Question 1

Factor income

Accepted Answer

A) consists largely of interest, dividends, and other income on foreign investments. 
B) is a theoretical construct of the factors of production, land, labor, capital, and entrepreneurial ability. 
C) is generally a very minor part of national income accounting, smaller than the statistical discrepancy. 
D) none of the above 
A) consists largely of interest, dividends, and other income on foreign investments. 
B) is a theoretical construct of the factors of production, land, labor, capital, and entrepreneurial ability. 
C) is generally a very minor part of national income accounting, smaller than the statistical discrepancy. 
D) none of the above

Question 2

A country with a current account surplus

Accepted Answer

A) acquires IOUs from foreigners, thereby increasing its net foreign wealth. 
B) must borrow from foreigners or draw down on its previously accumulated foreign wealth. 
C) will experience a reduction in the country's net foreign wealth. 
D) both b and c 
A) acquires IOUs from foreigners, thereby increasing its net foreign wealth. 
B) must borrow from foreigners or draw down on its previously accumulated foreign wealth. 
C) will experience a reduction in the country's net foreign wealth. 
D) both b and c

Question 3

The current account includes

Accepted Answer

A) the export and import of goods and services. 
B) all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses. 
C) all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs). 
D) none of the above 
A) the export and import of goods and services. 
B) all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses. 
C) all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs). 
D) none of the above

Question 4

If the central banks of the world chose to diversify their foreign-exchange reserves away from the dollar and into the euro,

Accepted Answer

A) this would have the result of a strengthening of the value of the dollar. 
B) this would have the result of a weakening in the value of the dollar. 
C) this would not have much impact, as the information would be lost in the day-to-day volatility of exchange rates. 
A) this would have the result of a strengthening of the value of the dollar. 
B) this would have the result of a weakening in the value of the dollar. 
C) this would not have much impact, as the information would be lost in the day-to-day volatility of exchange rates.

Question 5

The difference between Foreign Direct Investment and Portfolio Investment is that

Accepted Answer

A) Portfolio Investment mostly represents the sale and purchase of foreign financial assets such as stocks and bonds that do not involve a transfer of control. 
B) Foreign Direct Investment mostly represents the sale and purchase of foreign financial assets such as stocks whereas Portfolio Investment mostly involves the sales and purchase of foreign bonds. 
C) Foreign Direct Investment is about buying land and building factories, whereas portfolio investment is about buying stocks and bonds. 
D) All of the above 
A) Portfolio Investment mostly represents the sale and purchase of foreign financial assets such as stocks and bonds that do not involve a transfer of control. 
B) Foreign Direct Investment mostly represents the sale and purchase of foreign financial assets such as stocks whereas Portfolio Investment mostly involves the sales and purchase of foreign bonds. 
C) Foreign Direct Investment is about buying land and building factories, whereas portfolio investment is about buying stocks and bonds. 
D) All of the above

Question 6

Under the pure flexible exchange rate regime

Accepted Answer

A) the combined balance on the current and capital accounts will be equal in size, but opposite in sign, to the change in the official reserves. 
B) the balance on the current and capital accounts will be equal in size, but opposite in sign. 
C) a current account surplus or deficit must be matched by an official reserves deficit or surplus. 
D) a capital account surplus or deficit must be matched by an official reserves deficit or surplus. 
A) the combined balance on the current and capital accounts will be equal in size, but opposite in sign, to the change in the official reserves. 
B) the balance on the current and capital accounts will be equal in size, but opposite in sign. 
C) a current account surplus or deficit must be matched by an official reserves deficit or surplus. 
D) a capital account surplus or deficit must be matched by an official reserves deficit or surplus.

Question 7

There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures.Given this,which of the following is a true statement?

Accepted Answer

A) If (S - I) < 0, it implies that a country's domestic savings is insufficient to finance domestic investment. 
B) If (T - G) < 0, it implies that a country's tax revenue is insufficient to finance government spending. 
C) When BCA is negative, it implies that government budget deficits an/or part of domestic investment are being finance with foreign-controlled capital. 
D) All of the above are true. 
A) If (S - I) < 0, it implies that a country's domestic savings is insufficient to finance domestic investment. 
B) If (T - G) < 0, it implies that a country's tax revenue is insufficient to finance government spending. 
C) When BCA is negative, it implies that government budget deficits an/or part of domestic investment are being finance with foreign-controlled capital. 
D) All of the above are true.

Question 8

The "J-curve effect"

Accepted Answer

A) happens most of the time, in the short run. 
B) actually only occurs in about 40 percent of the cases according to a study by Sebastian Edwards. 
C) is a long-run phenomenon, not a short-run one. 
D) none of the above. 
A) happens most of the time, in the short run. 
B) actually only occurs in about 40 percent of the cases according to a study by Sebastian Edwards. 
C) is a long-run phenomenon, not a short-run one. 
D) none of the above.

Question 9

The capital account is divided into three subcategories: direct investment,portfolio investment,and other investment.Portfolio investment involves

Accepted Answer

A) acquisitions of controlling interests in foreign businesses. 
B) investments in foreign stocks and bonds that do not involve acquisitions of control. 
C) bank deposits, currency investment, trade credit, and the like. 
D) all of the above 
A) acquisitions of controlling interests in foreign businesses. 
B) investments in foreign stocks and bonds that do not involve acquisitions of control. 
C) bank deposits, currency investment, trade credit, and the like. 
D) all of the above

Question 10

The balance on the reserves account (BRA),under the fixed exchange regime is

Accepted Answer

A) -$44 billion 
B) $44 billion 
C) $216 billion 
D) none of the above 
A) -$44 billion 
B) $44 billion 
C) $216 billion 
D) none of the above

Question 11

More important than the absolute size of a country's balance-of-payments disequilibrium

Accepted Answer

A) is the nature and cause of the disequilibrium. 
B) is whether it is a trade surplus or deficit. 
C) is whether the local government is mercantilist or not. 
D) Nothing is more important than the absolute size of a country's balance-of-payments disequilibrium. 
A) is the nature and cause of the disequilibrium. 
B) is whether it is a trade surplus or deficit. 
C) is whether the local government is mercantilist or not. 
D) Nothing is more important than the absolute size of a country's balance-of-payments disequilibrium.

Question 12

When Honda,a Japanese auto maker,built a factory in Ohio,

Accepted Answer

A) it was engaged in foreign direct investment. 
B) it was engaged in portfolio investment. 
C) it was engaged in a cross-border acquisition. 
D) none of the above. 
A) it was engaged in foreign direct investment. 
B) it was engaged in portfolio investment. 
C) it was engaged in a cross-border acquisition. 
D) none of the above.

Question 13

What is the correct label for the vertical axis in the J-curve?

Accepted Answer

A) Time 
B) Change in the Trade Balance 
C) Size of Trade Balance 
D) Size of Merchandise Trade Balance 
A) Time 
B) Change in the Trade Balance 
C) Size of Trade Balance 
D) Size of Merchandise Trade Balance

Question 14

If the interest rate rises in the U.S.while other variables remain constant

Accepted Answer

A) capital inflows into the U.S.will increase. 
B) capital inflows into the U.S.may not materialize. 
C) capital will flow out of the U.S. 
D) none of the above 
A) capital inflows into the U.S.will increase. 
B) capital inflows into the U.S.may not materialize. 
C) capital will flow out of the U.S. 
D) none of the above

Question 15

With regard to the capital account

Accepted Answer

A) the capital account balance measures the difference between U.S.sales of assets to foreigners and U.S.purchases of foreign assets. 
B) U.S.sales (or exports) of assets are recorded as credits, as they result in capital inflow. 
C) U.S.purchases (imports) of foreign assets are recorded as debits, as they lead to capital outflow. 
D) all of the above 
A) the capital account balance measures the difference between U.S.sales of assets to foreigners and U.S.purchases of foreign assets. 
B) U.S.sales (or exports) of assets are recorded as credits, as they result in capital inflow. 
C) U.S.purchases (imports) of foreign assets are recorded as debits, as they lead to capital outflow. 
D) all of the above

Question 16

The official reserve account includes

Accepted Answer

A) the export and import of goods and services. 
B) all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses. 
C) all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs). 
D) none of the above 
A) the export and import of goods and services. 
B) all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses. 
C) all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs). 
D) none of the above

Question 17

Statistical discrepancy,which by definition represents errors and omissions

Accepted Answer

A) cannot be calculated directly. 
B) is calculated by taking into account the balance-of-payments identity. 
C) probably has some elements that are honest mistakes, it can't all be money laundering and drugs. 
D) all of the above 
A) cannot be calculated directly. 
B) is calculated by taking into account the balance-of-payments identity. 
C) probably has some elements that are honest mistakes, it can't all be money laundering and drugs. 
D) all of the above

Question 18

International reserve assets include "foreign exchanges".These are

Accepted Answer

A) Special Drawing Rights (SDRs) at the IMF. 
B) reserve positions in the International Monetary Fund (IMF). 
C) foreign currency held by a country's central bank. 
D) none of the above 
A) Special Drawing Rights (SDRs) at the IMF. 
B) reserve positions in the International Monetary Fund (IMF). 
C) foreign currency held by a country's central bank. 
D) none of the above

Question 19

In the short run a currency depreciation can make a trade balance worse if

Accepted Answer

A) there is no domestic producer of an import. 
B) there is no domestic buyer for an import. 
C) there is no export market for a country's output. 
A) there is no domestic producer of an import. 
B) there is no domestic buyer for an import. 
C) there is no export market for a country's output.

Question 20

When the balance-of-payments accounts are recorded correctly,the combined balance of the current account,the capital account,and the reserves account must be

Accepted Answer

A) equal in magnitude to the country's national debt. 
B) zero. 
C) equal in magnitude to the Trade Deficit or Surplus. 
D) none of the above 
A) equal in magnitude to the country's national debt. 
B) zero. 
C) equal in magnitude to the Trade Deficit or Surplus. 
D) none of the above

Exam 3: Balance of Payments

Factor income

A country with a current account surplus

The current account includes

If the central banks of the world chose to diversify their foreign-exchange reserves away from the dollar and into the euro,

The difference between Foreign Direct Investment and Portfolio Investment is that

Under the pure flexible exchange rate regime

There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures.Given this,which of the following is a true statement?

The "J-curve effect"

The capital account is divided into three subcategories: direct investment,portfolio investment,and other investment.Portfolio investment involves

The balance on the reserves account (BRA),under the fixed exchange regime is

More important than the absolute size of a country's balance-of-payments disequilibrium

When Honda,a Japanese auto maker,built a factory in Ohio,

What is the correct label for the vertical axis in the J-curve?

If the interest rate rises in the U.S.while other variables remain constant

With regard to the capital account

The official reserve account includes

Statistical discrepancy,which by definition represents errors and omissions

International reserve assets include "foreign exchanges".These are

In the short run a currency depreciation can make a trade balance worse if

When the balance-of-payments accounts are recorded correctly,the combined balance of the current account,the capital account,and the reserves account must be

Globalization and the Multinational Firm

International Monetary System

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

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