Question 1

If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was

Accepted Answer

A) a flexible exchange rate. 
B) a fixed exchange rate. 
C) a crawling peg. 
D) a nominally fixed exchange rate. 
E) none of the above 
A) a flexible exchange rate. 
B) a fixed exchange rate. 
C) a crawling peg. 
D) a nominally fixed exchange rate. 
E) none of the above

Question 2

Suppose the interest rate in Canada falls and the interest rate in Japan remains the same. Interest rate parity implies that given equal risk,

Accepted Answer

A) the inflation rate is higher in Japan. 
B) Japanese financial investments are more profitable. 
C) the yen is expected to depreciate against the dollar. 
D) the yen is expected to appreciate against the dollar. 
E) Canadian financial investments are less profitable. 
A) the inflation rate is higher in Japan. 
B) Japanese financial investments are more profitable. 
C) the yen is expected to depreciate against the dollar. 
D) the yen is expected to appreciate against the dollar. 
E) Canadian financial investments are less profitable.

Question 3

A very small country is an international borrower and its demand for loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.

Accepted Answer

A) does not change; increases 
B) does not change; does not change 
C) increases; increases 
D) increases; does not change 
E) increases; decreases 
A) does not change; increases 
B) does not change; does not change 
C) increases; increases 
D) increases; does not change 
E) increases; decreases

Question 4

Refer to the figure below to answer the following questions.
   
Figure 25.3.1
-In Figure 25.3.1, suppose the demand for dollars permanently decreases to D₂. To maintain the target, the Bank of Canada

Accepted Answer

A) buys dollars. 
B) sells dollars. 
C) must decrease the country's net exports. 
D) cannot permanently maintain the exchange rate target of 90 U.S. cents per Canadian dollar. 
E) must increase the country's net exports. 
A) buys dollars. 
B) sells dollars. 
C) must decrease the country's net exports. 
D) cannot permanently maintain the exchange rate target of 90 U.S. cents per Canadian dollar. 
E) must increase the country's net exports.

Question 5

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for Canadian dollars?

Accepted Answer

A) the U.S. interest rate 
B) the Canadian interest rate 
C) the exchange rate 
D) the expected future exchange rate 
E) an increase in Canadian exports 
A) the U.S. interest rate 
B) the Canadian interest rate 
C) the exchange rate 
D) the expected future exchange rate 
E) an increase in Canadian exports

Question 6

Suppose you think that the Canadian dollar exchange rate will depreciate against the U.S. dollar over the next month. What should you do now in anticipation of profit?

Accepted Answer

A) Buy Canadian dollars. 
B) Buy U.S. dollars. 
C) Sell Canadian dollars. 
D) Sell U.S. dollars. 
E) Do both B and C. 
A) Buy Canadian dollars. 
B) Buy U.S. dollars. 
C) Sell Canadian dollars. 
D) Sell U.S. dollars. 
E) Do both B and C.

Question 7

A debtor nation is one that during its entire history has

Accepted Answer

A) lent more to the rest of the world than it has borrowed from it. 
B) borrowed more from the rest of the world than it has lent to it. 
C) invested more in the rest of the world than has been invested in it. 
D) a public sector deficit that is larger than its net exports. 
E) had a government debt. 
A) lent more to the rest of the world than it has borrowed from it. 
B) borrowed more from the rest of the world than it has lent to it. 
C) invested more in the rest of the world than has been invested in it. 
D) a public sector deficit that is larger than its net exports. 
E) had a government debt.

Question 8

Suppose that Canada's demand for imports decreases. All other things equal,

Accepted Answer

A) the demand for Canadian dollars decreases and the supply of Canadian dollars increases. 
B) the demand for Canadian dollars increases. 
C) both the supply of and demand for Canadian dollars decreases. 
D) the supply of Canadian dollars decreases. 
E) the supply of Canadian dollars decreases and demand for Canadian dollars increases. 
A) the demand for Canadian dollars decreases and the supply of Canadian dollars increases. 
B) the demand for Canadian dollars increases. 
C) both the supply of and demand for Canadian dollars decreases. 
D) the supply of Canadian dollars decreases. 
E) the supply of Canadian dollars decreases and demand for Canadian dollars increases.

Question 9

Use the information below to answer the following questions.
Fact 25.4.1
You are given the following information about the country of Ecoland, whose currency is the turkey, and whose official settlements balance is zero.
  
-Refer to Fact 25.4.1. What is the current account balance for Ecoland, given the value of net interest income plus net transfers is +3 billion turkeys?

Accepted Answer

A) -3 billion turkeys 
B) -6 billion turkeys 
C) +3 billion turkeys 
D) +1 billion turkeys 
E) zero 
A) -3 billion turkeys 
B) -6 billion turkeys 
C) +3 billion turkeys 
D) +1 billion turkeys 
E) zero

Question 10

The higher the exchange rate, all other things remaining the same, the

Accepted Answer

A) smaller is the supply of Canadian imports. 
B) smaller is the volume of Canadian imports. 
C) greater is the volume of Canadian imports. 
D) greater is the supply of Canadian imports. 
E) greater is the demand for Canadian exports. 
A) smaller is the supply of Canadian imports. 
B) smaller is the volume of Canadian imports. 
C) greater is the volume of Canadian imports. 
D) greater is the supply of Canadian imports. 
E) greater is the demand for Canadian exports.

Question 11

If the exchange rate is higher than the Bank of Canada's target exchange rate, the Bank

Accepted Answer

A) implements purchasing power parity. 
B) implements interest rate parity. 
C) buys dollars. 
D) sells dollars. 
E) raises the target exchange rate. 
A) implements purchasing power parity. 
B) implements interest rate parity. 
C) buys dollars. 
D) sells dollars. 
E) raises the target exchange rate.

Question 12

Suppose interest rates are 3 percent in Japan and 6 percent in Canada. The current value of the exchange rate is 110 Japanese yen per dollar, and it is generally expected that in one year the exchange rate will be 106.7 yen per dollar. However, new information is released that changes everyone's expectations, and they think the exchange rate in one year will still be 110 yen per dollar. As a result of this change,

Accepted Answer

A) the demand for Canadian dollars increases. 
B) the supply of Canadian dollars decreases. 
C) people will borrow in Canada and lend in Japan. 
D) the demand for Canadian dollars decreases. 
E) A and B. 
A) the demand for Canadian dollars increases. 
B) the supply of Canadian dollars decreases. 
C) people will borrow in Canada and lend in Japan. 
D) the demand for Canadian dollars decreases. 
E) A and B.

Question 13

Which of the following quotations best describes interest rate parity in action?

Accepted Answer

A) "The demand for the Canadian dollar has increased due to the recent increase in the Canadian interest rate." 
B) "The market feeling is that the Canadian dollar is overvalued and will likely appreciate." 
C) "The price of bananas is the same in Canada and the United States, adjusting for the exchange rate." 
D) "The expected appreciation of the Canadian dollar is currently lowering demand for it." 
E) none of the above 
A) "The demand for the Canadian dollar has increased due to the recent increase in the Canadian interest rate." 
B) "The market feeling is that the Canadian dollar is overvalued and will likely appreciate." 
C) "The price of bananas is the same in Canada and the United States, adjusting for the exchange rate." 
D) "The expected appreciation of the Canadian dollar is currently lowering demand for it." 
E) none of the above

Question 14

Which of the following factors influence the demand for Canadian dollars?

Accepted Answer

A) The exchange rate and the world demand for Canadian exports. 
B) Interest rates in Canada and other countries, and the expected future exchange rate. 
C) The world demand for Canadian exports and Canadian demand for imports. 
D) Both A and B are correct. 
E) Both B and C are correct. 
A) The exchange rate and the world demand for Canadian exports. 
B) Interest rates in Canada and other countries, and the expected future exchange rate. 
C) The world demand for Canadian exports and Canadian demand for imports. 
D) Both A and B are correct. 
E) Both B and C are correct.

Question 15

Other things remaining the same, the Canadian interest rate differential increases for sure if the Canadian interest rate

Accepted Answer

A) rises and the U.S. interest rate falls. 
B) rises and the U.S. interest rate rises. 
C) falls and the U.S. interest rate falls. 
D) falls and the U.S. interest rate rises. 
E) doesn't change and the U.S. interest rate rises. 
A) rises and the U.S. interest rate falls. 
B) rises and the U.S. interest rate rises. 
C) falls and the U.S. interest rate falls. 
D) falls and the U.S. interest rate rises. 
E) doesn't change and the U.S. interest rate rises.

Question 16

The official settlements account measures the

Accepted Answer

A) value of Canadian merchandise purchased by foreigners. 
B) net value of foreign goods officially purchased by Canada. 
C) net value of Canadian official exports of services. 
D) change in the government's holdings of foreign currency. 
E) change in Canada's net exports. 
A) value of Canadian merchandise purchased by foreigners. 
B) net value of foreign goods officially purchased by Canada. 
C) net value of Canadian official exports of services. 
D) change in the government's holdings of foreign currency. 
E) change in Canada's net exports.

Question 17

Suppose new information leads people to expect future appreciation of the Canadian dollar. Then all of the following occurs except

Accepted Answer

A) the demand for dollars increases. 
B) the supply of dollars decreases. 
C) the current exchange rate rises. 
D) the interest rate must rise. 
E) none of the above 
A) the demand for dollars increases. 
B) the supply of dollars decreases. 
C) the current exchange rate rises. 
D) the interest rate must rise. 
E) none of the above

Question 18

If the equilibrium exchange rate is 110 yen per dollar and the current exchange rate is 120 yen per dollar, then the

Accepted Answer

A) supply curve of Canadian dollars shifts rightward. 
B) demand curve for Canadian dollars shifts rightward. 
C) supply curve of Canadian dollars shifts leftward. 
D) demand curve for Canadian dollars shifts leftward. 
E) dollar will depreciate. 
A) supply curve of Canadian dollars shifts rightward. 
B) demand curve for Canadian dollars shifts rightward. 
C) supply curve of Canadian dollars shifts leftward. 
D) demand curve for Canadian dollars shifts leftward. 
E) dollar will depreciate.

Question 19

NX =

Accepted Answer

A) C + I + G. 
B) (S + I)- (T + G). 
C) (G - T)+ (I - S). 
D) (S - I)+ (G - T). 
E) (T - G)+ (S - I). 
A) C + I + G. 
B) (S + I)- (T + G). 
C) (G - T)+ (I - S). 
D) (S - I)+ (G - T). 
E) (T - G)+ (S - I).

Question 20

Suppose you think that the Canadian dollar exchange rate will appreciate against the U.S. dollar over the next month. What should you do now in anticipation of profit?

Accepted Answer

A) Buy Canadian dollars. 
B) Buy U.S. dollars. 
C) Sell Canadian dollars. 
D) Sell U.S. dollars. 
E) Do both A and D. 
A) Buy Canadian dollars. 
B) Buy U.S. dollars. 
C) Sell Canadian dollars. 
D) Sell U.S. dollars. 
E) Do both A and D.

Exam 25: The Exchange Rate and the Balance of Payments

If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was

Suppose the interest rate in Canada falls and the interest rate in Japan remains the same. Interest rate parity implies that given equal risk,

A very small country is an international borrower and its demand for loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.

Refer to the figure below to answer the following questions. Figure 25.3.1 -In Figure 25.3.1, suppose the demand for dollars permanently decreases to D₂. To maintain the target, the Bank of Canada

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for Canadian dollars?

Suppose you think that the Canadian dollar exchange rate will depreciate against the U.S. dollar over the next month. What should you do now in anticipation of profit?

A debtor nation is one that during its entire history has

Suppose that Canada's demand for imports decreases. All other things equal,

The higher the exchange rate, all other things remaining the same, the

If the exchange rate is higher than the Bank of Canada's target exchange rate, the Bank

Which of the following quotations best describes interest rate parity in action?

Which of the following factors influence the demand for Canadian dollars?

Other things remaining the same, the Canadian interest rate differential increases for sure if the Canadian interest rate

The official settlements account measures the

Suppose new information leads people to expect future appreciation of the Canadian dollar. Then all of the following occurs except

If the equilibrium exchange rate is 110 yen per dollar and the current exchange rate is 120 yen per dollar, then the

NX =

Suppose you think that the Canadian dollar exchange rate will appreciate against the U.S. dollar over the next month. What should you do now in anticipation of profit?

What Is Economics

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A very small country is an international borrower and its demand for loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing .