Question 1

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 2

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

Question 3

Suppose a country is currently experiencing a trade deficit. In the long run, this could be self correcting if

Accepted Answer

A) the deficit exists because of the import demand for capital goods. 
B) the deficit exists because of the import demand for consumption goods. 
C) the deficit exists because foreigners want to buy the country's currency as an investment. 
D) none of the above 
A) the deficit exists because of the import demand for capital goods. 
B) the deficit exists because of the import demand for consumption goods. 
C) the deficit exists because foreigners want to buy the country's currency as an investment. 
D) none of the above

Question 4

International portfolio investments have boomed in recent years, as a result of

Accepted Answer

A) a depreciating U.S. dollar. 
B) increased gasoline and other commodity prices. 
C) the general relaxation of capital controls and regulation in many countries. 
D) none of the above 
A) a depreciating U.S. dollar. 
B) increased gasoline and other commodity prices. 
C) the general relaxation of capital controls and regulation in many countries. 
D) none of the above

Question 5

Continued U.S. trade deficits coupled with foreigners' desire to diversify their currency holdings away from U.S. dollars

Accepted Answer

A) could further diminish the position of the dollar as the dominant reserve currency. 
B) could affect the value of U.S. dollar (e.g. through the currency diversification decisions of Asian central banks). 
C) could lend steam to the emergence of the euro as a credible reserve currency. 
D) all of the above 
A) could further diminish the position of the dollar as the dominant reserve currency. 
B) could affect the value of U.S. dollar (e.g. through the currency diversification decisions of Asian central banks). 
C) could lend steam to the emergence of the euro as a credible reserve currency. 
D) all of the above

Question 6

Generally speaking, any transaction that results in a receipt from foreigners

Accepted Answer

A) will be recorded as a debit, with a negative sign, in the U.S. balance of payments. 
B) will be recorded as a debit, with a positive sign, in the U.S. balance of payments. 
C) will be recorded as a credit, with a negative sign, in the U.S. balance of payments. 
D) will be recorded as a credit, with a positive sign, in the U.S. balance of payments. 
A) will be recorded as a debit, with a negative sign, in the U.S. balance of payments. 
B) will be recorded as a debit, with a positive sign, in the U.S. balance of payments. 
C) will be recorded as a credit, with a negative sign, in the U.S. balance of payments. 
D) will be recorded as a credit, with a positive sign, in the U.S. balance of payments.

Question 7

Suppose the McDonalds Corporation imports Canadian beef, paying for it by transferring the funds to a New York bank account kept by the Canadian beef producer.

Accepted Answer

A) Payment by McDonalds will be recorded as a debit. 
B) The deposit of the funds by the seller will be recorded as a debit. 
C) Payment by McDonalds will be recorded as a credit. 
D) The deposit of the funds by the buyer will be credit. 
A) Payment by McDonalds will be recorded as a debit. 
B) The deposit of the funds by the seller will be recorded as a debit. 
C) Payment by McDonalds will be recorded as a credit. 
D) The deposit of the funds by the buyer will be credit.

Question 8

Suppose the InBev Corporation (a non-U.S. MNC) buys the Anheuser-Busch Corporation, paying the U.S. shareholders cash.

Accepted Answer

A) Payment by InBev will be recorded as a debit. 
B) The deposit of the funds by the sellers will be recorded as a debit. 
C) Payment by InBev will be recorded as a credit. 
D) The deposit of the funds by the buyer will be credit. 
A) Payment by InBev will be recorded as a debit. 
B) The deposit of the funds by the sellers will be recorded as a debit. 
C) Payment by InBev will be recorded as a credit. 
D) The deposit of the funds by the buyer will be credit.

Question 9

Balance of payments

Accepted Answer

A) is defined as the statistical record of a country's international transactions over a certain period of time presented in the form of a double-entry bookkeeping. 
B) provides detailed information concerning the demand and supply of a country's currency. 
C) can be used to evaluate the performance of a country in international economic competition. 
D) all of the above 
A) is defined as the statistical record of a country's international transactions over a certain period of time presented in the form of a double-entry bookkeeping. 
B) provides detailed information concerning the demand and supply of a country's currency. 
C) can be used to evaluate the performance of a country in international economic competition. 
D) all of the above

Question 10

If Japan exports more than it imports, then

Accepted Answer

A) the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus. 
B) one can infer that the yen would be likely to appreciate against other currencies. 
C) a and b 
D) None of the above 
A) the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus. 
B) one can infer that the yen would be likely to appreciate against other currencies. 
C) a and b 
D) None of the above

Question 11

Which of the following is most indicative of the pressure that a country's currency faces for depreciation or appreciation?

Accepted Answer

A) The current account 
B) The capital account 
C) The statistical discrepancies 
D) The official settlement balance 
A) The current account 
B) The capital account 
C) The statistical discrepancies 
D) The official settlement balance

Question 12

When a country's currency depreciates against the currencies of major trading partners,

Accepted Answer

A) the country's exports tend to rise and imports fall. 
B) the country's exports tend to fall and imports rise. 
C) the country's exports tend to rise and imports rise. 
D) the country's exports tend to fall and imports fall. 
A) the country's exports tend to rise and imports fall. 
B) the country's exports tend to fall and imports rise. 
C) the country's exports tend to rise and imports rise. 
D) the country's exports tend to fall and imports fall.

Question 13

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity to solve for the statistical discrepancy.

Accepted Answer

A) The statistical discrepancy = (BCA + BK
A)  - BRA 
B) The statistical discrepancy = BCA - BKA + BRA 
C) The statistical discrepancy = BCA - BKA - BRA 
D) The statistical discrepancy = BCA + BKA + BRA 
A) The statistical discrepancy = (BCA + BK
A)  - BRA 
B) The statistical discrepancy = BCA - BKA + BRA 
C) The statistical discrepancy = BCA - BKA - BRA 
D) The statistical discrepancy = BCA + BKA + BRA

Question 14

The J-curve effect received wide attention when

Accepted Answer

A) the British trade balance worsened after a strengthening of the pound in 1967. 
B) the British trade balance worsened after a devaluation of the pound in 1967. 
C) the British trade balance improved after a devaluation of the pound in 1967. 
D) none of the above 
A) the British trade balance worsened after a strengthening of the pound in 1967. 
B) the British trade balance worsened after a devaluation of the pound in 1967. 
C) the British trade balance improved after a devaluation of the pound in 1967. 
D) none of the above

Question 15

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 16

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 17

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 18

Under the fixed 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 19

The statistical discrepancy in the balance-of-payments accounts

Accepted Answer

A) arise since recordings of payments and receipts are done at different times, in different places, possibly using different methods. 
B) arise since some transactions (illegal transactions) occur "off the books". 
C) represents omitted and misreported transactions. 
D) all of the above 
A) arise since recordings of payments and receipts are done at different times, in different places, possibly using different methods. 
B) arise since some transactions (illegal transactions) occur "off the books". 
C) represents omitted and misreported transactions. 
D) all of the above

Question 20

The capital account measures

Accepted Answer

A) the sum of U.S. sales of assets to foreigners and U.S. purchases of foreign assets. 
B) the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets. 
C) the difference between U.S. sales of manufactured goods to foreigners and U.S. purchases of foreign products. 
D) none of the above 
A) the sum of U.S. sales of assets to foreigners and U.S. purchases of foreign assets. 
B) the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets. 
C) the difference between U.S. sales of manufactured goods to foreigners and U.S. purchases of foreign products. 
D) none of the above

Exam 3: Balance of Payments

With regard to the capital account

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

Suppose a country is currently experiencing a trade deficit. In the long run, this could be self correcting if

International portfolio investments have boomed in recent years, as a result of

Continued U.S. trade deficits coupled with foreigners' desire to diversify their currency holdings away from U.S. dollars

Generally speaking, any transaction that results in a receipt from foreigners

Suppose the McDonalds Corporation imports Canadian beef, paying for it by transferring the funds to a New York bank account kept by the Canadian beef producer.

Suppose the InBev Corporation (a non-U.S. MNC) buys the Anheuser-Busch Corporation, paying the U.S. shareholders cash.

Balance of payments

If Japan exports more than it imports, then

Which of the following is most indicative of the pressure that a country's currency faces for depreciation or appreciation?

When a country's currency depreciates against the currencies of major trading partners,

The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity to solve for the statistical discrepancy.

The J-curve effect received wide attention when

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

Under the pure flexible exchange rate regime

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

Under the fixed exchange rate regime

The statistical discrepancy in the balance-of-payments accounts

The capital account measures

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

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Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

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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

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