Question 1

What is the value of the euro in terms of dollars if a French importer can buy 8 dollars for 10 euros?

Accepted Answer

A) $1.25. 
B) $0.8. 
C) $80. 
D) $2. 
A) $1.25. 
B) $0.8. 
C) $80. 
D) $2. B

Question 2

-Refer to the graph above to answer this question.Given a change in demand from D1 to D2,how could Switzerland maintain the value of francs in Canadian terms?

Accepted Answer

A) By shifting the S curve to the right by imposing tariffs on Canadian imports. 
B) By instituting exchange controls to ration Eg francs to Canadian importers who want Ec francs. 
C) By using international monetary reserves to cover the Ec shortage of francs. 
D) By using international monetary reserves to cover the cg shortage of francs. 
E) By imposing exchange controls on Swiss citizens. 
A) By shifting the S curve to the right by imposing tariffs on Canadian imports. 
B) By instituting exchange controls to ration Eg francs to Canadian importers who want Ec francs. 
C) By using international monetary reserves to cover the Ec shortage of francs. 
D) By using international monetary reserves to cover the cg shortage of francs. 
E) By imposing exchange controls on Swiss citizens. D

Question 3

What will likely to happen to exchange rates involved in the following cases?
(1)A fall in the Canadian interest rate relative to interest rates abroad (dollar).
(2)Higher inflation rate in Japan compared other countries (yen).
(3)A severe recession in Europe (euro).
(4)Canada imposes a 15% tariff on Japanese imported cars (dollar).

Accepted Answer

(1)The demand for Canadian assets declines,and the demand for dollars declines.The dollar will depreciate.
(2)The demand for Japanese goods declines.The demand for the Japanese yen declines.The yen will depreciate.
(3)Income decreases in Europe.Demand for imports declines.Supply of euros declines.The euro will appreciate.
(4)The price of Japanese cars in Canada rises.The demand for the Japanese yen declines,which implies that the supply of dollars will decline.The dollar will appreciate.

Question 4

An increase in Canadian interest rates will lead to an appreciation of the Canadian dollar.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is an argument in favour of fixed exchange rates?

Accepted Answer

A) They add a degree of certainty to international trade. 
B) They prevent instability in the export and import industries. 
C) They discourage currency speculation. 
D) They appeal to people who tend to equate the exchange rate with national prestige. 
E) They enhance the effectiveness of monetary policy. 
A) They add a degree of certainty to international trade. 
B) They prevent instability in the export and import industries. 
C) They discourage currency speculation. 
D) They appeal to people who tend to equate the exchange rate with national prestige. 
E) They enhance the effectiveness of monetary policy.

Question 6

-Refer to Table 11.7 to answer this question.What is the price of one Canadian dollar in Year 2?

Accepted Answer

A) 72 yen. 
B) 80 yen. 
C) 88 yen. 
D) Cannot be determined. 
A) 72 yen. 
B) 80 yen. 
C) 88 yen. 
D) Cannot be determined.

Question 7

Assume that Canada and Britain have flexible exchange rates.If the price level is stable in Canada,but Britain experiences rapid inflation,what could we expect?

Accepted Answer

A) That the dollar would depreciate. 
B) That the pound will appreciate. 
C) That the pound will depreciate. 
D) That foreign reserves of Canada will fall. 
E) That foreign reserves of Britain will fall. 
A) That the dollar would depreciate. 
B) That the pound will appreciate. 
C) That the pound will depreciate. 
D) That foreign reserves of Canada will fall. 
E) That foreign reserves of Britain will fall.

Question 8

For each of the following,state whether it creates a demand for or supply of Canadian dollars:
(a)A Japanese automobile firm builds an assembly plant in Manitoba.
(b)A Canadian importer purchases a shipload of Saudi Arabia oil.
(c)A Canadian student spends a summer in England studying in Oxford.
(d)A French exporter ships products to Argentina using a Canadian freighter.
(e)Currency traders feel that the value of the Canadian dollar will fall in the near future and act on that feeling.

Accepted Answer

(a)Demand.
(b)Supply

Question 9

Refer to the following list,and identify who would be hurt and who would benefit from a depreciation of the Canadian dollar.
a)An Italian father spending a summer with his daughter in Ottawa.
b)A Canadian researcher living in California who is paid a monthly salary by his Vancouver employer.
c)A retired British couple living in Victoria and receiving a British pension.
d)A Nova Scotia couple thinking of buying retirement property in Florida.
e)A Canadian family who regularly visit Spain.

Accepted Answer

a)benefit

Question 10

What does a managed (or dirty)float mean?

Accepted Answer

A) That a country's currency is fixed to the price of gold. 
B) That a country's currency is fixed to the value of the U.S.dollar. 
C) That a country's balance of payments is persistently in deficit. 
D) That the country's central bank fixes the value of its currency. 
E) That a country's central bank buys and sells currencies in order to smooth out short-run fluctuations in its own currency. 
A) That a country's currency is fixed to the price of gold. 
B) That a country's currency is fixed to the value of the U.S.dollar. 
C) That a country's balance of payments is persistently in deficit. 
D) That the country's central bank fixes the value of its currency. 
E) That a country's central bank buys and sells currencies in order to smooth out short-run fluctuations in its own currency.

Question 11

The purchasing power parity theory suggests that exchange rates adjust so as to equate the purchasing power of each currency.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following will unambiguously appreciate Canada's real exchange rate?

Accepted Answer

A) Increases in the Canadian and American price level 
B) Increases in the Canadian price level and the Canadian nominal exchange rate. 
C) Decreases in the Canadian and American price level. 
D) Decreases in the Canadian price level and the Canadian nominal exchange rate. 
A) Increases in the Canadian and American price level 
B) Increases in the Canadian price level and the Canadian nominal exchange rate. 
C) Decreases in the Canadian and American price level. 
D) Decreases in the Canadian price level and the Canadian nominal exchange rate.

Question 13

If there is a surplus of Canadian dollars on the foreign exchange market,which of the following statements is true?

Accepted Answer

A) The Canadian dollar is over-valued. 
B) The Canadian dollar is under-valued. 
C) Canada must be on a flexible exchange rate system. 
D) Demand for the currency could have recently fallen. 
E) a)and d). 
A) The Canadian dollar is over-valued. 
B) The Canadian dollar is under-valued. 
C) Canada must be on a flexible exchange rate system. 
D) Demand for the currency could have recently fallen. 
E) a)and d).

Question 14

What are the four determinants of the demand for the Canadian dollar?

Accepted Answer

The determinants of the demand for Canad

Question 15

All of the following except one explain why the purchasing power theory does not hold in the real world.Which is the exception?

Accepted Answer

A) Most personal services cannot be traded between countries. 
B) There are costs of transportation involved in international trading,and differences in these costs may persist. 
C) Some products are more expensive to produce in one country than in another. 
D) Tariffs and quotas alter the prices of products and affect the free trading of products. 
E) Consumers in different countries sometimes have different preferences. 
A) Most personal services cannot be traded between countries. 
B) There are costs of transportation involved in international trading,and differences in these costs may persist. 
C) Some products are more expensive to produce in one country than in another. 
D) Tariffs and quotas alter the prices of products and affect the free trading of products. 
E) Consumers in different countries sometimes have different preferences.

Question 16

What will depreciation of the Hong Kong dollar do?

Accepted Answer

A) Make Hong Kong exports cheaper,but its imports more expensive. 
B) Make Hong Kong exports more expensive,but its imports cheaper. 
C) Make Hong Kong's exports and imports both less expensive. 
D) Make Hong Kong exports and imports both more expensive. 
E) Will lead to a balance of payments surplus for Hong Kong. 
A) Make Hong Kong exports cheaper,but its imports more expensive. 
B) Make Hong Kong exports more expensive,but its imports cheaper. 
C) Make Hong Kong's exports and imports both less expensive. 
D) Make Hong Kong exports and imports both more expensive. 
E) Will lead to a balance of payments surplus for Hong Kong.

Question 17

A fixed exchange rate above the market value will lead to an outflow of foreign currencies.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the international demand and supply of Canadian dollars (in billions)is as shown in the following table:
   This represents the total market for Canadian dollars (i.e.there are no transfers,speculation or arbitrage).
If the exchange rate is flexible,what will be the following values:
a)The Canadian dollar
b)The balance of trade.
c)The current account balance:
d)The overall balance of payments (current and capital accounts):
Suppose,on the other hand,that the exchange rate is fixed at US 0.86,what will be the following values:
e)The current account balance:
f)The total balance of payments (current and capital accounts):

Accepted Answer

a)$0.82
b)

Question 19

-Refer to Table 11.8 to answer this question.Which of the following statements is correct?

Accepted Answer

A) The Canadian dollar has appreciated and the Japanese yen has depreciated. 
B) The Canadian dollar has depreciated and the Japanese yen has appreciated. 
C) The Japanese yen is now worth less in terms of the Canadian dollar. 
D) The Canadian dollar is now worth more in terms of the Japanese yen. 
A) The Canadian dollar has appreciated and the Japanese yen has depreciated. 
B) The Canadian dollar has depreciated and the Japanese yen has appreciated. 
C) The Japanese yen is now worth less in terms of the Canadian dollar. 
D) The Canadian dollar is now worth more in terms of the Japanese yen.

Question 20

If,in the long run,the purchasing power parity theory held true for two countries,what would we expect of the exchange rate for each of these two countries?

Accepted Answer

A) They would be proportionate to the relative price levels in the two countries. 
B) They would be at par. 
C) They would be unpredictable given the information provided. 
D) They would be gradually decrease. 
A) They would be proportionate to the relative price levels in the two countries. 
B) They would be at par. 
C) They would be unpredictable given the information provided. 
D) They would be gradually decrease.

What is the value of the euro in terms of dollars if a French importer can buy 8 dollars for 10 euros?

-Refer to the graph above to answer this question.Given a change in demand from D1 to D2,how could Switzerland maintain the value of francs in Canadian terms?

An increase in Canadian interest rates will lead to an appreciation of the Canadian dollar.

Which of the following is an argument in favour of fixed exchange rates?

-Refer to Table 11.7 to answer this question.What is the price of one Canadian dollar in Year 2?

Assume that Canada and Britain have flexible exchange rates.If the price level is stable in Canada,but Britain experiences rapid inflation,what could we expect?

What does a managed (or dirty)float mean?

The purchasing power parity theory suggests that exchange rates adjust so as to equate the purchasing power of each currency.

Which of the following will unambiguously appreciate Canada's real exchange rate?

If there is a surplus of Canadian dollars on the foreign exchange market,which of the following statements is true?

What are the four determinants of the demand for the Canadian dollar?

All of the following except one explain why the purchasing power theory does not hold in the real world.Which is the exception?

What will depreciation of the Hong Kong dollar do?

A fixed exchange rate above the market value will lead to an outflow of foreign currencies.

-Refer to Table 11.8 to answer this question.Which of the following statements is correct?

If,in the long run,the purchasing power parity theory held true for two countries,what would we expect of the exchange rate for each of these two countries?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters

Exam 11: Exchange Rates and the Balance of Payments

What is the value of the euro in terms of dollars if a French importer can buy 8 dollars for 10 euros?

-Refer to the graph above to answer this question.Given a change in demand from D1 to D2,how could Switzerland maintain the value of francs in Canadian terms?

An increase in Canadian interest rates will lead to an appreciation of the Canadian dollar.

Which of the following is an argument in favour of fixed exchange rates?

-Refer to Table 11.7 to answer this question.What is the price of one Canadian dollar in Year 2?

Assume that Canada and Britain have flexible exchange rates.If the price level is stable in Canada,but Britain experiences rapid inflation,what could we expect?

What does a managed (or dirty)float mean?

The purchasing power parity theory suggests that exchange rates adjust so as to equate the purchasing power of each currency.

Which of the following will unambiguously appreciate Canada's real exchange rate?

If there is a surplus of Canadian dollars on the foreign exchange market,which of the following statements is true?

What are the four determinants of the demand for the Canadian dollar?

All of the following except one explain why the purchasing power theory does not hold in the real world.Which is the exception?

What will depreciation of the Hong Kong dollar do?

A fixed exchange rate above the market value will lead to an outflow of foreign currencies.

-Refer to Table 11.8 to answer this question.Which of the following statements is correct?

If,in the long run,the purchasing power parity theory held true for two countries,what would we expect of the exchange rate for each of these two countries?

The Economic Problem

Demand and Supply: an Introduction

Measuring the Economy 1: GDP and Economic Growth

Measuring the Economy 2: Unemployment and Inflation

Aggregate Demand and Supply

Aggregate Expenditures

Fiscal Policy

Money and Banking

The Money Market and Monetary Policy

International Trade

Macroeconomic Policy Revisited

A Walk Through the Twentieth Century and Beyond

Filters