Question 1

Foreign currency is

Accepted Answer

A) the market for foreign exchange. 
B) the price at which one currency exchanges for another currency. 
C) foreign notes, coins and bank deposits. 
D) foreign notes and coins only. 
E) the purchasing power of foreign money. 
A) the market for foreign exchange. 
B) the price at which one currency exchanges for another currency. 
C) foreign notes, coins and bank deposits. 
D) foreign notes and coins only. 
E) the purchasing power of foreign money.

Question 2

Which of the following shifts the supply curve of Canadian dollars rightward?

Accepted Answer

A) An increase in the demand for foreign goods by Canadians 
B) A decrease in the demand for Canadian goods by foreigners 
C) The dollar is expected to appreciate. 
D) U.S. interest rates fall. 
E) Canadian interest rates rise. 
A) An increase in the demand for foreign goods by Canadians 
B) A decrease in the demand for Canadian goods by foreigners 
C) The dollar is expected to appreciate. 
D) U.S. interest rates fall. 
E) Canadian interest rates rise.

Question 3

Table 25.1.1
  
-Refer to Table 25.1.1. Between 2009 and 2010, the Canadian dollar ________ versus the euro and ________ versus the yen.

Accepted Answer

A) appreciated; depreciated 
B) appreciated; appreciated 
C) depreciated; depreciated 
D) depreciated; appreciated 
E) not changed; not changed 
A) appreciated; depreciated 
B) appreciated; appreciated 
C) depreciated; depreciated 
D) depreciated; appreciated 
E) not changed; not changed

Question 4

Use the table below to answer the following questions.
Table 25.4.1
  
-Refer to Table 25.4.1. If Mengia's official settlement balance was in balance every year, for which year or years can you say for sure there was a current account surplus?

Accepted Answer

A) year 4 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4 
A) year 4 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4

Question 5

If Northland is currently a net lender and a debtor nation,

Accepted Answer

A) it has loaned more than it borrowed from the rest of the world this year, but borrowed more than it loaned during its history. 
B) it has borrowed more from the rest of the world than it loaned this year and also borrowed more than it loaned during its history. 
C) it has loaned more than it borrowed from the rest of the world this year and has loaned more than it borrowed during its history. 
D) its accounting system must be in error if it shows the nation to be a net lender and a debtor nation at the same time. 
E) its debts must be currently growing. 
A) it has loaned more than it borrowed from the rest of the world this year, but borrowed more than it loaned during its history. 
B) it has borrowed more from the rest of the world than it loaned this year and also borrowed more than it loaned during its history. 
C) it has loaned more than it borrowed from the rest of the world this year and has loaned more than it borrowed during its history. 
D) its accounting system must be in error if it shows the nation to be a net lender and a debtor nation at the same time. 
E) its debts must be currently growing.

Question 6

Which one of the following is a balance of payments account?

Accepted Answer

A) current account 
B) borrowing account 
C) official lending account 
D) net interest account 
E) public account 
A) current account 
B) borrowing account 
C) official lending account 
D) net interest account 
E) public account

Question 7

Use the information below to answer the following questions.
Fact 25.3.1 Aussie Dollar Hit by Interest Rate Talk
The Australian dollar fell against the U.S. dollar to its lowest value in the past two weeks. The CPI inflation rate was reported to be generally as expected but not high enough to justify previous expectations for an aggressive interest rate rise by Australia's central bank next week.
Source: Reuters, October 28, 2009
-Consider Fact 25.3.1. If Australia followed a ________ exchange rate, they would ________ Australian dollars to void the fall in the value of the Australian dollar.

Accepted Answer

A) fixed; buy 
B) fixed; sell 
C) flexible; buy 
D) flexible sell 
E) crawling peg; sell 
A) fixed; buy 
B) fixed; sell 
C) flexible; buy 
D) flexible sell 
E) crawling peg; sell

Question 8

Suppose the dollar-yen foreign exchange rate changes from 140 yen per dollar to 130 yen per dollar. Then the yen has

Accepted Answer

A) depreciated against the dollar, and the dollar has appreciated against the yen. 
B) depreciated against the dollar, and the dollar has depreciated against the yen. 
C) appreciated against the dollar, and the dollar has appreciated against the yen. 
D) appreciated against the dollar, and the dollar has depreciated against the yen. 
E) neither appreciated nor depreciated, but the dollar has depreciated against the yen. 
A) depreciated against the dollar, and the dollar has appreciated against the yen. 
B) depreciated against the dollar, and the dollar has depreciated against the yen. 
C) appreciated against the dollar, and the dollar has appreciated against the yen. 
D) appreciated against the dollar, and the dollar has depreciated against the yen. 
E) neither appreciated nor depreciated, but the dollar has depreciated against the yen.

Question 9

Choose the correct statements about the real exchange rate. 1. The real exchange rate is a measure of how much of one money exchanges for a unit of another money.
2. The real exchange rate is the value of the Canadian dollar expressed in units of foreign currency per Canadian dollar.
3. The real exchange rate is the relative price of Canadian-produced goods and services to foreign-produced goods and services.
4. The real exchange rate is a measure of the quantity of the real GDP of other countries that we get for a unit of Canadian real GDP.

Accepted Answer

A) Statements 1 and 2 are correct. 
B) Statements 2 and 4 are correct. 
C) Statements 1 and 3 are correct. 
D) Statements 3 and 4 are correct. 
E) Statements 2 and 3 are correct. 
A) Statements 1 and 2 are correct. 
B) Statements 2 and 4 are correct. 
C) Statements 1 and 3 are correct. 
D) Statements 3 and 4 are correct. 
E) Statements 2 and 3 are correct.

Question 10

Use the table below to answer the following questions.
Table 25.4.1
  
-Refer to Table 25.4.1. If Mengia's official settlement balance was in deficit every year, for which year or years can you say for sure there was a current account surplus?

Accepted Answer

A) year 1 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4 
A) year 1 only 
B) year 2 only 
C) years 2 and 3 
D) years 1 and 2 
E) years 3 and 4

Question 11

Which one of the following shifts the demand curve for dollars rightward?

Accepted Answer

A) An increase in the demand for foreign goods by Canadians 
B) A decrease in the demand for Canadian goods by foreigners 
C) The dollar is expected to appreciate. 
D) The dollar is expected to depreciate. 
E) U.S. interest rates rise. 
A) An increase in the demand for foreign goods by Canadians 
B) A decrease in the demand for Canadian goods by foreigners 
C) The dollar is expected to appreciate. 
D) The dollar is expected to depreciate. 
E) U.S. interest rates rise.

Question 12

When would the exchange rate fall the most?

Accepted Answer

A) The supply of and demand for dollars both increase. 
B) The supply of dollars increases, and the demand for dollars decreases. 
C) The supply of dollars decreases, and the demand for dollars increases. 
D) The supply of and demand for dollars both decrease. 
E) The Bank of Canada intervenes. 
A) The supply of and demand for dollars both increase. 
B) The supply of dollars increases, and the demand for dollars decreases. 
C) The supply of dollars decreases, and the demand for dollars increases. 
D) The supply of and demand for dollars both decrease. 
E) The Bank of Canada intervenes.

Question 13

Choose the correct statements. 1. The exchange rate is the value of the Canadian dollar expressed in units of foreign currency per Canadian dollar.
2. The real exchange rate is the relative price of Canadian-produced goods and services to foreign-produced goods and services.
3. The exchange rate is a measure of the quantity of the real GDP of other countries that a unit of Canadian real GDP buys.
4. The exchange rate is the relative price of Canadian-produced goods and services to foreign-produced goods and services.

Accepted Answer

A) Statements 1 and 2 are correct. 
B) Statements 3 and 4 are correct. 
C) Statements 1 and 3 are correct. 
D) Statements 2 and 4 are correct. 
E) Statements 2 and 3 are correct. 
A) Statements 1 and 2 are correct. 
B) Statements 3 and 4 are correct. 
C) Statements 1 and 3 are correct. 
D) Statements 2 and 4 are correct. 
E) Statements 2 and 3 are correct.

Question 14

Which of the following exchange rate policies uses a target exchange rate, but allows the target to change?

Accepted Answer

A) crawling peg 
B) flexible exchange rate 
C) fixed exchange rate 
D) moving target 
E) flexible target exchange rate 
A) crawling peg 
B) flexible exchange rate 
C) fixed exchange rate 
D) moving target 
E) flexible target exchange rate

Question 15

Suppose the Bank of Canada follows a fixed exchange rate of $1 U.S. per Canadian dollar. If the demand for Canadian dollars temporarily increases, to maintain the target exchange rate, the Bank can

Accepted Answer

A) sell Canadian dollars. 
B) buy Canadian dollars. 
C) violate interest rate parity. 
D) violate purchasing power parity. 
E) enforce interest rate parity. 
A) sell Canadian dollars. 
B) buy Canadian dollars. 
C) violate interest rate parity. 
D) violate purchasing power parity. 
E) enforce interest rate parity.

Question 16

The law of supply of foreign exchange tells us that, other things remaining the same,

Accepted Answer

A) the lower the exchange rate, the greater is the quantity of Canadian dollars supplied. 
B) the higher the exchange rate, the greater is the quantity of Canadian dollars supplied. 
C) the higher the exchange rate, the greater is the supply of Canadian dollars 
D) the lower the exchange rate, the greater is the supply of Canadian dollars. 
E) the lower the exchange rate, the smaller is the supply of Canadian dollars. 
A) the lower the exchange rate, the greater is the quantity of Canadian dollars supplied. 
B) the higher the exchange rate, the greater is the quantity of Canadian dollars supplied. 
C) the higher the exchange rate, the greater is the supply of Canadian dollars 
D) the lower the exchange rate, the greater is the supply of Canadian dollars. 
E) the lower the exchange rate, the smaller is the supply of Canadian dollars.

Question 17

Suppose the exchange rate between the Canadian dollar and the British pound is 0.5 pounds per dollar. If a radio sells for 38 pounds in Britain and purchasing power parity holds, what is the dollar price of the radio?

Accepted Answer

A) $19 
B) $26 
C) $38 
D) $57 
E) $76 
A) $19 
B) $26 
C) $38 
D) $57 
E) $76

Question 18

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 net exports?

Accepted Answer

A) -2 billion turkeys 
B) -1 billion turkeys 
C) 3 billion turkeys 
D) -3 billion turkeys 
E) 1 billion turkeys 
A) -2 billion turkeys 
B) -1 billion turkeys 
C) 3 billion turkeys 
D) -3 billion turkeys 
E) 1 billion turkeys

Question 19

Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?

Accepted Answer

A) The interest rate differential increases or decreases. 
B) The world demand for Canadian exports increases or decreases. 
C) Canadian imports increase or decrease. 
D) The expected future exchange rate rises or falls. 
E) Both A and D above 
A) The interest rate differential increases or decreases. 
B) The world demand for Canadian exports increases or decreases. 
C) Canadian imports increase or decrease. 
D) The expected future exchange rate rises or falls. 
E) Both A and D above

Question 20

If the Bank of Canada sets a target exchange rate that is higher than the current exchange rate, then

Accepted Answer

A) the Bank must sell dollars. 
B) the Bank must buy dollars. 
C) the Bank can do nothing in the short run. 
D) the Bank will print more dollars for foreign distribution. 
E) the Bank should rethink its policy. 
A) the Bank must sell dollars. 
B) the Bank must buy dollars. 
C) the Bank can do nothing in the short run. 
D) the Bank will print more dollars for foreign distribution. 
E) the Bank should rethink its policy.

Exam 25: The Exchange Rate and the Balance of Payments

Foreign currency is

Which of the following shifts the supply curve of Canadian dollars rightward?

Table 25.1.1 -Refer to Table 25.1.1. Between 2009 and 2010, the Canadian dollar ________ versus the euro and ________ versus the yen.

Use the table below to answer the following questions. Table 25.4.1 -Refer to Table 25.4.1. If Mengia's official settlement balance was in balance every year, for which year or years can you say for sure there was a current account surplus?

If Northland is currently a net lender and a debtor nation,

Which one of the following is a balance of payments account?

Suppose the dollar-yen foreign exchange rate changes from 140 yen per dollar to 130 yen per dollar. Then the yen has

Use the table below to answer the following questions. Table 25.4.1 -Refer to Table 25.4.1. If Mengia's official settlement balance was in deficit every year, for which year or years can you say for sure there was a current account surplus?

Which one of the following shifts the demand curve for dollars rightward?

When would the exchange rate fall the most?

Which of the following exchange rate policies uses a target exchange rate, but allows the target to change?

Suppose the Bank of Canada follows a fixed exchange rate of $1 U.S. per Canadian dollar. If the demand for Canadian dollars temporarily increases, to maintain the target exchange rate, the Bank can

The law of supply of foreign exchange tells us that, other things remaining the same,

Suppose the exchange rate between the Canadian dollar and the British pound is 0.5 pounds per dollar. If a radio sells for 38 pounds in Britain and purchasing power parity holds, what is the dollar price of the radio?

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 net exports?

Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?

If the Bank of Canada sets a target exchange rate that is higher than the current exchange rate, then

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments Actions in Markets

Global Markets in Action

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Possibilities, Preferences, and Choices

Organizing Production

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Monopolistic Competition

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Externalities

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Markets for Factors of Production

Economic Inequality

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

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Money, the Price Level, and Inflation

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters

Table 25.1.1 -Refer to Table 25.1.1. Between 2009 and 2010, the Canadian dollar versus the euro and versus the yen.