Question 1

What are the main arguments presented against flexible exchange rates?

Accepted Answer

Arguments against flexible exchange rates are that international trade levels will be diminished due to the uncertainty of future currency prices and that the flexible rates would lead to inflation.Proponents of flexible exchange rates have strong counter-arguments to those views.

Question 2

If a Japanese pension fund decides to purchase U.S.government bonds,what is the effect in the exchange market?

Accepted Answer

A)  It will increase the supply of U.S. dollars. 
B)  It will decrease the supply of U.S. dollars. 
C)  It will increase the demand for U.S. dollars. 
D)  It will decrease the demand for U.S. dollars. 
A)  It will increase the supply of U.S. dollars. 
B)  It will decrease the supply of U.S. dollars. 
C)  It will increase the demand for U.S. dollars. 
D)  It will decrease the demand for U.S. dollars. C

Question 3

If the dollar appreciates,it can be said that:

Accepted Answer

A)  foreigners respect the United States more. 
B)  other currencies depreciate. 
C)  it increases in value within the United States. 
D)  other currencies also appreciate. 
A)  foreigners respect the United States more. 
B)  other currencies depreciate. 
C)  it increases in value within the United States. 
D)  other currencies also appreciate. B

Question 4

The balance of trade records information about:

Accepted Answer

A)  purchases of U.S. merchandise exports by foreigners. 
B)  purchases of foreign financial assets by Americans. 
C)  American purchases of foreign services while traveling abroad. 
D)  errors and omissions. 
A)  purchases of U.S. merchandise exports by foreigners. 
B)  purchases of foreign financial assets by Americans. 
C)  American purchases of foreign services while traveling abroad. 
D)  errors and omissions.

Question 5

An increase in the demand for British pounds might result from:

Accepted Answer

A)  a reduction in the price level in the U.S. relative to Britain. 
B)  a recession in the U.S. which reduces real output. 
C)  a decline in interest rates in Britain. 
D)  a decline in interest rates in the U.S. 
A)  a reduction in the price level in the U.S. relative to Britain. 
B)  a recession in the U.S. which reduces real output. 
C)  a decline in interest rates in Britain. 
D)  a decline in interest rates in the U.S.

Question 6

Fixed exchange rates give countries too much freedom over their monetary policies,thereby threatening higher rates of inflation.

Accepted Answer

A) True 
 B)False

Question 7

If real interest rates in the United States rise relative to real interest rates in other countries,other things being equal,

Accepted Answer

A)  the exchange value of the dollar would decline relative to other currencies. 
B)  the exchange value of the dollar would increase relative to other currencies. 
C)  there would likely be no effect on the exchange value of the dollar relative to other currencies. 
D)  there would be an indeterminate effect on the exchange value of the dollar relative to other currencies. 
A)  the exchange value of the dollar would decline relative to other currencies. 
B)  the exchange value of the dollar would increase relative to other currencies. 
C)  there would likely be no effect on the exchange value of the dollar relative to other currencies. 
D)  there would be an indeterminate effect on the exchange value of the dollar relative to other currencies.

Question 8

If European incomes rose,European tariffs on U.S.goods decreased,or their tastes for American goods increased,Europeans would demand ____ U.S.goods,leading them to ____ their supply of euros to obtain the added dollars necessary to make those purchases.

Accepted Answer

A)  more; increase. 
B)  more; decrease. 
C)  fewer; increase. 
D)  fewer; decrease. 
A)  more; increase. 
B)  more; decrease. 
C)  fewer; increase. 
D)  fewer; decrease.

Question 9

Can the U.S.dollar and the euro both appreciate relative to each other?

Accepted Answer

A)  Yes, both countries can gain in this manner. 
B)  Yes, provided the central banks agree to permit it. 
C)  No, if one currency appreciates relative to another, the other depreciates. 
D)  No, the citizens of the countries would not agree to it. 
A)  Yes, both countries can gain in this manner. 
B)  Yes, provided the central banks agree to permit it. 
C)  No, if one currency appreciates relative to another, the other depreciates. 
D)  No, the citizens of the countries would not agree to it.

Question 10

Whenever there is a deficit in the current account,the capital account:

Accepted Answer

A)  will be negative. 
B)  will be positive. 
C)  will be zero. 
D)  could be negative, positive, or zero. 
A)  will be negative. 
B)  will be positive. 
C)  will be zero. 
D)  could be negative, positive, or zero.

Question 11

If more French tourists visit the Grand Canyon,what is the effect in the exchange market?

Accepted Answer

A)  It will increase the supply of U.S. dollars. 
B)  It will decrease the supply of U.S. dollars. 
C)  It will increase the demand for U.S. dollars. 
D)  It will decrease the demand for U.S. dollars. 
A)  It will increase the supply of U.S. dollars. 
B)  It will decrease the supply of U.S. dollars. 
C)  It will increase the demand for U.S. dollars. 
D)  It will decrease the demand for U.S. dollars.

Question 12

U.S.imports are considered:

Accepted Answer

A)  a credit or plus item in the U.S. balance of payments. 
B)  a credit or minus item in the U.S. balance of payments. 
C)  a debit or plus item in the U.S. balance of payments. 
D)  a debit or minus item in the U.S. balance of payments. 
A)  a credit or plus item in the U.S. balance of payments. 
B)  a credit or minus item in the U.S. balance of payments. 
C)  a debit or plus item in the U.S. balance of payments. 
D)  a debit or minus item in the U.S. balance of payments.

Question 13

The less foreigners demand U.S.products:

Accepted Answer

A)  the more of their currencies they will supply in exchange for U.S. dollars. 
B)  the more of their currencies they will demand in exchange for U.S. dollars. 
C)  the less of their currencies they will supply in exchange for U.S. dollars. 
D)  the less of their currencies they will demand in exchange for U.S. dollars. 
A)  the more of their currencies they will supply in exchange for U.S. dollars. 
B)  the more of their currencies they will demand in exchange for U.S. dollars. 
C)  the less of their currencies they will supply in exchange for U.S. dollars. 
D)  the less of their currencies they will demand in exchange for U.S. dollars.

Question 14

Under a system of flexible exchange rates,a decrease in demand for a nation's currency in the foreign exchange market will:

Accepted Answer

A)  make it less expensive for foreigners to buy the nation's goods. 
B)  make it more expensive for the nation to import goods. 
C)  cause the nation's balance on current account to shift toward a deficit. 
D)  all of the above 
A)  make it less expensive for foreigners to buy the nation's goods. 
B)  make it more expensive for the nation to import goods. 
C)  cause the nation's balance on current account to shift toward a deficit. 
D)  all of the above

Question 15

On January 12,2011,one U.S.dollar was worth 0.78 euros.How many U.S.dollars did it take to buy one euro?

Accepted Answer

A)  0.78 
B)  1.28 
C)  1.43 
D)  1.70 
A)  0.78 
B)  1.28 
C)  1.43 
D)  1.70

Question 16

Exhibit 29-1   Refer to Exhibit 29-1.For Nation Z,the current account balance for the year 2011 equals:

Accepted Answer

A)  -$97 billion. 
B)  -$96 billion. 
C)  $96 billion. 
D)  -$87 billion. 
A)  -$97 billion. 
B)  -$96 billion. 
C)  $96 billion. 
D)  -$87 billion.

Question 17

If a British student pays her way to attend Harvard University,her actions will:

Accepted Answer

A)  create a supply of dollars and a demand for pounds in the foreign currency market. 
B)  create a supply of pounds and a demand for dollars in the foreign currency market. 
C)  cause the British pound to appreciate. 
D)  cause the U.S. dollar to depreciate. 
A)  create a supply of dollars and a demand for pounds in the foreign currency market. 
B)  create a supply of pounds and a demand for dollars in the foreign currency market. 
C)  cause the British pound to appreciate. 
D)  cause the U.S. dollar to depreciate.

Question 18

Which of the following would occur as a result if Europe experienced a lower inflation rate than the U.S.?

Accepted Answer

A)  European products would become more expensive to U.S. consumers. 
B)  It would decrease the quantity of European goods demanded by Americans. 
C)  It would decrease the demand for Euros. 
D)  None of the above would occur. 
A)  European products would become more expensive to U.S. consumers. 
B)  It would decrease the quantity of European goods demanded by Americans. 
C)  It would decrease the demand for Euros. 
D)  None of the above would occur.

Question 19

The balance on goods and services is the same as the balance on the current account.

Accepted Answer

A) True 
 B)False

Question 20

Sweden's currency would tend to depreciate if:

Accepted Answer

A)  Sweden's inflation rate rises relative to inflation in the rest of the world. 
B)  the demand for imports by Swedes increases. 
C)  real interest rates in Sweden decrease relative to the rest of the world. 
D)  all of the above 
A)  Sweden's inflation rate rises relative to inflation in the rest of the world. 
B)  the demand for imports by Swedes increases. 
C)  real interest rates in Sweden decrease relative to the rest of the world. 
D)  all of the above

Exam 29: International Finance

What are the main arguments presented against flexible exchange rates?

If a Japanese pension fund decides to purchase U.S.government bonds,what is the effect in the exchange market?

If the dollar appreciates,it can be said that:

The balance of trade records information about:

An increase in the demand for British pounds might result from:

Fixed exchange rates give countries too much freedom over their monetary policies,thereby threatening higher rates of inflation.

If real interest rates in the United States rise relative to real interest rates in other countries,other things being equal,

If European incomes rose,European tariffs on U.S.goods decreased,or their tastes for American goods increased,Europeans would demand ____ U.S.goods,leading them to ____ their supply of euros to obtain the added dollars necessary to make those purchases.

Can the U.S.dollar and the euro both appreciate relative to each other?

Whenever there is a deficit in the current account,the capital account:

If more French tourists visit the Grand Canyon,what is the effect in the exchange market?

U.S.imports are considered:

The less foreigners demand U.S.products:

Under a system of flexible exchange rates,a decrease in demand for a nation's currency in the foreign exchange market will:

On January 12,2011,one U.S.dollar was worth 0.78 euros.How many U.S.dollars did it take to buy one euro?

Exhibit 29-1 Refer to Exhibit 29-1.For Nation Z,the current account balance for the year 2011 equals:

If a British student pays her way to attend Harvard University,her actions will:

Which of the following would occur as a result if Europe experienced a lower inflation rate than the U.S.?

The balance on goods and services is the same as the balance on the current account.

Sweden's currency would tend to depreciate if:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

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If European incomes rose,European tariffs on U.S.goods decreased,or their tastes for American goods increased,Europeans would demand U.S.goods,leading them to their supply of euros to obtain the added dollars necessary to make those purchases.