Question 1

Under a system of flexible exchange rates,which of the following will cause the nation's currency to depreciate in the exchange market?

Accepted Answer

A) an increase in foreign incomes 
B) a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices 
C) an increase in domestic interest rates 
D) a reduction in interest rates abroad 
A) an increase in foreign incomes 
B) a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices 
C) an increase in domestic interest rates 
D) a reduction in interest rates abroad

Question 2

If the U.S.dollar appreciates,it means that

Accepted Answer

A) the domestic price level has declined. 
B) the domestic purchasing power of the dollar has decreased. 
C) fewer U.S.dollars are required to purchase foreign currencies. 
D) more U.S.dollars are required to purchase foreign currencies. 
A) the domestic price level has declined. 
B) the domestic purchasing power of the dollar has decreased. 
C) fewer U.S.dollars are required to purchase foreign currencies. 
D) more U.S.dollars are required to purchase foreign currencies.

Question 3

If a nation wants to maintain a fixed exchange rate at a time when supply and demand are causing an excess of imports over exports,the nation might

Accepted Answer

A) shift to a more expansionary monetary policy. 
B) shift to a more restrictive monetary policy. 
C) reduce its trade barriers (tariffs and quotas). 
D) tax exports and subsidize imports. 
A) shift to a more expansionary monetary policy. 
B) shift to a more restrictive monetary policy. 
C) reduce its trade barriers (tariffs and quotas). 
D) tax exports and subsidize imports.

Question 4

If a nation is experiencing an inflow of capital and a balance of trade deficit,this is a problem if

Accepted Answer

A) the capital inflow is channeled into productive projects. 
B) the capital inflow is channeled into unproductive projects. 
C) the country's rate of unemployment is low. 
D) the investment rate of the country is already high. 
A) the capital inflow is channeled into productive projects. 
B) the capital inflow is channeled into unproductive projects. 
C) the country's rate of unemployment is low. 
D) the investment rate of the country is already high.

Question 5

A Japanese automobile manufacturer building an auto plant in the United States creates a

Accepted Answer

A) supply of dollars and demand for yen in the foreign exchange market. 
B) demand for dollars and a supply of yen in the foreign exchange market. 
C) demand for both dollars and yen in the foreign exchange market. 
D) supply of both dollars and yen in the foreign exchange market. 
A) supply of dollars and demand for yen in the foreign exchange market. 
B) demand for dollars and a supply of yen in the foreign exchange market. 
C) demand for both dollars and yen in the foreign exchange market. 
D) supply of both dollars and yen in the foreign exchange market.

Question 6

Use the figure below to answer the following question(s).
Figure 18-1
  
-Figure 18-1 illustrates supply and demand for U.S.dollars and British pounds in the foreign exchange market.If the dollar price of pounds is $1.80,which of the following is true?

Accepted Answer

A) There is an excess supply of pounds,and the dollar price of pounds will rise. 
B) There is an excess demand for pounds,and the dollar price of pounds will rise. 
C) There is an excess supply of pounds,and the dollar price of pounds will fall. 
D) There is an excess demand for pounds,and the dollar price of pounds will fall. 
A) There is an excess supply of pounds,and the dollar price of pounds will rise. 
B) There is an excess demand for pounds,and the dollar price of pounds will rise. 
C) There is an excess supply of pounds,and the dollar price of pounds will fall. 
D) There is an excess demand for pounds,and the dollar price of pounds will fall.

Question 7

Figure 18-3

-Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen.The demand curve in graph (A)is comprised of

Accepted Answer

A) U.S.citizens attempting to purchase Japanese-made goods. 
B) Japanese attempting to purchase U.S.-made goods. 
C) U.S.businesses attempting to sell to the Japanese. 
D) Japanese businesses attempting to sell to the U.S. 
E) the U.S.government attempting to unload dollars to the international market. 
A) U.S.citizens attempting to purchase Japanese-made goods. 
B) Japanese attempting to purchase U.S.-made goods. 
C) U.S.businesses attempting to sell to the Japanese. 
D) Japanese businesses attempting to sell to the U.S. 
E) the U.S.government attempting to unload dollars to the international market.

Question 8

Use the figure below to answer the following question(s).
Figure 18-2
  
-In Figure 18-2,which of the following would cause the American demand for foreign exchange (pounds)to shift from D₁ to D₂?

Accepted Answer

A) an increase in the U.S.real interest rate 
B) higher inflation in Britain than in the United States 
C) higher income growth in Britain than in the United States 
D) an increased level of vacation travel to Britain by Americans 
A) an increase in the U.S.real interest rate 
B) higher inflation in Britain than in the United States 
C) higher income growth in Britain than in the United States 
D) an increased level of vacation travel to Britain by Americans

Question 9

An increase in the dollar price of the Mexican peso (an appreciation of the peso)would cause

Accepted Answer

A) Mexico's imports to increase and exports to decline. 
B) Mexico's exports to increase and imports to decline. 
C) both Mexico's imports and exports to decline. 
D) both Mexico's imports and exports to rise. 
A) Mexico's imports to increase and exports to decline. 
B) Mexico's exports to increase and imports to decline. 
C) both Mexico's imports and exports to decline. 
D) both Mexico's imports and exports to rise.

Question 10

Which of the following would most likely cause a nation's currency to depreciate?

Accepted Answer

A) an increase in domestic real interest rates 
B) an increase in exports coupled with a decline in imports 
C) an increase in the nation's inflation rate 
D) a balance of trade surplus 
A) an increase in domestic real interest rates 
B) an increase in exports coupled with a decline in imports 
C) an increase in the nation's inflation rate 
D) a balance of trade surplus

Question 11

If the U.S.dollar depreciates,then U.S.exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S.citizens.

Accepted Answer

A) less;less 
B) less;more 
C) more;less 
D) more;more 
A) less;less 
B) less;more 
C) more;less 
D) more;more

Question 12

If the exchange rate between the U.S.dollar and the Russian ruble was 0.04 ($0.04 = one ruble),what would be the price in dollars of a bottle of Russian wine selling for 2,000 ruble?

Accepted Answer

A) $50 
B) $80 
C) $100 
D) $500 
A) $50 
B) $80 
C) $100 
D) $500

Question 13

The difference between the value of a country's merchandise exports and merchandise imports is known as the balance

Accepted Answer

A) of payments. 
B) of merchandise trade. 
C) on current account. 
D) on capital account. 
A) of payments. 
B) of merchandise trade. 
C) on current account. 
D) on capital account.

Question 14

If the exchange rate changes from 1 euro per U.S.dollar to 1.2 euros per U.S.dollar,the Euro has

Accepted Answer

A) appreciated,since its value has increased. 
B) appreciated,since the price of U.S.dollars has increased. 
C) appreciated,making U.S.goods cheaper in Euros. 
D) depreciated,since its value has declined. 
E) depreciated,since its value has increased. 
A) appreciated,since its value has increased. 
B) appreciated,since the price of U.S.dollars has increased. 
C) appreciated,making U.S.goods cheaper in Euros. 
D) depreciated,since its value has declined. 
E) depreciated,since its value has increased.

Question 15

Under a flexible exchange rate system,which of the following will be most likely to cause an appreciation in the exchange rate of the dollar relative to the English pound?

Accepted Answer

A) an economic boom in England,inducing English consumers to buy more American-made automobiles,trucks,and computer products 
B) higher real interest rates in England 
C) inflation in the United States while prices are stable in England 
D) attractive investment opportunities in England,inducing U.S.investors to buy stock in English firms 
A) an economic boom in England,inducing English consumers to buy more American-made automobiles,trucks,and computer products 
B) higher real interest rates in England 
C) inflation in the United States while prices are stable in England 
D) attractive investment opportunities in England,inducing U.S.investors to buy stock in English firms

Question 16

Which of the following will enter as a credit in the U.S.balance of payments capital account?

Accepted Answer

A) the purchase of a Japanese automobile by a U.S.consumer 
B) the sale of Japanese electronics to an American 
C) the sale of an American baseball team to a Japanese industrialist 
D) the purchase of a Japanese electronics plant by an American industrialist 
A) the purchase of a Japanese automobile by a U.S.consumer 
B) the sale of Japanese electronics to an American 
C) the sale of an American baseball team to a Japanese industrialist 
D) the purchase of a Japanese electronics plant by an American industrialist

Question 17

Under a system of flexible exchange rates,which of the following would be most likely to cause a nation's currency to appreciate on the foreign exchange market?

Accepted Answer

A) stable domestic prices while the nation's trading partners are experiencing inflation 
B) a decrease in domestic interest rates 
C) an increase in foreign interest rates 
D) a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices 
A) stable domestic prices while the nation's trading partners are experiencing inflation 
B) a decrease in domestic interest rates 
C) an increase in foreign interest rates 
D) a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices

Question 18

If the exchange rate between the U.S.dollar and the Mexican peso went from $1 US = 9 peso to $1 US = 10 peso,then

Accepted Answer

A) American goods have become less expensive for Mexicans. 
B) Mexican goods have become more expensive for Americans. 
C) American goods have become more expensive for Mexicans. 
D) American exports to Mexico are likely to increase. 
A) American goods have become less expensive for Mexicans. 
B) Mexican goods have become more expensive for Americans. 
C) American goods have become more expensive for Mexicans. 
D) American exports to Mexico are likely to increase.

Question 19

A depreciation of one's currency means that

Accepted Answer

A) the country's exports will become more expensive. 
B) the country's imports will become more expensive. 
C) the country's imports will become less expensive. 
D) it now requires less of this currency in exchange for one unit of another currency. 
E) it now requires more units of other currencies in exchange for one unit of this currency. 
A) the country's exports will become more expensive. 
B) the country's imports will become more expensive. 
C) the country's imports will become less expensive. 
D) it now requires less of this currency in exchange for one unit of another currency. 
E) it now requires more units of other currencies in exchange for one unit of this currency.

Question 20

Under a flexible exchange rate system,a nation that offers more attractive investment opportunities than its trading partners can expect to run a

Accepted Answer

A) surplus on current account transactions. 
B) deficit on current account transactions. 
C) balance of trade surplus. 
D) capital account deficit. 
A) surplus on current account transactions. 
B) deficit on current account transactions. 
C) balance of trade surplus. 
D) capital account deficit.

Exam 19: International Finance and the Foreign Exchange Market

Under a system of flexible exchange rates,which of the following will cause the nation's currency to depreciate in the exchange market?

If the U.S.dollar appreciates,it means that

If a nation wants to maintain a fixed exchange rate at a time when supply and demand are causing an excess of imports over exports,the nation might

If a nation is experiencing an inflow of capital and a balance of trade deficit,this is a problem if

A Japanese automobile manufacturer building an auto plant in the United States creates a

Use the figure below to answer the following question(s). Figure 18-1 -Figure 18-1 illustrates supply and demand for U.S.dollars and British pounds in the foreign exchange market.If the dollar price of pounds is $1.80,which of the following is true?

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen.The demand curve in graph (A)is comprised of

Use the figure below to answer the following question(s). Figure 18-2 -In Figure 18-2,which of the following would cause the American demand for foreign exchange (pounds)to shift from D₁ to D₂?

An increase in the dollar price of the Mexican peso (an appreciation of the peso)would cause

Which of the following would most likely cause a nation's currency to depreciate?

If the U.S.dollar depreciates,then U.S.exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S.citizens.

If the exchange rate between the U.S.dollar and the Russian ruble was 0.04 ($0.04 = one ruble),what would be the price in dollars of a bottle of Russian wine selling for 2,000 ruble?

The difference between the value of a country's merchandise exports and merchandise imports is known as the balance

If the exchange rate changes from 1 euro per U.S.dollar to 1.2 euros per U.S.dollar,the Euro has

Under a flexible exchange rate system,which of the following will be most likely to cause an appreciation in the exchange rate of the dollar relative to the English pound?

Which of the following will enter as a credit in the U.S.balance of payments capital account?

Under a system of flexible exchange rates,which of the following would be most likely to cause a nation's currency to appreciate on the foreign exchange market?

If the exchange rate between the U.S.dollar and the Mexican peso went from $1 US = 9 peso to $1 US = 10 peso,then

A depreciation of one's currency means that

Under a flexible exchange rate system,a nation that offers more attractive investment opportunities than its trading partners can expect to run a

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If the U.S.dollar depreciates,then U.S.exports become expensive to foreigners and foreign goods become expensive to U.S.citizens.