Question 1

The world's largest net debtor nation is

Accepted Answer

A) Russia 
B) China 
C) Brazil 
D) Mexico 
E) the United States 
A) Russia 
B) China 
C) Brazil 
D) Mexico 
E) the United States

Question 2

Which of the following is not a reason why residents of other countries desire to acquire dollars?

Accepted Answer

A) foreigners need dollars to purchase U.S.goods and services 
B) dollars can be used as a safe way of storing value when the foreigner's own currency is unstable 
C) dollars are accepted as an international medium of exchange 
D) dollars can be used for cash gifts from foreigners to U.S.friends and relatives 
E) dollars are the only currency accepted in international transactions 
A) foreigners need dollars to purchase U.S.goods and services 
B) dollars can be used as a safe way of storing value when the foreigner's own currency is unstable 
C) dollars are accepted as an international medium of exchange 
D) dollars can be used for cash gifts from foreigners to U.S.friends and relatives 
E) dollars are the only currency accepted in international transactions

Question 3

In 2011,the United States balance of trade deficit with China was about 4 times as large as the balance of trade deficit with Canada

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 18-2
$\begin{array}{lr}
\text { U.S. trade balance } & -\$ 250 \
\text { U.S. goods and service balance } & -\$ 240 \
\text { U.S. net unilateral transfers } & -\$ 30 \
\text { Outflow of U.S. capital } & -\$ 180 \
\text { U.S. net official reserve balance } & \$ 80 \
\text { U.S. statistical discrepancy } & \$ 30
\end{array}$
-Given the data in Exhibit 18-2,what is the inflow of foreign capital into the United States?

Accepted Answer

A) $340 
B) -$590 
C) -$230 
D) $280 
E) $490 
A) $340 
B) -$590 
C) -$230 
D) $280 
E) $490

Question 5

Under the Bretton Woods agreement,

Accepted Answer

A) nations could not adjust their exchange rates relative to the dollar for any reason 
B) exchange rates were based on a market basket of European currencies plus the dollar 
C) the United States stood ready to convert foreign holdings of dollars into gold at a fixed rate of $35 per ounce 
D) the international monetary system operated exactly like the gold standard of pre-World War II years 
E) gold played no role in the international monetary system 
A) nations could not adjust their exchange rates relative to the dollar for any reason 
B) exchange rates were based on a market basket of European currencies plus the dollar 
C) the United States stood ready to convert foreign holdings of dollars into gold at a fixed rate of $35 per ounce 
D) the international monetary system operated exactly like the gold standard of pre-World War II years 
E) gold played no role in the international monetary system

Question 6

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 moves to point D 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 7

The exchange rate is the

Accepted Answer

A) ratio of exports to imports 
B) interest rate the U.S.government charges on international transactions 
C) pricing policy of goods scheduled for export 
D) price of one nation's currency in terms of another nation's currency 
E) price that central banks charge each other for currency exchanges 
A) ratio of exports to imports 
B) interest rate the U.S.government charges on international transactions 
C) pricing policy of goods scheduled for export 
D) price of one nation's currency in terms of another nation's currency 
E) price that central banks charge each other for currency exchanges

Question 8

Which of the following events would not be recorded in the U.S.balance of payments?

Accepted Answer

A) The money supply of a foreign nation increases. 
B) Oxfam America,a U.S.relief agency,sends food to drought victims in sub-Saharan Africa. 
C) Oxfam America,a U.S.relief agency,sends farm equipment to drought victims in sub-Saharan Africa. 
D) The Pentagon stations troops in Saudi Arabia. 
E) Pepsi-Cola sends its soft drink to Russia; in return,the United States gets Stolichnaya vodka.No money changes hands. 
A) The money supply of a foreign nation increases. 
B) Oxfam America,a U.S.relief agency,sends food to drought victims in sub-Saharan Africa. 
C) Oxfam America,a U.S.relief agency,sends farm equipment to drought victims in sub-Saharan Africa. 
D) The Pentagon stations troops in Saudi Arabia. 
E) Pepsi-Cola sends its soft drink to Russia; in return,the United States gets Stolichnaya vodka.No money changes hands.

Question 9

Suppose that U.S.incomes rise relative to British incomes.Then,

Accepted Answer

A) the dollar will appreciate and the pound will depreciate 
B) the dollar will depreciate and the pound will appreciate 
C) the dollar will depreciate and the pound's value will remain constant 
D) the dollar will appreciate and the pound's value will remain constant 
E) neither the dollar nor the pound will be affected 
A) the dollar will appreciate and the pound will depreciate 
B) the dollar will depreciate and the pound will appreciate 
C) the dollar will depreciate and the pound's value will remain constant 
D) the dollar will appreciate and the pound's value will remain constant 
E) neither the dollar nor the pound will be affected

Question 10

If the exchange rate has been $1.50 per British pound but now falls to $1.25 per British pound,there will be

Accepted Answer

A) more U.S.imports from Great Britain because the price of pounds has fallen 
B) more exports to Great Britain because the price of pounds has risen 
C) fewer exports to Great Britain because the price of the pound has risen 
D) more U.S.exports to Great Britain since the price of the dollar has fallen 
E) no change in either exports or imports 
A) more U.S.imports from Great Britain because the price of pounds has fallen 
B) more exports to Great Britain because the price of pounds has risen 
C) fewer exports to Great Britain because the price of the pound has risen 
D) more U.S.exports to Great Britain since the price of the dollar has fallen 
E) no change in either exports or imports

Question 11

The purchasing power parity (PPP)theory suggests the prices of identical items will equalize internationally.An illustration that supports this theory is the fact that the price of a McDonald's "Big Mac" is the same around the world.

Accepted Answer

A) True 
 B)False

Question 12

The purchasing power parity theory

Accepted Answer

A) is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate 
B) predicts that exchange rates between two currencies will adjust in the long run to reflect the price level difference between two countries 
C) is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries 
D) is helpful in explaining long-run trends,even though trade barriers and central bank intervention may hinder the usefulness of the theory 
E) tells us that a country's currency generally will appreciate if its inflation rate is lower than that of the rest of the world 
A) is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate 
B) predicts that exchange rates between two currencies will adjust in the long run to reflect the price level difference between two countries 
C) is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries 
D) is helpful in explaining long-run trends,even though trade barriers and central bank intervention may hinder the usefulness of the theory 
E) tells us that a country's currency generally will appreciate if its inflation rate is lower than that of the rest of the world

Question 13

Under fixed exchange rates,a central bank

Accepted Answer

A) adjusts the money supply automatically and immediately to changes in the demand and supply of foreign exchange 
B) need hold no reserves of foreign exchange 
C) enforces the fixed exchange rate by refusing to buy or sell foreign exchange whenever changes occur in demand or supply 
D) may find its reserves fluctuating as demand and supply conditions change 
E) has no authority to buy or sell foreign exchange 
A) adjusts the money supply automatically and immediately to changes in the demand and supply of foreign exchange 
B) need hold no reserves of foreign exchange 
C) enforces the fixed exchange rate by refusing to buy or sell foreign exchange whenever changes occur in demand or supply 
D) may find its reserves fluctuating as demand and supply conditions change 
E) has no authority to buy or sell foreign exchange

Question 14

Under a flexible exchange rate system,which one of the following would not directly affect the exchange rate?

Accepted Answer

A) a change in income 
B) the relative inflation rates in two countries 
C) the salary of the president of the United States 
D) a change in capital flows 
E) a change in the level of exports or imports 
A) a change in income 
B) the relative inflation rates in two countries 
C) the salary of the president of the United States 
D) a change in capital flows 
E) a change in the level of exports or imports

Question 15

If the U.S.demand for British pounds increases,

Accepted Answer

A) the dollar price of a British pound will increase 
B) the dollar price of a British pound will decrease 
C) the exchange rate between dollars and pounds will be out of equilibrium 
D) the pound will fall in value against the dollar 
E) there will be no change in either the value of the dollar or the pound 
A) the dollar price of a British pound will increase 
B) the dollar price of a British pound will decrease 
C) the exchange rate between dollars and pounds will be out of equilibrium 
D) the pound will fall in value against the dollar 
E) there will be no change in either the value of the dollar or the pound

Question 16

An increase in U.S.income that increases American demand for all normal goods (including imports from Britain)will shift

Accepted Answer

A) the U.S.demand curve for foreign exchange to the right,causing an increase in the dollar-per-pound exchange rate 
B) the U.S.demand curve for foreign exchange to the left,causing a decrease in the dollar-per-pound exchange rate 
C) the U.S.supply curve for foreign exchange to the right,causing a decrease in the dollar-per-pound exchange rate 
D) the U.S.supply curve for foreign exchange to the left,causing an increase in the dollar-per-pound exchange rate 
E) neither the U.S.demand curve for foreign exchange nor the U.S.supply curve for foreign exchange 
A) the U.S.demand curve for foreign exchange to the right,causing an increase in the dollar-per-pound exchange rate 
B) the U.S.demand curve for foreign exchange to the left,causing a decrease in the dollar-per-pound exchange rate 
C) the U.S.supply curve for foreign exchange to the right,causing a decrease in the dollar-per-pound exchange rate 
D) the U.S.supply curve for foreign exchange to the left,causing an increase in the dollar-per-pound exchange rate 
E) neither the U.S.demand curve for foreign exchange nor the U.S.supply curve for foreign exchange

Question 17

Which of the following statements concerning speculators is true?

Accepted Answer

A) There is no risk involved in speculative activity. 
B) They simultaneously buy and sell a currency in different markets. 
C) They hope to profit by trading a currency at a different exchange rate later. 
D) Their actions do not affect exchange rates. 
E) Their actions are exactly like those of arbitrageurs. 
A) There is no risk involved in speculative activity. 
B) They simultaneously buy and sell a currency in different markets. 
C) They hope to profit by trading a currency at a different exchange rate later. 
D) Their actions do not affect exchange rates. 
E) Their actions are exactly like those of arbitrageurs.

Question 18

The balance of payments can be thought of as the balance of economic transactions.

Accepted Answer

A) True 
 B)False

Question 19

The purchasing power parity theory is a good predictor of

Accepted Answer

A) all of the following 
B) the long-run tendencies between changes in the price level and the exchange rate of two countries 
C) interest rate differentials between two countries when there are strong barriers preventing trade between the two countries 
D) how intervention in exchange markets by central banks influences prices in various countries 
E) the day-to-day relationship between changes in the price level and the exchange rate of two countries 
A) all of the following 
B) the long-run tendencies between changes in the price level and the exchange rate of two countries 
C) interest rate differentials between two countries when there are strong barriers preventing trade between the two countries 
D) how intervention in exchange markets by central banks influences prices in various countries 
E) the day-to-day relationship between changes in the price level and the exchange rate of two countries

Question 20

In the United States,imports have exceeded exports in every year since 1960.

Accepted Answer

A) True 
 B)False

Exam 20: International Finance

The world's largest net debtor nation is

Which of the following is not a reason why residents of other countries desire to acquire dollars?

In 2011,the United States balance of trade deficit with China was about 4 times as large as the balance of trade deficit with Canada

Under the Bretton Woods agreement,

The exchange rate is the

Which of the following events would not be recorded in the U.S.balance of payments?

Suppose that U.S.incomes rise relative to British incomes.Then,

If the exchange rate has been $1.50 per British pound but now falls to $1.25 per British pound,there will be

The purchasing power parity (PPP)theory suggests the prices of identical items will equalize internationally.An illustration that supports this theory is the fact that the price of a McDonald's "Big Mac" is the same around the world.

The purchasing power parity theory

Under fixed exchange rates,a central bank

Under a flexible exchange rate system,which one of the following would not directly affect the exchange rate?

If the U.S.demand for British pounds increases,

An increase in U.S.income that increases American demand for all normal goods (including imports from Britain)will shift

Which of the following statements concerning speculators is true?

The balance of payments can be thought of as the balance of economic transactions.

The purchasing power parity theory is a good predictor of

In the United States,imports have exceeded exports in every year since 1960.

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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