Question 1

Foreign direct investment (FDI) occurs

Accepted Answer

A) when an investor acquires a measure of control of a foreign business. 
B) when there is an acquisition, by a foreign entity in the U.S., of 10 percent or more of the voting shares of a business. 
C) with sales and purchases of foreign stocks and bonds that do not involve a transfer of control. 
D) both a and b 
A) when an investor acquires a measure of control of a foreign business. 
B) when there is an acquisition, by a foreign entity in the U.S., of 10 percent or more of the voting shares of a business. 
C) with sales and purchases of foreign stocks and bonds that do not involve a transfer of control. 
D) both a and b

Question 2

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity for a country with a pure flexible exchange rate regime

Accepted Answer

A) BCA + BKA + BRA = 0 
B) BCA = -BKA 
C) BCA + BKA = -BRA 
D) BRA = -BCA 
A) BCA + BKA + BRA = 0 
B) BCA = -BKA 
C) BCA + BKA = -BRA 
D) BRA = -BCA

Question 3

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 4

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 5

In the latter half of the 1980s, with a strong yen, Japanese firms

Accepted Answer

A) faced difficulty exporting. 
B) could better afford to acquire U.S. assets that had become less expensive in terms of yen. 
C) financed a sharp increase in Japanese FDI in the United States. 
D) all of the above 
A) faced difficulty exporting. 
B) could better afford to acquire U.S. assets that had become less expensive in terms of yen. 
C) financed a sharp increase in Japanese FDI in the United States. 
D) all of the above

Question 6

In the long run, both exports and imports tend to be

Accepted Answer

A) unresponsive to changes in exchange rates. 
B) responsive to changes in exchange rates. 
C) both a and b 
D) none of the above 
A) unresponsive to changes in exchange rates. 
B) responsive to changes in exchange rates. 
C) both a and b 
D) none of the above

Question 7

The capital account may be divided into three categories:

Accepted Answer

A) cross-border mergers and acquisitions, portfolio investment, and other investment. 
B) direct investment, portfolio investment, and Cross-border mergers and acquisitions. 
C) direct investment, mergers and acquisitions, and other investment. 
D) direct investment, portfolio investment, and other investment. 
A) cross-border mergers and acquisitions, portfolio investment, and other investment. 
B) direct investment, portfolio investment, and Cross-border mergers and acquisitions. 
C) direct investment, mergers and acquisitions, and other investment. 
D) direct investment, portfolio investment, and other investment.

Question 8

Regarding the statistical discrepancy in the balance-of-payments accounts

Accepted Answer

A) there is some evidence that financial transactions may be mainly responsible for the discrepancy. 
B) the sum of the balance on the capital account and the statistical discrepancy is very close to the balance of the current account in magnitude. 
C) it tends to be positive one year and negative in others, so it's safe to ignore it. 
D) a and b 
A) there is some evidence that financial transactions may be mainly responsible for the discrepancy. 
B) the sum of the balance on the capital account and the statistical discrepancy is very close to the balance of the current account in magnitude. 
C) it tends to be positive one year and negative in others, so it's safe to ignore it. 
D) a and b

Question 9

The United States is considered

Accepted Answer

A) a net creditor nation. 
B) a net debtor nation. 
A) a net creditor nation. 
B) a net debtor nation.

Question 10

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) both a and b are true 
D) none of the above 
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) both a and b are true 
D) none of the above

Question 11

There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures. This relationship is given by BCA ≡ X - M ≡ (S - I) + (T - G). Given this, in order for a country to reduce a BCA deficit, which of the following must occur?

Accepted Answer

A) For a given level of S and I, the government budget deficit (T - G) must be reduced. 
B) For a given level of I and (T - G), S must be increased. 
C) For a given level of S and (T - G), I must fall. 
D) All of the above would work to reduce a BCA deficit. 
A) For a given level of S and I, the government budget deficit (T - G) must be reduced. 
B) For a given level of I and (T - G), S must be increased. 
C) For a given level of S and (T - G), I must fall. 
D) All of the above would work to reduce a BCA deficit.

Question 12

Capital account includes

Accepted Answer

A) (i), (ii), and (iii) 
B) (ii), (iii), and (vii) 
C) (iv), (v), and (vii) 
D) (i), (v), and (vi) 
A) (i), (ii), and (iii) 
B) (ii), (iii), and (vii) 
C) (iv), (v), and (vii) 
D) (i), (v), and (vi)

Question 13

The world's largest debtor nation and creditor nation, respectively, are

Accepted Answer

A) Japan and the U.S. 
B) The U.S. and Japan. 
C) The U.S. and Canada. 
D) Great Britain and Mexico. 
A) Japan and the U.S. 
B) The U.S. and Japan. 
C) The U.S. and Canada. 
D) Great Britain and Mexico.

Question 14

The vast majority of the foreign-exchange reserves held by central banks are denominated in

Accepted Answer

A) local currencies. 
B) U.S. dollars. 
C) Yen. 
D) Euro. 
A) local currencies. 
B) U.S. dollars. 
C) Yen. 
D) Euro.

Question 15

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 16

BKA stands for

Accepted Answer

A) the balance on the current account. 
B) the balance on the capital account. 
C) the balance on the official reserves. 
D) net imports. 
A) the balance on the current account. 
B) the balance on the capital account. 
C) the balance on the official reserves. 
D) net imports.

Question 17

Over the last several years the U.S. has run persistent

Accepted Answer

A) balance-of-payments deficits. 
B) balance-of-payments surpluses. 
C) current Account deficits. 
D) capital Account deficits. 
A) balance-of-payments deficits. 
B) balance-of-payments surpluses. 
C) current Account deficits. 
D) capital Account deficits.

Question 18

In a pure flexible exchange rate regime, a country's central banks will not need to maintain official reserves. Under this regime

Accepted Answer

A) -BCA = BKA. 
B) BCA = -BRA = 0. 
C) BKA = -BRA. 
D) BSA = BCA. 
A) -BCA = BKA. 
B) BCA = -BRA = 0. 
C) BKA = -BRA. 
D) BSA = BCA.

Question 19

When a country must make a net payment to foreigners because of a balance-of-payments deficit, the central bank of the country

Accepted Answer

A) should do nothing. 
B) should run down its official reserve assets (e.g. gold, foreign exchanges, and SDRs). 
C) should borrow anew from foreign central banks. 
D) either b or c will work. 
A) should do nothing. 
B) should run down its official reserve assets (e.g. gold, foreign exchanges, and SDRs). 
C) should borrow anew from foreign central banks. 
D) either b or c will work.

Question 20

Which of the following is a true statement?

Accepted Answer

A) BCA ≡ X - M 
B) BKA ≡ X - M 
C) BKA - BCA ≡ X - M 
D) BKA ≡ M - X 
A) BCA ≡ X - M 
B) BKA ≡ X - M 
C) BKA - BCA ≡ X - M 
D) BKA ≡ M - X

Foreign direct investment (FDI) occurs

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity for a country with a pure flexible exchange rate regime

The "J-curve effect"

A country with a current account surplus

In the latter half of the 1980s, with a strong yen, Japanese firms

In the long run, both exports and imports tend to be

The capital account may be divided into three categories:

Regarding the statistical discrepancy in the balance-of-payments accounts

The United States is considered

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?

Capital account includes

The world's largest debtor nation and creditor nation, respectively, are

The vast majority of the foreign-exchange reserves held by central banks are denominated in

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

BKA stands for

Over the last several years the U.S. has run persistent

In a pure flexible exchange rate regime, a country's central banks will not need to maintain official reserves. Under this regime

When a country must make a net payment to foreigners because of a balance-of-payments deficit, the central bank of the country

Which of the following is a true statement?

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

Filters

Exam 3: Balance of Payments

Foreign direct investment (FDI) occurs

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity for a country with a pure flexible exchange rate regime

The "J-curve effect"

A country with a current account surplus

In the latter half of the 1980s, with a strong yen, Japanese firms

In the long run, both exports and imports tend to be

The capital account may be divided into three categories:

Regarding the statistical discrepancy in the balance-of-payments accounts

The United States is considered

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?

Capital account includes

The world's largest debtor nation and creditor nation, respectively, are

The vast majority of the foreign-exchange reserves held by central banks are denominated in

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

BKA stands for

Over the last several years the U.S. has run persistent

In a pure flexible exchange rate regime, a country's central banks will not need to maintain official reserves. Under this regime

When a country must make a net payment to foreigners because of a balance-of-payments deficit, the central bank of the country

Which of the following is a true statement?

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

Filters