Exam 11: Exchange Rates and the Balance of Payments

-Refer to the graph above to answer this question.If the American dollar was fixed at a value of OB Canadian dollars and the demand was to drop from D1 to D2,then which of the following would be true?

What are the components of the current account?

Where would each of the following appear in the balance of payments account? (a)You order some tulip bulbs from a supplier in Holland. (b)While on vacation in London,you pay to have your shoes repaired. (c)A Canadian firm buys shares in a German company. (d)You receive dividends from the ownership of a German company's stock. (e)A Japanese citizen buys a Canadian bond. (f)A Canadian company builds a manufacturing plant in Mexico.

The following table shows the price,in Canadian dollars,of utops,the currency used in the hypothetical economy of Utopia.Assume that a system of flexible exchange rates is in place. -Refer to the information above to answer this question.What is the equilibrium exchange rate?

Which of the following will occur with an undervalued currency

If the price of a Canadian dollar becomes more expensive to Mexicans,then what has happened?

Which of the following will generate a demand for Canadian dollars in the foreign exchange market?

Which of the following creates a supply of Japanese yen in foreign exchange markets?

An increase in imports will have a negative effect on the current account balance.

Assume Canada has a flexible exchange rate regime.Explain the impact on the Canadian foreign exchange market if there is an increase in Canadian interest rates.

What does it mean for a country that is on a fixed exchange-rate system to have a balance of payments surplus?

Which of the following would result from an increase in Canada's GDP?

Figure 11.9 shows the market for the U.S.dollar. -Refer to the graph in the figure above to answer this question.What is the value of the U.S.dollar if a flexible exchange-rate system is in effect?

Which of the following is true of the Canadian dollar,in terms of the U.S.dollar?

By what method may a government be able to increase the value of its country's currency?

Where does the supply of Canadian dollars on foreign exchange markets come from?

Assume that Canada and France have flexible exchange rates.If Canada institutes an easy money policy,what can we expect?

If the exchange rate between the Canadian dollar and the Mexican peso is $1 per 10 pesos,then what is the price of 1 peso in Canadian terms?

Given the following hypothetical exchange rates: Assuming no transaction cost,for the holder of Canadian dollars is there an arbitrage opportunity? Explain.

Assume that Canada has a fixed exchange rate regime.Explain the effect on the foreign exchange market if there is a decrease in foreign income.What will the Bank of Canada do to maintain the fixed exchange rate?