Question 1

No government intervention in active markets for foreign currency is typical of a

Accepted Answer

A) fixed exchange rate system. 
B) floating exchange rate system. 
C) managed float exchange rate system. 
D) gold standard. 
A) fixed exchange rate system. 
B) floating exchange rate system. 
C) managed float exchange rate system. 
D) gold standard.

Question 2

In order to buy goods from another country the importer must pay with

Accepted Answer

A) its own currency. 
B) a combination of its own currency and the currency of the country from which it is buying the goods. 
C) the currency of the country from which it is buying the goods and they must have been holding the currency from a previous transaction. 
D) the currency of the country from which it is buying the goods that it has arranged to get through the foreign exchange market. 
A) its own currency. 
B) a combination of its own currency and the currency of the country from which it is buying the goods. 
C) the currency of the country from which it is buying the goods and they must have been holding the currency from a previous transaction. 
D) the currency of the country from which it is buying the goods that it has arranged to get through the foreign exchange market.

Question 3

In the market for euros, an increase in U.S. imports from Europe tends to

Accepted Answer

A) increase demand. 
B) increase supply. 
C) decrease demand. 
D) cause no change in the market demand for euros. 
A) increase demand. 
B) increase supply. 
C) decrease demand. 
D) cause no change in the market demand for euros.

Question 4

Which of the following countries engages in a fixed exchange rate policy?

Accepted Answer

A) China 
B) The U.S. 
C) The United Kingdom 
D) Japan 
A) China 
B) The U.S. 
C) The United Kingdom 
D) Japan

Question 5

If the exchange rate of dollars for euros is .75 euro to $1 then the exchange rate of euros for dollars is

Accepted Answer

A) 1.33 (1/.75)dollars per euros. 
B) .25 (1-.75)dollars per euros. 
C) -.25 (.75-1)dollars per euros. 
D) not knowable from this data. 
A) 1.33 (1/.75)dollars per euros. 
B) .25 (1-.75)dollars per euros. 
C) -.25 (.75-1)dollars per euros. 
D) not knowable from this data.

Question 6

Suppose an event occurs that causes people to lose faith in the ability of Europeans to pay their euro-denominated debt. Suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

Accepted Answer

A) rise to (perhaps).9 euros/dollar. 
B) fall to (perhaps).6 euros/dollar. 
C) cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense). 
D) remain unchanged. 
A) rise to (perhaps).9 euros/dollar. 
B) fall to (perhaps).6 euros/dollar. 
C) cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense). 
D) remain unchanged.

Question 7

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency A needed to get Currency B. A weakening of Currency A would show up as

Accepted Answer

A) an increase in the exchange rate. 
B) a decrease in the exchange rate. 
C) an increase in the interest rate 
D) a decrease in the interest rate 
A) an increase in the exchange rate. 
B) a decrease in the exchange rate. 
C) an increase in the interest rate 
D) a decrease in the interest rate

Question 8

If a country tries to maintain a flexible exchange rate it must be willing to

Accepted Answer

A) sell gold and hard currency to weaken its currency, if needed. 
B) print and sell its own currency to weaken it, if needed. 
C) print and sell its own currency to strengthen it, if needed. 
D) accept a large fluctuation in the exchange rate. 
A) sell gold and hard currency to weaken its currency, if needed. 
B) print and sell its own currency to weaken it, if needed. 
C) print and sell its own currency to strengthen it, if needed. 
D) accept a large fluctuation in the exchange rate.

Question 9

Over time, the U.S. current account balance has primarily reflected

Accepted Answer

A) the U.S. balance of trade. 
B) the volume of U.S. exports. 
C) the extent of U.S. investment in other countries. 
D) transfers of money home by U.S. citizens working in other countries. 
A) the U.S. balance of trade. 
B) the volume of U.S. exports. 
C) the extent of U.S. investment in other countries. 
D) transfers of money home by U.S. citizens working in other countries.

Question 10

In the market for euros, a decrease in U.S. real interest rates tends to

Accepted Answer

A) cause no change in equilibrium price. 
B) increase excess supply. 
C) increase equilibrium price. 
D) decrease equilibrium price. 
A) cause no change in equilibrium price. 
B) increase excess supply. 
C) increase equilibrium price. 
D) decrease equilibrium price.

Question 11

The difference between imports and exports of merchandise goods and services is reported

Accepted Answer

A) in the capital account. 
B) in the current account. 
C) nowhere in the Balance of Payments accounting system. 
D) as the sum of the current account and the capital account. 
A) in the capital account. 
B) in the current account. 
C) nowhere in the Balance of Payments accounting system. 
D) as the sum of the current account and the capital account.

Question 12

The United States current account typically runs as a

Accepted Answer

A) deficit of about $1 billion. 
B) surplus of about $1 billion. 
C) deficit of around $750 billion. 
D) surplus of around $750 billion. 
A) deficit of about $1 billion. 
B) surplus of about $1 billion. 
C) deficit of around $750 billion. 
D) surplus of around $750 billion.

Question 13

If a country tries to maintain a managed floating exchange rate system it must be

Accepted Answer

A) willing to sell gold and hard currency to weaken its currency, if needed. 
B) willing to print and sell its own currency to weaken it, if needed. 
C) willing to print and sell its own currency to strengthen it, if needed. 
D) a communist nation to accomplish it. 
A) willing to sell gold and hard currency to weaken its currency, if needed. 
B) willing to print and sell its own currency to weaken it, if needed. 
C) willing to print and sell its own currency to strengthen it, if needed. 
D) a communist nation to accomplish it.

Question 14

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency A needed to get Currency B. A strengthening of Currency A would show up as

Accepted Answer

A) an increase in the exchange rate. 
B) a decrease in the exchange rate. 
C) an increase in the interest rate 
D) a decrease in the interest rate 
A) an increase in the exchange rate. 
B) a decrease in the exchange rate. 
C) an increase in the interest rate 
D) a decrease in the interest rate

Question 15

The gold standard is

Accepted Answer

A) the only way to achieve a fixed exchange rate system 
B) one way of achieving a fixed exchange rate system 
C) one way of achieving a floating exchange rate system 
D) the only way of achieving a floating exchange rate system 
A) the only way to achieve a fixed exchange rate system 
B) one way of achieving a fixed exchange rate system 
C) one way of achieving a floating exchange rate system 
D) the only way of achieving a floating exchange rate system

Question 16

To offset an decreased demand for its currency, a government fixing its exchange rate

Accepted Answer

A) must buy gold or some other precious metal. 
B) must decrease the supply of its currency. 
C) must decrease the supply of the foreign currency. 
D) must make it illegal to buy its currency. 
A) must buy gold or some other precious metal. 
B) must decrease the supply of its currency. 
C) must decrease the supply of the foreign currency. 
D) must make it illegal to buy its currency.

Question 17

In the market for a foreign currency, a "strengthening" of the dollar corresponds to a

Accepted Answer

A) higher dollar price of foreign currency. 
B) lower dollar price of foreign currency. 
C) larger demand for the foreign currency. 
D) smaller supply of the foreign currency. 
A) higher dollar price of foreign currency. 
B) lower dollar price of foreign currency. 
C) larger demand for the foreign currency. 
D) smaller supply of the foreign currency.

Question 18

Continuous government intervention in markets for foreign currency is typical of a

Accepted Answer

A) fixed exchange rate system. 
B) floating exchange rate system. 
C) managed float exchange rate system. 
D) gold standard. 
A) fixed exchange rate system. 
B) floating exchange rate system. 
C) managed float exchange rate system. 
D) gold standard.

Question 19

To offset an increased demand for its currency, a government fixing its exchange rate

Accepted Answer

A) must sell gold or some other precious metal. 
B) must increase the supply of the foreign currency. 
C) must increase the supply of its currency. 
D) must make it illegal to sell its currency. 
A) must sell gold or some other precious metal. 
B) must increase the supply of the foreign currency. 
C) must increase the supply of its currency. 
D) must make it illegal to sell its currency.

Question 20

In the market for yen, a decrease in the relative safety of U.S. investments tends to

Accepted Answer

A) increase demand. 
B) increase excess supply. 
C) decrease equilibrium price. 
D) cause no change in equilibrium price. 
A) increase demand. 
B) increase excess supply. 
C) decrease equilibrium price. 
D) cause no change in equilibrium price.

Exam 18: International Finance and Exchange Rates

No government intervention in active markets for foreign currency is typical of a

In order to buy goods from another country the importer must pay with

In the market for euros, an increase in U.S. imports from Europe tends to

Which of the following countries engages in a fixed exchange rate policy?

If the exchange rate of dollars for euros is .75 euro to $1 then the exchange rate of euros for dollars is

Suppose an event occurs that causes people to lose faith in the ability of Europeans to pay their euro-denominated debt. Suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency A needed to get Currency B. A weakening of Currency A would show up as

If a country tries to maintain a flexible exchange rate it must be willing to

Over time, the U.S. current account balance has primarily reflected

In the market for euros, a decrease in U.S. real interest rates tends to

The difference between imports and exports of merchandise goods and services is reported

The United States current account typically runs as a

If a country tries to maintain a managed floating exchange rate system it must be

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency A needed to get Currency B. A strengthening of Currency A would show up as

The gold standard is

To offset an decreased demand for its currency, a government fixing its exchange rate

In the market for a foreign currency, a "strengthening" of the dollar corresponds to a

Continuous government intervention in markets for foreign currency is typical of a

To offset an increased demand for its currency, a government fixing its exchange rate

In the market for yen, a decrease in the relative safety of U.S. investments tends to

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