Question 1

When a U.S.importer needs $22,000 to settle an invoice for 25,520 Swiss francs,the exchange rate must be:

Accepted Answer

A) 1 Swiss franc = $1.16. 
B) 1 Swiss franc = $0.16. 
C) 1 Swiss franc = $0.84. 
D) $1 = 1.16 Swiss franc. 
E) $1 = 1.84 Swiss franc. 
A) 1 Swiss franc = $1.16. 
B) 1 Swiss franc = $0.16. 
C) 1 Swiss franc = $0.84. 
D) $1 = 1.16 Swiss franc. 
E) $1 = 1.84 Swiss franc.

Question 2

A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar price of Korean won,the more won will be demanded.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following holds true,if goods sell for the same price worldwide when converted to a common currency?

Accepted Answer

A) A high rate of inflation exists 
B) A fixed exchange-rate system exists 
C) Purchasing power parity exists 
D) The foreign exchange market is in equilibrium 
E) Arbitrage opportunities exist 
A) A high rate of inflation exists 
B) A fixed exchange-rate system exists 
C) Purchasing power parity exists 
D) The foreign exchange market is in equilibrium 
E) Arbitrage opportunities exist

Question 4

In effect,during the period immediately following World War II,the world was on a(n):

Accepted Answer

A) gold standard. 
B) flexible-exchange-rate standard. 
C) U.S.dollar standard. 
D) exchange-rate standard dictated by Germany 
E) pegged-exchange rate standard. 
A) gold standard. 
B) flexible-exchange-rate standard. 
C) U.S.dollar standard. 
D) exchange-rate standard dictated by Germany 
E) pegged-exchange rate standard.

Question 5

The primary function of the World Bank is to:

Accepted Answer

A) lend money to the World Trade Organization. 
B) provide loans to countries experiencing huge budget deficit. 
C) finance economic development in poor countries. 
D) assist countries experiencing balance of payments deficits. 
E) finance the fiscal stabilization program of the U.S.government. 
A) lend money to the World Trade Organization. 
B) provide loans to countries experiencing huge budget deficit. 
C) finance economic development in poor countries. 
D) assist countries experiencing balance of payments deficits. 
E) finance the fiscal stabilization program of the U.S.government.

Question 6

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year.What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

Accepted Answer

A) 1 percent 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 0 percent 
A) 1 percent 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 0 percent

Question 7

Equilibrium in the foreign exchange market occurs:

Accepted Answer

A) at the point where the foreign exchange demand and supply curves intersect. 
B) at the point where the foreign exchange demand and supply curves reach maximum separation. 
C) when two nations' economic leaders agree on the appropriate exchange rate. 
D) when two nations' diplomatic leaders agree on an exchange rate that meets both countries' needs. 
E) only by chance,if at all,because they change very frequently. 
A) at the point where the foreign exchange demand and supply curves intersect. 
B) at the point where the foreign exchange demand and supply curves reach maximum separation. 
C) when two nations' economic leaders agree on the appropriate exchange rate. 
D) when two nations' diplomatic leaders agree on an exchange rate that meets both countries' needs. 
E) only by chance,if at all,because they change very frequently.

Question 8

Suppose a hefty rise in the demand for Mexican pesos create a chronic shortage of this currency in the foreign exchange market.Which of the following steps should be adopted by the Mexican government to eliminate this shortage?

Accepted Answer

A) The government should impose a ban on Mexican exports. 
B) The government should devalue the peso. 
C) The government should print more pesos to increase its supply. 
D) The government should allow the peso to appreciate. 
E) The government should allow the peso to depreciate. 
A) The government should impose a ban on Mexican exports. 
B) The government should devalue the peso. 
C) The government should print more pesos to increase its supply. 
D) The government should allow the peso to appreciate. 
E) The government should allow the peso to depreciate.

Question 9

A commodity money standard exists when exchange rates are:

Accepted Answer

A) artificially pegged to the price of oil. 
B) fixed in terms of gold,thus creating flexible exchange rates between countries. 
C) fixed in terms of gold,thus creating fixed exchange rates between countries. 
D) allowed to fluctuate based on the values of different currencies. 
E) fixed,based on the values of different currencies,in terms of some commodity. 
A) artificially pegged to the price of oil. 
B) fixed in terms of gold,thus creating flexible exchange rates between countries. 
C) fixed in terms of gold,thus creating fixed exchange rates between countries. 
D) allowed to fluctuate based on the values of different currencies. 
E) fixed,based on the values of different currencies,in terms of some commodity.

Question 10

Foreign exchange market intervention is most effective when:

Accepted Answer

A) each country's political leaders agree to cooperate fully with the process. 
B) leading economists in each country concur that intervention is needed. 
C) permanent differences between the free market exchange rate and the fixed exchange rate are expected. 
D) temporary differences between the free market exchange rate and the fixed exchange rate are expected. 
E) all the countries restrict the international movement of goods and services. 
A) each country's political leaders agree to cooperate fully with the process. 
B) leading economists in each country concur that intervention is needed. 
C) permanent differences between the free market exchange rate and the fixed exchange rate are expected. 
D) temporary differences between the free market exchange rate and the fixed exchange rate are expected. 
E) all the countries restrict the international movement of goods and services.

Question 11

The focal point of the Bretton Woods system was the:

Accepted Answer

A) Great Britain pound. 
B) institution of special drawing rights. 
C) U.S.dollar. 
D) gold reserve. 
E) management of commodity money. 
A) Great Britain pound. 
B) institution of special drawing rights. 
C) U.S.dollar. 
D) gold reserve. 
E) management of commodity money.

Question 12

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1   In the figure:
DS1U1B11S1U1B0 and DS1U1B12S1U1B0: Demand for Brazilian reals
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Supply of Brazilian reals
-Refer to Figure 22.1.The supply curves shown for Brazilian reals are based on:

Accepted Answer

A) the supply of Brazilian goods in the international market. 
B) the Brazilian demand for Mexican products. 
C) the supply of Mexican pesos in the market. 
D) the Brazilian demand for Brazilian products. 
E) the Mexican demand for Brazilian products. 
A) the supply of Brazilian goods in the international market. 
B) the Brazilian demand for Mexican products. 
C) the supply of Mexican pesos in the market. 
D) the Brazilian demand for Brazilian products. 
E) the Mexican demand for Brazilian products.

Question 13

The World Bank was created to help finance economic development in poor countries.

Accepted Answer

A) True 
 B)False

Question 14

Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive.The main reason for this phenomenon is that:

Accepted Answer

A) arbitrage activities become less profitable. 
B) governments prefer purchasing power parity not to hold. 
C) the interest rate parity fails to hold. 
D) goods become more differentiated across countries. 
E) individuals develop hatred toward closed economies. 
A) arbitrage activities become less profitable. 
B) governments prefer purchasing power parity not to hold. 
C) the interest rate parity fails to hold. 
D) goods become more differentiated across countries. 
E) individuals develop hatred toward closed economies.

Question 15

How many U.S.dollars does a U.S.importer need to pay for 100,000 yen worth of stereo equipment when the price of 1 yen is $0.008?

Accepted Answer

A) $125 million 
B) $1.25 million 
C) $80,000 
D) $1,250 
E) $800 
A) $125 million 
B) $1.25 million 
C) $80,000 
D) $1,250 
E) $800

Question 16

An increase in the demand for rubles causes the ruble to appreciate.

Accepted Answer

A) True 
 B)False

Question 17

The World Bank obtains the funds it lends by:

Accepted Answer

A) selling bonds on the international bond market. 
B) selling bonds to countries it has loaned funds to. 
C) collecting each country's annual membership fee or quota. 
D) levying a small tax on every foreign exchange conversion worldwide. 
E) depending on voluntary subsidies from member nations. 
A) selling bonds on the international bond market. 
B) selling bonds to countries it has loaned funds to. 
C) collecting each country's annual membership fee or quota. 
D) levying a small tax on every foreign exchange conversion worldwide. 
E) depending on voluntary subsidies from member nations.

Question 18

Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Accepted Answer

A) True 
 B)False

Question 19

A decrease in the price of a currency in terms of another under a flexible exchange rate regimeis called:

Accepted Answer

A) capital flight. 
B) depreciation. 
C) revaluation. 
D) devaluation. 
E) currency adjustment. 
A) capital flight. 
B) depreciation. 
C) revaluation. 
D) devaluation. 
E) currency adjustment.

Question 20

Other things equal,an appreciation of the Algerian dinar in relation to the euro will act to increase Algerian demand for European goods and to decrease European demand for Algerian goods.

Accepted Answer

A) True 
 B)False

Exam 22: Exchange Rates and Financial Links Between Countries

When a U.S.importer needs $22,000 to settle an invoice for 25,520 Swiss francs,the exchange rate must be:

A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar price of Korean won,the more won will be demanded.

Which of the following holds true,if goods sell for the same price worldwide when converted to a common currency?

In effect,during the period immediately following World War II,the world was on a(n):

The primary function of the World Bank is to:

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year.What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

Equilibrium in the foreign exchange market occurs:

Suppose a hefty rise in the demand for Mexican pesos create a chronic shortage of this currency in the foreign exchange market.Which of the following steps should be adopted by the Mexican government to eliminate this shortage?

A commodity money standard exists when exchange rates are:

Foreign exchange market intervention is most effective when:

The focal point of the Bretton Woods system was the:

The World Bank was created to help finance economic development in poor countries.

Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive.The main reason for this phenomenon is that:

How many U.S.dollars does a U.S.importer need to pay for 100,000 yen worth of stereo equipment when the price of 1 yen is $0.008?

An increase in the demand for rubles causes the ruble to appreciate.

The World Bank obtains the funds it lends by:

Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

A decrease in the price of a currency in terms of another under a flexible exchange rate regimeis called:

Other things equal,an appreciation of the Algerian dinar in relation to the euro will act to increase Algerian demand for European goods and to decrease European demand for Algerian goods.

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

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