopted by member nations at the historic Yalta Conference at the end of World War II.