Question 1

As the price of the U.S.dollar increases in terms of foreign currency,

Accepted Answer

A) U.S.products become cheaper for foreigners 
B) foreign goods become cheaper for Americans 
C) dollars are worth less 
D) the U.S.demand for foreign exchange increases 
E) the supply of foreign exchange to U.S.markets decreases 
A) U.S.products become cheaper for foreigners 
B) foreign goods become cheaper for Americans 
C) dollars are worth less 
D) the U.S.demand for foreign exchange increases 
E) the supply of foreign exchange to U.S.markets decreases

Question 2

Under the gold standard,each country had little control over its own monetary policies.

Accepted Answer

A) True 
 B)False

Question 3

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 dollar ________.

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 4

The main goal of the Bretton Woods meeting was to

Accepted Answer

A) curb inflation 
B) encourage gold production 
C) set world prices for gold 
D) set up a new international system of payments and to stabilize exchange rates 
E) help less-developed countries of the Third World to develop economically 
A) curb inflation 
B) encourage gold production 
C) set world prices for gold 
D) set up a new international system of payments and to stabilize exchange rates 
E) help less-developed countries of the Third World to develop economically

Question 5

If the U.S.dollar appreciates in the foreign exchange market,

Accepted Answer

A) American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans 
B) American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans 
C) American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans 
D) American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans 
E) neither the price of U.S.exports nor the price of U.S.imports will change 
A) American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans 
B) American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans 
C) American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans 
D) American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans 
E) neither the price of U.S.exports nor the price of U.S.imports will change

Question 6

The purchasing power parity theory helps explain long-run trends in exchange rates,but not short-run fluctuations.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not classified as a service in the current account?

Accepted Answer

A) transportation 
B) insurance 
C) tourist expenditures 
D) income earned from foreign investments 
E) unilateral transfers 
A) transportation 
B) insurance 
C) tourist expenditures 
D) income earned from foreign investments 
E) unilateral transfers

Question 8

When supply and demand analysis is used to study the exchange rate,foreign exchange is treated just like

Accepted Answer

A) a good or a service 
B) debt 
C) fiat money 
D) commodity money 
E) investment 
A) a good or a service 
B) debt 
C) fiat money 
D) commodity money 
E) investment

Question 9

A speculator in foreign exchange is a person who

Accepted Answer

A) buys foreign currency,hoping to profit by selling it at a higher exchange rate at some later date 
B) earns illegal profit by manipulating foreign exchange 
C) causes differences in exchange rates in different geographic markets 
D) simultaneously buys large amounts of a currency in one market and sells it in another market 
E) takes no risks in foreign currency exchanges 
A) buys foreign currency,hoping to profit by selling it at a higher exchange rate at some later date 
B) earns illegal profit by manipulating foreign exchange 
C) causes differences in exchange rates in different geographic markets 
D) simultaneously buys large amounts of a currency in one market and sells it in another market 
E) takes no risks in foreign currency exchanges

Question 10

The foreign exchange rate is the

Accepted Answer

A) current account 
B) the law of comparative advantage 
C) the capital account 
D) the balance of trade 
E) the price of one currency in terms of another 
A) current account 
B) the law of comparative advantage 
C) the capital account 
D) the balance of trade 
E) the price of one currency in terms of another

Question 11

Which of the following is a credit item (+)in the U.S.balance of payments?

Accepted Answer

A) U.S.companies sell merchandise abroad. 
B) Foreign companies sell merchandise to U.S.consumers. 
C) U.S.consumers send money to foreign companies. 
D) Immigrants to the United States send presents of money back to their families in their native countries. 
E) Immigrants to the United States send presents of goods back to their families in their native countries. 
A) U.S.companies sell merchandise abroad. 
B) Foreign companies sell merchandise to U.S.consumers. 
C) U.S.consumers send money to foreign companies. 
D) Immigrants to the United States send presents of money back to their families in their native countries. 
E) Immigrants to the United States send presents of goods back to their families in their native countries.

Question 12

If the exchange rate changes from 75 cents per euro to $1 per euro,the euro

Accepted Answer

A) appreciated,since its value has increased 
B) appreciated,since the price of U.S.dollars has increased 
C) appreciated,making U.S.goods more expensive in Euros 
D) depreciated,since its value has declined 
E) depreciated,since its value has increased 
A) appreciated,since its value has increased 
B) appreciated,since the price of U.S.dollars has increased 
C) appreciated,making U.S.goods more expensive in Euros 
D) depreciated,since its value has declined 
E) depreciated,since its value has increased

Question 13

The breakdown of the Bretton Woods system occurred because

Accepted Answer

A) the world economy was basically unhealthy 
B) the collapse of world gold production undermined the operation of the system 
C) the gold value of the dollar exceeded the exchange value,causing an outflow of the gold 
D) the dollar was undervalued 
E) of the greed of the highly industrialized and wealthy countries of the world 
A) the world economy was basically unhealthy 
B) the collapse of world gold production undermined the operation of the system 
C) the gold value of the dollar exceeded the exchange value,causing an outflow of the gold 
D) the dollar was undervalued 
E) of the greed of the highly industrialized and wealthy countries of the world

Question 14

Suppose a basket of goods costs $400 in the United States and £200 in Britain.If the exchange rate is $1/pound,what will happen in the foreign exchange market,according to the purchasing power parity theory?

Accepted Answer

A) The market will go further out of equilibrium because of increased activity. 
B) An increase in demand for pounds will lead to an increase in the price of pounds. 
C) An increase in demand for dollars will lead to an increase in the price of dollars. 
D) An increase in demand for dollars will lead to a decrease in the price of dollars. 
E) An increase in demand for pounds will lead to a decrease in the price of pounds. 
A) The market will go further out of equilibrium because of increased activity. 
B) An increase in demand for pounds will lead to an increase in the price of pounds. 
C) An increase in demand for dollars will lead to an increase in the price of dollars. 
D) An increase in demand for dollars will lead to a decrease in the price of dollars. 
E) An increase in demand for pounds will lead to a decrease in the price of pounds.

Question 15

The current account reflects

Accepted Answer

A) trade in tangible products 
B) trade in goods as well as services 
C) trade in services only 
D) the purchase of securities from foreigners 
E) the sale of securities to foreigners 
A) trade in tangible products 
B) trade in goods as well as services 
C) trade in services only 
D) the purchase of securities from foreigners 
E) the sale of securities to foreigners

Question 16

In 2011,the United States largest balance of trade deficit was with

Accepted Answer

A) the European Union 
B) Canada 
C) China 
D) Mexico 
E) Brazil 
A) the European Union 
B) Canada 
C) China 
D) Mexico 
E) Brazil

Question 17

According to the purchasing power parity theory,in the long run

Accepted Answer

A) the exchange rate between any two currencies should be equal all over the world 
B) the value of the dollar should equal the value of the pound which should equal the value of the yen 
C) inflation rates should equalize around the world 
D) interest rates should equalize around the world 
E) the exchange rate between the Canadian dollar and the British pound should reflect differences in price levels between Canada and Britain 
A) the exchange rate between any two currencies should be equal all over the world 
B) the value of the dollar should equal the value of the pound which should equal the value of the yen 
C) inflation rates should equalize around the world 
D) interest rates should equalize around the world 
E) the exchange rate between the Canadian dollar and the British pound should reflect differences in price levels between Canada and Britain

Question 18

The theory that changes in the exchange rate reflect only changes in the price levels of two countries is called

Accepted Answer

A) the floating exchange rate theory 
B) the fixed exchange rate theory 
C) the flexible exchange rate theory 
D) purchasing power parity 
E) the managed exchange rate theory 
A) the floating exchange rate theory 
B) the fixed exchange rate theory 
C) the flexible exchange rate theory 
D) purchasing power parity 
E) the managed exchange rate theory

Question 19

The fact that exchange rates are nearly identical in different markets around the world is due to

Accepted Answer

A) the actions of speculators 
B) official action by central banks around the world 
C) the actions of arbitrageurs 
D) agreement by policy makers of the major industrial countries 
E) the actions of currency converters 
A) the actions of speculators 
B) official action by central banks around the world 
C) the actions of arbitrageurs 
D) agreement by policy makers of the major industrial countries 
E) the actions of currency converters

Question 20

One difference between arbitrageurs and speculators is that

Accepted Answer

A) arbitrageurs buy and sell foreign exchange; speculators do not 
B) speculators only buy foreign exchange but do not sell it 
C) arbitrageurs take more risks than do speculators 
D) speculators take more risks than do arbitrageurs 
E) arbitrageurs buy foreign exchange in the hope that its value will increase 
A) arbitrageurs buy and sell foreign exchange; speculators do not 
B) speculators only buy foreign exchange but do not sell it 
C) arbitrageurs take more risks than do speculators 
D) speculators take more risks than do arbitrageurs 
E) arbitrageurs buy foreign exchange in the hope that its value will increase

Exam 20: International Finance

As the price of the U.S.dollar increases in terms of foreign currency,

Under the gold standard,each country had little control over its own monetary policies.

The main goal of the Bretton Woods meeting was to

If the U.S.dollar appreciates in the foreign exchange market,

The purchasing power parity theory helps explain long-run trends in exchange rates,but not short-run fluctuations.

Which of the following is not classified as a service in the current account?

When supply and demand analysis is used to study the exchange rate,foreign exchange is treated just like

A speculator in foreign exchange is a person who

The foreign exchange rate is the

Which of the following is a credit item (+)in the U.S.balance of payments?

If the exchange rate changes from 75 cents per euro to $1 per euro,the euro

The breakdown of the Bretton Woods system occurred because

Suppose a basket of goods costs $400 in the United States and £200 in Britain.If the exchange rate is $1/pound,what will happen in the foreign exchange market,according to the purchasing power parity theory?

The current account reflects

In 2011,the United States largest balance of trade deficit was with

According to the purchasing power parity theory,in the long run

The theory that changes in the exchange rate reflect only changes in the price levels of two countries is called

The fact that exchange rates are nearly identical in different markets around the world is due to

One difference between arbitrageurs and speculators is that

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

Filters