Question 1

One signal that the U.S.dollar was overvalued in the early 1970s was

Accepted Answer

A) the stable price of gold 
B) the volume of international trade 
C) the recurring balance of trade deficits in the United States 
D) the recurring balance of trade deficits in European countries 
E) reduced deposits in the World Bank 
A) the stable price of gold 
B) the volume of international trade 
C) the recurring balance of trade deficits in the United States 
D) the recurring balance of trade deficits in European countries 
E) reduced deposits in the World Bank

Question 2

Foreign nations' demand for dollars increases as

Accepted Answer

A) Americans travel abroad 
B) foreigners purchase American goods 
C) Americans purchase foreign goods 
D) Americans buy foreign stocks or bonds 
E) Americans send cash gifts abroad 
A) Americans travel abroad 
B) foreigners purchase American goods 
C) Americans purchase foreign goods 
D) Americans buy foreign stocks or bonds 
E) Americans send cash gifts abroad

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 an increase in the income of US consumers the equilibrium will be at point _____.

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) E 
A) A 
B) B 
C) C 
D) D 
E) E

Question 4

Which of the following statements is not true of fixed and flexible exchange rate systems?

Accepted Answer

A) Under fixed exchange rates,government officials have little direct role in the foreign exchange market. 
B) Under fixed exchange rates,the government must select an appropriate exchange rate. 
C) Under fixed exchange rates,active central bank intervention is necessary to maintain the fixed exchange rate. 
D) Under fixed exchange rates,the governments must stand ready to buy all foreign exchange offered to it and supply all foreign exchange demanded from it. 
E) Flexible exchange rates rely on market forces to set the exchange rate,but fixed exchange rates are set by central banks. 
A) Under fixed exchange rates,government officials have little direct role in the foreign exchange market. 
B) Under fixed exchange rates,the government must select an appropriate exchange rate. 
C) Under fixed exchange rates,active central bank intervention is necessary to maintain the fixed exchange rate. 
D) Under fixed exchange rates,the governments must stand ready to buy all foreign exchange offered to it and supply all foreign exchange demanded from it. 
E) Flexible exchange rates rely on market forces to set the exchange rate,but fixed exchange rates are set by central banks.

Question 5

The current account shows international transactions in goods and services,the capital account shows international transactions involving the flow of financial assets,and the official reserve transactions account shows movement of international reserves.

Accepted Answer

A) True 
 B)False

Question 6

The statistical discrepancy

Accepted Answer

A) is always positive 
B) is always negative 
C) must be reduced to zero and eliminated from the balance of payments before the records become official 
D) is a residual factor that indicates the net error in the balance of payments data 
E) is a record of all transactions between residents of two countries over a specified period 
A) is always positive 
B) is always negative 
C) must be reduced to zero and eliminated from the balance of payments before the records become official 
D) is a residual factor that indicates the net error in the balance of payments data 
E) is a record of all transactions between residents of two countries over a specified period

Question 7

If the exchange rate changes from 1500 lire per U.S.dollar to 1000 lire per U.S.dollar,the U.S.dollar has

Accepted Answer

A) appreciated,since its value has increased 
B) appreciated,since the price of foreign exchange has increased 
C) appreciated,making Italian goods cheaper in U.S.dollars 
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 foreign exchange has increased 
C) appreciated,making Italian goods cheaper in U.S.dollars 
D) depreciated,since its value has declined 
E) depreciated,since its value has increased

Question 8

In the early 1970s,in an attempt to solve the problem of the overvalued U.S.dollar,world leaders

Accepted Answer

A) increased the price of gold in terms of other currencies 
B) appreciated the dollar,which made foreign exchange cheaper to U.S.residents 
C) appreciated the dollar,which made foreign exchange more expensive to U.S.residents 
D) devalued the dollar,which made foreign exchange cheaper to U.S.residents 
E) devalued the dollar,which made foreign exchange more expensive to U.S.residents 
A) increased the price of gold in terms of other currencies 
B) appreciated the dollar,which made foreign exchange cheaper to U.S.residents 
C) appreciated the dollar,which made foreign exchange more expensive to U.S.residents 
D) devalued the dollar,which made foreign exchange cheaper to U.S.residents 
E) devalued the dollar,which made foreign exchange more expensive to U.S.residents

Question 9

Foreign investors may wish to purchase U.S.assets for all of the following reasons except one.Which is the exception?

Accepted Answer

A) The rate of return on assets is higher in the United States than in other countries. 
B) They may wish to diversify their portfolios. 
C) The United States may be regarded as a relatively safer place in which to invest. 
D) Governments of most other industrialized countries actively discourage foreign investment. 
E) With their increased foreign debt burdens,investment in developing countries has become less attractive. 
A) The rate of return on assets is higher in the United States than in other countries. 
B) They may wish to diversify their portfolios. 
C) The United States may be regarded as a relatively safer place in which to invest. 
D) Governments of most other industrialized countries actively discourage foreign investment. 
E) With their increased foreign debt burdens,investment in developing countries has become less attractive.

Question 10

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 will be at point _____.

Accepted Answer

A) A 
B) C 
C) E 
D) G 
E) H 
A) A 
B) C 
C) E 
D) G 
E) H

Question 11

The Bretton Woods system fixed all exchange rates in terms of the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 18-7  
-Suppose that in response to the demand shift shown in Exhibit 18-7,Mexico's central bank takes action to protect its currency,the peso,from depreciating.Enforcing a floor such as Mexico establishes is

Accepted Answer

A) easier in the long run,when policy makers at the central bank can focus beyond temporary fluctuations,than in the short run 
B) easier in the long run,since over time new funds are always earned in international goods transactions 
C) harder in the long run,when policy makers at the central bank can become confused by repeated fluctuations 
D) easier in the long run,since a country's import and export position will not change rapidly as long as the floor is maintained 
E) harder in the long run,since policy makers at the central bank will run out of reserves of other currency with which to buy back domestic currency 
A) easier in the long run,when policy makers at the central bank can focus beyond temporary fluctuations,than in the short run 
B) easier in the long run,since over time new funds are always earned in international goods transactions 
C) harder in the long run,when policy makers at the central bank can become confused by repeated fluctuations 
D) easier in the long run,since a country's import and export position will not change rapidly as long as the floor is maintained 
E) harder in the long run,since policy makers at the central bank will run out of reserves of other currency with which to buy back domestic currency

Question 13

The current account shows international transactions in goods and services,the capital account shows international transactions involving the flow of financial assets,and the official reserve transactions account shows movement of international reserves.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true?

Accepted Answer

A) If the Australian dollar depreciates,the Australian trade deficit decreases,since Australian products become cheaper to foreigners. 
B) If the Australian dollar depreciates,the Australian trade deficit decreases,since Australian products become more expensive to foreigners. 
C) If the Australian dollar depreciates,the Australian trade deficit increases,since Australian products become more expensive to foreigners. 
D) If the Australian dollar appreciates,the Australian trade deficit decreases,since Australian products become cheaper to foreigners. 
E) If the Australian dollar appreciates,the Australian trade deficit decreases,since Australian products become more expensive to foreigners. 
A) If the Australian dollar depreciates,the Australian trade deficit decreases,since Australian products become cheaper to foreigners. 
B) If the Australian dollar depreciates,the Australian trade deficit decreases,since Australian products become more expensive to foreigners. 
C) If the Australian dollar depreciates,the Australian trade deficit increases,since Australian products become more expensive to foreigners. 
D) If the Australian dollar appreciates,the Australian trade deficit decreases,since Australian products become cheaper to foreigners. 
E) If the Australian dollar appreciates,the Australian trade deficit decreases,since Australian products become more expensive to foreigners.

Question 15

An exchange rate is the price of one commodity (e.g.,corn)measured in terms of another commodity (e.g.,wheat).

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true?

Accepted Answer

A) both b and c 
B) the U.S.capital account records international transactions involving purchases of investments 
C) the U.S.capital account records international transactions involving sales of investments 
D) U.S.capital refers to the export of real capital only 
E) U.S.capital outflows result when foreigners purchase U.S.assets 
A) both b and c 
B) the U.S.capital account records international transactions involving purchases of investments 
C) the U.S.capital account records international transactions involving sales of investments 
D) U.S.capital refers to the export of real capital only 
E) U.S.capital outflows result when foreigners purchase U.S.assets

Question 17

Exhibit 18-5  
-Suppose that British incomes rise relative to incomes in the United States.Then,in Exhibit 18-5

Accepted Answer

A) the demand curve will shift from D1 to D2 
B) the demand curve will shift from D2 to D1 
C) the supply curve will shift from S1 to S2 
D) the supply curve will shift from S2 to S1 
E) neither the demand for nor the supply curve will shift 
A) the demand curve will shift from D1 to D2 
B) the demand curve will shift from D2 to D1 
C) the supply curve will shift from S1 to S2 
D) the supply curve will shift from S2 to S1 
E) neither the demand for nor the supply curve will shift

Question 18

Which of the following is not considered a unilateral transfer?

Accepted Answer

A) foreign aid from one government to another 
B) income earned from foreign investments 
C) personal gifts to friends in foreign countries 
D) donations to foreign countries from non-government domestic charities 
E) government transfers to foreign residents 
A) foreign aid from one government to another 
B) income earned from foreign investments 
C) personal gifts to friends in foreign countries 
D) donations to foreign countries from non-government domestic charities 
E) government transfers to foreign residents

Question 19

U.S.investment earnings from foreign assets minus foreigners' earnings from their U.S.assets is

Accepted Answer

A) the merchandise trade balance 
B) net unilateral transfers abroad 
C) the balance on good and services 
D) net investment from abroad 
E) the financial account 
A) the merchandise trade balance 
B) net unilateral transfers abroad 
C) the balance on good and services 
D) net investment from abroad 
E) the financial account

Question 20

The current international monetary system is

Accepted Answer

A) a flexible exchange rate system 
B) a fixed exchange rate system 
C) a system combining fixed and flexible exchange rates 
D) a gold standard 
E) a gold exchange rate system 
A) a flexible exchange rate system 
B) a fixed exchange rate system 
C) a system combining fixed and flexible exchange rates 
D) a gold standard 
E) a gold exchange rate system

Exam 20: International Finance

One signal that the U.S.dollar was overvalued in the early 1970s was

Foreign nations' demand for dollars increases as

Which of the following statements is not true of fixed and flexible exchange rate systems?

The current account shows international transactions in goods and services,the capital account shows international transactions involving the flow of financial assets,and the official reserve transactions account shows movement of international reserves.

The statistical discrepancy

If the exchange rate changes from 1500 lire per U.S.dollar to 1000 lire per U.S.dollar,the U.S.dollar has

In the early 1970s,in an attempt to solve the problem of the overvalued U.S.dollar,world leaders

Foreign investors may wish to purchase U.S.assets for all of the following reasons except one.Which is the exception?

The Bretton Woods system fixed all exchange rates in terms of the U.S.dollar.

Exhibit 18-7 -Suppose that in response to the demand shift shown in Exhibit 18-7,Mexico's central bank takes action to protect its currency,the peso,from depreciating.Enforcing a floor such as Mexico establishes is

The current account shows international transactions in goods and services,the capital account shows international transactions involving the flow of financial assets,and the official reserve transactions account shows movement of international reserves.

Which of the following is true?

An exchange rate is the price of one commodity (e.g.,corn)measured in terms of another commodity (e.g.,wheat).

Which of the following is true?

Exhibit 18-5 -Suppose that British incomes rise relative to incomes in the United States.Then,in Exhibit 18-5

Which of the following is not considered a unilateral transfer?

U.S.investment earnings from foreign assets minus foreigners' earnings from their U.S.assets is

The current international monetary system is

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