Question 1

If interest rates in the European Union decrease,

Accepted Answer

A)  the demand for U.S. dollars will fall in the foreign exchange market. 
B)  the supply of U.S. dollars will fall in the foreign exchange market. 
C)  the demand for euros will fall in the foreign exchange market. 
D)  nothing will change in the foreign exchange market. 
A)  the demand for U.S. dollars will fall in the foreign exchange market. 
B)  the supply of U.S. dollars will fall in the foreign exchange market. 
C)  the demand for euros will fall in the foreign exchange market. 
D)  nothing will change in the foreign exchange market. C

Question 2

-Based on the transactions in the above table, what is the change in the U.S. balance of trade?

Accepted Answer

A)  $11,000 
B)  $29,700 
C)  -$30,000 
D)  -$31,000 
A)  $11,000 
B)  $29,700 
C)  -$30,000 
D)  -$31,000 B

Question 3

If the foreign exchange rate is one dollar for 10 South African rand, then how many dollars are needed to purchase an item that costs 400 rand?

Accepted Answer

A)  10 
B)  40 
C)  400 
D)  4,000 
A)  10 
B)  40 
C)  400 
D)  4,000 B

Question 4

When the value of exports exceeds the value of imports then

Accepted Answer

A)  changes in productivity will occur. 
B)  international trade is in balance. 
C)  the country is running a trade deficit. 
D)  the country is running a trade surplus. 
A)  changes in productivity will occur. 
B)  international trade is in balance. 
C)  the country is running a trade deficit. 
D)  the country is running a trade surplus.

Question 5

The foreign exchange system that has the highest foreign exchange risk is

Accepted Answer

A)  the dirty floating exchange rate. 
B)  the fixed exchange rate. 
C)  the floating exchange rate. 
D)  the Bretton Woods system. 
A)  the dirty floating exchange rate. 
B)  the fixed exchange rate. 
C)  the floating exchange rate. 
D)  the Bretton Woods system.

Question 6

Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 10 Chinese yuan, but it finds that the value of yuan is depreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?

Accepted Answer

A)  Increase government spending within the U.S. 
B)  Buy U.S. dollars. 
C)  Sell U.S. dollars. 
D)  Increase the money supply in the U.S. 
A)  Increase government spending within the U.S. 
B)  Buy U.S. dollars. 
C)  Sell U.S. dollars. 
D)  Increase the money supply in the U.S.

Question 7

Which of the following is an advantage of fixing exchange rates?

Accepted Answer

A)  limiting foreign exchange risk 
B)  making residents more mobile across countries 
C)  eliminating trade deficits 
D)  making the prices of foreign goods more flexible in the domestic market 
A)  limiting foreign exchange risk 
B)  making residents more mobile across countries 
C)  eliminating trade deficits 
D)  making the prices of foreign goods more flexible in the domestic market

Question 8

If an exporter wants to limit the effect of possible changes in the exchange rate on the value of her exports, then she can adopt a strategy known as

Accepted Answer

A)  floating. 
B)  speculating. 
C)  hedging. 
D)  appreciating. 
A)  floating. 
B)  speculating. 
C)  hedging. 
D)  appreciating.

Question 9

Capital account transactions occur

Accepted Answer

A)  when an U.S. company purchases goods from a foreign company. 
B)  because of cross-border flows of financial assets. 
C)  when you move money from one U.S. bank to another U.S. bank. 
D)  when an U.S. citizen purchases stock in an U.S. corporation. 
A)  when an U.S. company purchases goods from a foreign company. 
B)  because of cross-border flows of financial assets. 
C)  when you move money from one U.S. bank to another U.S. bank. 
D)  when an U.S. citizen purchases stock in an U.S. corporation.

Question 10

Suppose that the current exchange rate between the dollar and peso is $1 equals 10 pesos. If a firm in Mexico wanted to purchase $100,000 worth of U.S. televisions, how many pesos must they exchange?

Accepted Answer

A)  10,000 pesos 
B)  100,000 pesos 
C)  1,000,000 pesos 
D)  11,000,000 pesos 
A)  10,000 pesos 
B)  100,000 pesos 
C)  1,000,000 pesos 
D)  11,000,000 pesos

Question 11

Assume there is an increased demand in the United States for Australian wines. If all other factors are held constant, this will result in

Accepted Answer

A)  an increase in the U.S. dollar exchange rate for Australian dollars. 
B)  an appreciation of the U.S. dollar. 
C)  a movement along the demand curve for Australian wine. 
D)  a decrease in the par value of the Australian dollar. 
A)  an increase in the U.S. dollar exchange rate for Australian dollars. 
B)  an appreciation of the U.S. dollar. 
C)  a movement along the demand curve for Australian wine. 
D)  a decrease in the par value of the Australian dollar.

Question 12

Country X-2013 Transactions (billions of dollars)
  
-In the above table, the trade balance on goods and services for Country X is ________ billion dollars.

Accepted Answer

A)  +100 
B)  -150 
C)  +150 
D)  -75 
A)  +100 
B)  -150 
C)  +150 
D)  -75

Question 13

The demand for dollars will increase when

Accepted Answer

A)  real interest rates in the United States fall. 
B)  U.S. labor productivity increases relative to the world. 
C)  the world is perceived as more stable than it used to be. 
D)  U.S. residents develop a taste for more imported products. 
A)  real interest rates in the United States fall. 
B)  U.S. labor productivity increases relative to the world. 
C)  the world is perceived as more stable than it used to be. 
D)  U.S. residents develop a taste for more imported products.

Question 14

Suppose the current account of a country is initially in balance. A new transaction occurs so that the current account is now in surplus. Official reserve balance is maintained before and after the transaction occurs. From this, we know that

Accepted Answer

A)  the balance of trade is now in surplus. 
B)  the balance of goods and services is now in surplus. 
C)  the capital account is now in deficit. 
D)  the government must make official reserve transactions. 
A)  the balance of trade is now in surplus. 
B)  the balance of goods and services is now in surplus. 
C)  the capital account is now in deficit. 
D)  the government must make official reserve transactions.

Question 15

The price of one currency in terms of another is the

Accepted Answer

A)  price of gold. 
B)  price of a SDR. 
C)  foreign exchange rate. 
D)  price of foreign stock. 
A)  price of gold. 
B)  price of a SDR. 
C)  foreign exchange rate. 
D)  price of foreign stock.

Question 16

Which of the following will lead to an appreciation of the U.S. dollar against the British pound?

Accepted Answer

A)  An increase in British demand for U.S. imports 
B)  An increase in U.S. demand for British imports 
C)  An increase in British interest rates 
D)  A decrease in British demand for U.S. assets 
A)  An increase in British demand for U.S. imports 
B)  An increase in U.S. demand for British imports 
C)  An increase in British interest rates 
D)  A decrease in British demand for U.S. assets

Question 17

A U.S. automobile dealer has ordered a fleet of Japanese cars worth 10 million yen. The terms of payment is C.O.D. (cash on delivery). At the time the order was placed, the exchange rate was 100 yen per U.S. dollar. When the fleet arrived the exchange rate had become 200 yen per U.S. dollar.

Accepted Answer

A)  This change in the foreign exchange rate will hurt the U.S. importer. 
B)  This change in the foreign exchange rate will hurt the Japanese exporter. 
C)  This change in the foreign exchange rate will benefit the U.S. importer. 
D)  This change in the foreign exchange rate will benefit the Japanese exporter. 
A)  This change in the foreign exchange rate will hurt the U.S. importer. 
B)  This change in the foreign exchange rate will hurt the Japanese exporter. 
C)  This change in the foreign exchange rate will benefit the U.S. importer. 
D)  This change in the foreign exchange rate will benefit the Japanese exporter.

Question 18

When all currencies are tied directly to gold, then

Accepted Answer

A)  currency exchange rates throughout the world are flexible. 
B)  currency exchange rates throughout the world are fixed. 
C)  the world's stock of gold cannot change. 
D)  the price of each nation's currency in terms of gold is flexible. 
A)  currency exchange rates throughout the world are flexible. 
B)  currency exchange rates throughout the world are fixed. 
C)  the world's stock of gold cannot change. 
D)  the price of each nation's currency in terms of gold is flexible.

Question 19

Which of the following is a surplus item in the U.S. current account?

Accepted Answer

A)  The U.S. government reduces the tariff rates on some imported goods. 
B)  IBM pays dividends to British shareholders. 
C)  Finn vodka becomes more popular in the United States. 
D)  The U.S. government cuts back on military personnel stationed in S. Korea. 
A)  The U.S. government reduces the tariff rates on some imported goods. 
B)  IBM pays dividends to British shareholders. 
C)  Finn vodka becomes more popular in the United States. 
D)  The U.S. government cuts back on military personnel stationed in S. Korea.

Question 20

An increase in the inflation rate of one country relative to another country will probably cause

Accepted Answer

A)  an increase in exports for the inflating country. 
B)  a balance of trade deficit for the inflating country. 
C)  a current account surplus for the inflating country. 
D)  an increase in the amount of official reserves held by the inflating country's central bank. 
A)  an increase in exports for the inflating country. 
B)  a balance of trade deficit for the inflating country. 
C)  a current account surplus for the inflating country. 
D)  an increase in the amount of official reserves held by the inflating country's central bank.

Exam 33: Exchange Rates and the Balance of Payments

If interest rates in the European Union decrease,

-Based on the transactions in the above table, what is the change in the U.S. balance of trade?

If the foreign exchange rate is one dollar for 10 South African rand, then how many dollars are needed to purchase an item that costs 400 rand?

When the value of exports exceeds the value of imports then

The foreign exchange system that has the highest foreign exchange risk is

Assume the U.S. government wants to hold the value of the dollar at $1.00 U.S. equals 10 Chinese yuan, but it finds that the value of yuan is depreciating against the U.S. dollar. What would be an appropriate policy to reverse this trend?

Which of the following is an advantage of fixing exchange rates?

If an exporter wants to limit the effect of possible changes in the exchange rate on the value of her exports, then she can adopt a strategy known as

Capital account transactions occur

Suppose that the current exchange rate between the dollar and peso is $1 equals 10 pesos. If a firm in Mexico wanted to purchase $100,000 worth of U.S. televisions, how many pesos must they exchange?

Assume there is an increased demand in the United States for Australian wines. If all other factors are held constant, this will result in

Country X-2013 Transactions (billions of dollars) -In the above table, the trade balance on goods and services for Country X is ________ billion dollars.

The demand for dollars will increase when

Suppose the current account of a country is initially in balance. A new transaction occurs so that the current account is now in surplus. Official reserve balance is maintained before and after the transaction occurs. From this, we know that

The price of one currency in terms of another is the

Which of the following will lead to an appreciation of the U.S. dollar against the British pound?

A U.S. automobile dealer has ordered a fleet of Japanese cars worth 10 million yen. The terms of payment is C.O.D. (cash on delivery). At the time the order was placed, the exchange rate was 100 yen per U.S. dollar. When the fleet arrived the exchange rate had become 200 yen per U.S. dollar.

When all currencies are tied directly to gold, then

Which of the following is a surplus item in the U.S. current account?

An increase in the inflation rate of one country relative to another country will probably cause

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