Question 1

When the exchange rate is allowed to adjust to market forces,all of the following are true except one.Which is the exception?

Accepted Answer

A) The foreign exchange market clears continually. 
B) The quantities of foreign exchange demanded and supplied are equal. 
C) The exchange rate will only change if the central bank alters the exchange rate. 
D) The exchange rate will remain constant until a change occurs in one of the factors that affect supply or demand. 
E) The forces of demand and supply determine the exchange rate. 
A) The foreign exchange market clears continually. 
B) The quantities of foreign exchange demanded and supplied are equal. 
C) The exchange rate will only change if the central bank alters the exchange rate. 
D) The exchange rate will remain constant until a change occurs in one of the factors that affect supply or demand. 
E) The forces of demand and supply determine the exchange rate.

Question 2

A leftward shift of the European demand curve for foreign exchange will

Accepted Answer

A) decrease the price of foreign exchange in Europe 
B) increase the price of foreign exchange in Europe 
C) decrease the value of the euro 
D) make foreign goods more expensive in terms of euros 
E) make European goods less expensive in terms of foreign exchange 
A) decrease the price of foreign exchange in Europe 
B) increase the price of foreign exchange in Europe 
C) decrease the value of the euro 
D) make foreign goods more expensive in terms of euros 
E) make European goods less expensive in terms of foreign exchange

Question 3

The trade balance is

Accepted Answer

A) the services balance plus the current account balance plus the capital account balance 
B) merchandise exports minus merchandise imports 
C) the current account balance plus the capital account balance 
D) foreign purchases of domestic assets minus domestic purchases of foreign assets 
E) the services balance plus the capital account balance 
A) the services balance plus the current account balance plus the capital account balance 
B) merchandise exports minus merchandise imports 
C) the current account balance plus the capital account balance 
D) foreign purchases of domestic assets minus domestic purchases of foreign assets 
E) the services balance plus the capital account balance

Question 4

Suppose a basket of goods that costs $400 in the United States costs only £200 in Britain and the current exchange rate is $1/pound.According to the purchasing power parity theory,the equilibrium exchange rate should be higher than $1/pound.Why?

Accepted Answer

A) The basket could be purchased in Britain for £200 and sold in the United States for $400,and the $400 could be used to purchase £400 for a £200 profit. 
B) The basket could be purchased in Britain for £200 and sold in the United States for $200,and the $200 could be used to buy £200,for a £500 profit. 
C) The basket could be purchased in the United States for $400 and sold in Britain for £400,and the £400 could be used to buy $1,400,for a £1,000 profit. 
D) The basket could be purchased in the United States for $200 and sold in Britain for £400,and the £400 could be used to buy $800,for a $400 profit. 
E) The basket could be purchased in the United States for $200 and sold in Britain for £400,and the £400 could be used to buy $900,for a £500 profit. 
A) The basket could be purchased in Britain for £200 and sold in the United States for $400,and the $400 could be used to purchase £400 for a £200 profit. 
B) The basket could be purchased in Britain for £200 and sold in the United States for $200,and the $200 could be used to buy £200,for a £500 profit. 
C) The basket could be purchased in the United States for $400 and sold in Britain for £400,and the £400 could be used to buy $1,400,for a £1,000 profit. 
D) The basket could be purchased in the United States for $200 and sold in Britain for £400,and the £400 could be used to buy $800,for a $400 profit. 
E) The basket could be purchased in the United States for $200 and sold in Britain for £400,and the £400 could be used to buy $900,for a £500 profit.

Question 5

A fixed exchange rate is enforced by

Accepted Answer

A) national governments,who establish appropriate trade barriers for each country with whom they trade 
B) national governments,who manipulate gold reserves appropriately 
C) central banks,who buy and sell appropriate currencies 
D) the International Monetary Fund,which offers loans to appropriate countries 
E) local governments,who manipulate capital reserves appropriately 
A) national governments,who establish appropriate trade barriers for each country with whom they trade 
B) national governments,who manipulate gold reserves appropriately 
C) central banks,who buy and sell appropriate currencies 
D) the International Monetary Fund,which offers loans to appropriate countries 
E) local governments,who manipulate capital reserves appropriately

Question 6

United States net unilateral transfers have been

Accepted Answer

A) positive every year since 1950 
B) negative every year since 1950 
C) positive every year since 1950 except 1991,during the Persian Gulf War 
D) negative every year since 1950 except 1991,during the Persian Gulf War 
E) positive about half the time and negative about half the time since 1950 
A) positive every year since 1950 
B) negative every year since 1950 
C) positive every year since 1950 except 1991,during the Persian Gulf War 
D) negative every year since 1950 except 1991,during the Persian Gulf War 
E) positive about half the time and negative about half the time since 1950

Question 7

Speculators profit by taking risks,while the actions of arbitrageurs involve no risk.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following components of the U.S.balance of payments includes direct investment by Americans in foreign securities?

Accepted Answer

A) U.S.official reserve assets 
B) the capital account 
C) the current account 
D) U.S.government assets abroad 
E) merchandise trade balance 
A) U.S.official reserve assets 
B) the capital account 
C) the current account 
D) U.S.government assets abroad 
E) merchandise trade balance

Question 9

If the U.S.dollar depreciates,it means that

Accepted Answer

A) the value of the U.S.dollar has increased 
B) the value of foreign exchange has decreased 
C) fewer U.S.dollars are required to purchase foreign exchange 
D) more U.S.dollars are required to purchase foreign exchange 
E) exports will immediately fall 
A) the value of the U.S.dollar has increased 
B) the value of foreign exchange has decreased 
C) fewer U.S.dollars are required to purchase foreign exchange 
D) more U.S.dollars are required to purchase foreign exchange 
E) exports will immediately fall

Question 10

If interest rates fall in country A,other things constant,

Accepted Answer

A) demand for that country's currency will fall and the currency will depreciate 
B) demand for that country's currency will fall and the currency will appreciate 
C) demand for that country's currency will rise and the currency will depreciate 
D) demand for that country's currency will rise and the currency will appreciate 
E) people in country B will pull money out of country A 
A) demand for that country's currency will fall and the currency will depreciate 
B) demand for that country's currency will fall and the currency will appreciate 
C) demand for that country's currency will rise and the currency will depreciate 
D) demand for that country's currency will rise and the currency will appreciate 
E) people in country B will pull money out of country A

Question 11

Under the gold standard,all except one of the following are true.Which is not true?

Accepted Answer

A) Paper currency was convertible into gold at a fixed rate. 
B) A balance-of-payments deficit would result in a loss of gold. 
C) A balance-of-payments surplus would result in an inflow in gold. 
D) The money supply of any country was largely determined by flows of gold. 
E) A surplus country experienced a rise in its money supply and a drop in its price level. 
A) Paper currency was convertible into gold at a fixed rate. 
B) A balance-of-payments deficit would result in a loss of gold. 
C) A balance-of-payments surplus would result in an inflow in gold. 
D) The money supply of any country was largely determined by flows of gold. 
E) A surplus country experienced a rise in its money supply and a drop in its price level.

Question 12

The actions taken by arbitrageurs in the foreign exchange markets

Accepted Answer

A) destabilize foreign exchange markets 
B) are highly risky 
C) have no effect on exchange rates 
D) help assure that exchange rates are equalized across all markets 
E) are the same as those undertaken by speculators 
A) destabilize foreign exchange markets 
B) are highly risky 
C) have no effect on exchange rates 
D) help assure that exchange rates are equalized across all markets 
E) are the same as those undertaken by speculators

Question 13

Which of the following is not true about the U.S.trade balance since 1979?

Accepted Answer

A) The balance of trade has been in deficit. 
B) During recessions the balance has usually been flat. 
C) The balance of trade has been in surplus. 
D) When the economy expanded,the demand for imports increased. 
E) When the economy expanded,the trade balance worsened. 
A) The balance of trade has been in deficit. 
B) During recessions the balance has usually been flat. 
C) The balance of trade has been in surplus. 
D) When the economy expanded,the demand for imports increased. 
E) When the economy expanded,the trade balance worsened.

Question 14

Exhibit 18-7  
-Imagine there are only two countries in the world,Mexico and Canada,and two currencies,pesos and Canadian dollars.If Mexico's central bank wants to protect its currency from depreciating in response to the demand shift shown in Exhibit 18-7,which of the following is most likely to be the policy it will choose?

Accepted Answer

A) increasing the supply of pesos 
B) decreasing the supply of Canadian dollars 
C) purchasing Canadian dollars with newly issued pesos 
D) purchasing pesos with reserves of Canadian dollars 
E) selling pesos to Canadians 
A) increasing the supply of pesos 
B) decreasing the supply of Canadian dollars 
C) purchasing Canadian dollars with newly issued pesos 
D) purchasing pesos with reserves of Canadian dollars 
E) selling pesos to Canadians

Question 15

The Bretton Woods agreement was reached

Accepted Answer

A) immediately after the Civil War 
B) just before World War I 
C) just after World War I 
D) just after the Great Depression 
E) toward the end of World War II 
A) immediately after the Civil War 
B) just before World War I 
C) just after World War I 
D) just after the Great Depression 
E) toward the end of World War II

Question 16

The International Monetary Fund was founded

Accepted Answer

A) in Paris in 1938 
B) in New York in 1961 
C) in Washington in 1971 
D) in New York in 1991 
E) in Bretton Woods in 1944 
A) in Paris in 1938 
B) in New York in 1961 
C) in Washington in 1971 
D) in New York in 1991 
E) in Bretton Woods in 1944

Question 17

The merchandise trade balance measures

Accepted Answer

A) the value of goods and services exported 
B) the value of all goods and services exported minus the value of all goods and services imported 
C) the value of all goods and services exported minus the value of all goods and services imported,and transactions to finance the difference 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported,and transactions to finance the difference 
A) the value of goods and services exported 
B) the value of all goods and services exported minus the value of all goods and services imported 
C) the value of all goods and services exported minus the value of all goods and services imported,and transactions to finance the difference 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported,and transactions to finance the difference

Question 18

If the U.S.dollar appreciates,it becomes cheaper for Australians to visit their relatives in the United States.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 18-8  
-Exhibit 18-8 shows the market for euros in the US.Initially the demand for euros is represented by D1 and the supply of euros is represented by S1.Equilibrium in the market for euros is at point A.In response to a decrease in the income of US consumers the equilibrium moves to point H and the euro ________.

Accepted Answer

A) appreciates in value 
B) depreciates in value 
C) is devalued 
D) is revalued 
E) accommodates 
A) appreciates in value 
B) depreciates in value 
C) is devalued 
D) is revalued 
E) accommodates

Question 20

What replaced the Bretton Woods system?

Accepted Answer

A) the gold standard 
B) a pooled currency system 
C) a free float system 
D) a managed float system 
E) fixed exchange rates 
A) the gold standard 
B) a pooled currency system 
C) a free float system 
D) a managed float system 
E) fixed exchange rates

Exam 20: International Finance

When the exchange rate is allowed to adjust to market forces,all of the following are true except one.Which is the exception?

A leftward shift of the European demand curve for foreign exchange will

The trade balance is

Suppose a basket of goods that costs $400 in the United States costs only £200 in Britain and the current exchange rate is $1/pound.According to the purchasing power parity theory,the equilibrium exchange rate should be higher than $1/pound.Why?

A fixed exchange rate is enforced by

United States net unilateral transfers have been

Speculators profit by taking risks,while the actions of arbitrageurs involve no risk.

Which of the following components of the U.S.balance of payments includes direct investment by Americans in foreign securities?

If the U.S.dollar depreciates,it means that

If interest rates fall in country A,other things constant,

Under the gold standard,all except one of the following are true.Which is not true?

The actions taken by arbitrageurs in the foreign exchange markets

Which of the following is not true about the U.S.trade balance since 1979?

The Bretton Woods agreement was reached

The International Monetary Fund was founded

The merchandise trade balance measures

If the U.S.dollar appreciates,it becomes cheaper for Australians to visit their relatives in the United States.

What replaced the Bretton Woods system?

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

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