Question 1

Foreign exchange rates tend toward equality around the world because of the actions of

Accepted Answer

A) central banks 
B) stock markets 
C) commodity markets 
D) the World Bank 
E) arbitrageurs 
A) central banks 
B) stock markets 
C) commodity markets 
D) the World Bank 
E) arbitrageurs

Question 2

The current account records

Accepted Answer

A) last year's flows of funds into and out of the country 
B) current flows of imports and exports of goods and services,net income earned by U.S.residents from foreign assets,and net transfer payments 
C) current flows of imports and exports of goods only 
D) only net income earned by U.S.residents from foreign assets 
E) only current flows of imports and exports of goods and services and net transfer payments 
A) last year's flows of funds into and out of the country 
B) current flows of imports and exports of goods and services,net income earned by U.S.residents from foreign assets,and net transfer payments 
C) current flows of imports and exports of goods only 
D) only net income earned by U.S.residents from foreign assets 
E) only current flows of imports and exports of goods and services and net transfer payments

Question 3

An increase in the U.S.demand for foreign exchange will

Accepted Answer

A) decrease the price of foreign exchange 
B) decrease the value of the U.S.dollar 
C) increase the value of the U.S.dollar 
D) make foreign goods less expensive in U.S.dollars 
E) make U.S.goods more expensive in foreign exchange 
A) decrease the price of foreign exchange 
B) decrease the value of the U.S.dollar 
C) increase the value of the U.S.dollar 
D) make foreign goods less expensive in U.S.dollars 
E) make U.S.goods more expensive in foreign exchange

Question 4

Bank deposits denominated in Mexican pesos are an example of foreign exchange.

Accepted Answer

A) True 
 B)False

Question 5

When an American buys a Swedish financial asset,

Accepted Answer

A) both c and d 
B) the U.S.balance of goods and services worsens 
C) the U.S.capital account balance declines 
D) the U.S.balance of payments worsens 
E) the U.S.trade balance worsens 
A) both c and d 
B) the U.S.balance of goods and services worsens 
C) the U.S.capital account balance declines 
D) the U.S.balance of payments worsens 
E) the U.S.trade balance worsens

Question 6

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

Accepted Answer

A) the value of the U.S.dollar has decreased 
B) the value of foreign exchange has increased 
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 fall immediately 
A) the value of the U.S.dollar has decreased 
B) the value of foreign exchange has increased 
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 fall immediately

Question 7

The reason for calling the current exchange rate system a "managed float" is

Accepted Answer

A) it is managed by the IMF 
B) it is basically a misnomer because it is impossible to "manage" exchange rates 
C) it recognizes that there will be some intervention by central banks 
D) only the forces of supply and demand determine the exchange rates 
E) Congress passed a law declaring that the exchange rate system be legally termed "managed float" 
A) it is managed by the IMF 
B) it is basically a misnomer because it is impossible to "manage" exchange rates 
C) it recognizes that there will be some intervention by central banks 
D) only the forces of supply and demand determine the exchange rates 
E) Congress passed a law declaring that the exchange rate system be legally termed "managed float"

Question 8

As the price of foreign exchange decreases relative to the U.S.dollar,

Accepted Answer

A) U.S.products become cheaper for foreigners 
B) foreign goods become cheaper for Americans 
C) more foreign currency is required to purchase a U.S.dollar 
D) the U.S.demand curve for foreign exchange shifts to the right 
E) the supply curve of foreign exchange to U.S.markets decreases 
A) U.S.products become cheaper for foreigners 
B) foreign goods become cheaper for Americans 
C) more foreign currency is required to purchase a U.S.dollar 
D) the U.S.demand curve for foreign exchange shifts to the right 
E) the supply curve of foreign exchange to U.S.markets decreases

Question 9

Critics of the current system of flexible exchange rates allege that it

Accepted Answer

A) promotes inflation 
B) promotes unemployment 
C) gives central banks too little discretion over their money supplies 
D) restricts the growth of developing countries 
E) gives too much financial power to industrial countries 
A) promotes inflation 
B) promotes unemployment 
C) gives central banks too little discretion over their money supplies 
D) restricts the growth of developing countries 
E) gives too much financial power to industrial countries

Question 10

If the same basket of goods costs $400 in the United States and 200 pounds in Britain,then according to the purchasing power parity theory,

Accepted Answer

A) goods and services must cost half as much in Britain as in the U.S. 
B) the exchange rate should approach $2/pound 
C) the exchange rate should approach $0.50/pound 
D) goods and services must cost twice as much in Britain as in the U.S. 
E) we cannot say anything about prices in the two countries unless we know the exchange rate 
A) goods and services must cost half as much in Britain as in the U.S. 
B) the exchange rate should approach $2/pound 
C) the exchange rate should approach $0.50/pound 
D) goods and services must cost twice as much in Britain as in the U.S. 
E) we cannot say anything about prices in the two countries unless we know the exchange rate

Question 11

The supply of foreign exchange to the United States is generated by the desire for foreigners to acquire dollars for all except one of the following reasons.Which is the exception?

Accepted Answer

A) The United States is considered a safe haven in times of political unrest. 
B) The dollar has long been accepted as an international medium of exchange. 
C) Foreigners want to buy U.S.assets. 
D) U.S.goods have become less attractive to foreigners. 
E) Foreigners wish to make cash gifts to family in the United States. 
A) The United States is considered a safe haven in times of political unrest. 
B) The dollar has long been accepted as an international medium of exchange. 
C) Foreigners want to buy U.S.assets. 
D) U.S.goods have become less attractive to foreigners. 
E) Foreigners wish to make cash gifts to family in the United States.

Question 12

Which of the following is true concerning unilateral transfers in the U.S.balance of payments?

Accepted Answer

A) Unilateral transfers have been positive since World War II. 
B) Unilateral transfers have been negative since World War II. 
C) Unilateral transfers have been negative every year since World War II except during the war in Iraq. 
D) The United States places tight restrictions on moneys being sent out of the country. 
E) Developing countries ordinarily place no restrictions on moneys being sent out of their countries. 
A) Unilateral transfers have been positive since World War II. 
B) Unilateral transfers have been negative since World War II. 
C) Unilateral transfers have been negative every year since World War II except during the war in Iraq. 
D) The United States places tight restrictions on moneys being sent out of the country. 
E) Developing countries ordinarily place no restrictions on moneys being sent out of their countries.

Question 13

A nation has an unfavorable balance of trade when

Accepted Answer

A) it has a surplus in its balance of payments 
B) it has a deficit in its balance of payments 
C) the value of its imports of goods is greater than the value of its exports of goods 
D) its current account is in surplus and its capital account is in deficit 
E) it has high tariffs 
A) it has a surplus in its balance of payments 
B) it has a deficit in its balance of payments 
C) the value of its imports of goods is greater than the value of its exports of goods 
D) its current account is in surplus and its capital account is in deficit 
E) it has high tariffs

Question 14

Suppose the exchange rate is such that 1 U.S.dollar equals 1 euro in New York and 0.9 euros in Paris.An arbitrageur would sell euros

Accepted Answer

A) in New York and buy U.S.dollars in Paris 
B) in Paris and buy U.S.dollars in New York 
C) in New York while buying them in Paris 
D) in Paris while buying them in New York 
E) at the same price in both cities 
A) in New York and buy U.S.dollars in Paris 
B) in Paris and buy U.S.dollars in New York 
C) in New York while buying them in Paris 
D) in Paris while buying them in New York 
E) at the same price in both cities

Question 15

In the United States,imports have exceeded exports in every year since 1979.

Accepted Answer

A) True 
 B)False

Question 16

The demand curve for euros shows

Accepted Answer

A) a direct relationship between the dollar price of a euro and the quantity of euros demanded 
B) an inverse relation between the dollar price of a euro and the quantity of euros demanded 
C) that the higher the dollar price of a euro,the greater the quantity demanded 
D) that the more expensive it is to buy euros,the larger the quantity of European goods demanded by Americans 
E) that the dollar price of the euro is being held fixed by the European Union 
A) a direct relationship between the dollar price of a euro and the quantity of euros demanded 
B) an inverse relation between the dollar price of a euro and the quantity of euros demanded 
C) that the higher the dollar price of a euro,the greater the quantity demanded 
D) that the more expensive it is to buy euros,the larger the quantity of European goods demanded by Americans 
E) that the dollar price of the euro is being held fixed by the European Union

Question 17

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 dollar was undervalued 
D) the dollar was overvalued 
E) the ten richest countries in the world refused to cooperate any longer 
A) the world economy was basically unhealthy 
B) the collapse of world gold production undermined the operation of the system 
C) the dollar was undervalued 
D) the dollar was overvalued 
E) the ten richest countries in the world refused to cooperate any longer

Question 18

A rightward shift of the Mexican demand curve for foreign exchange will

Accepted Answer

A) decrease the price of foreign exchange in Mexico 
B) increase the value of the peso 
C) make foreign goods less expensive in terms of pesos 
D) make foreign goods more expensive in terms of pesos 
E) make Mexican goods more expensive in terms of foreign exchange 
A) decrease the price of foreign exchange in Mexico 
B) increase the value of the peso 
C) make foreign goods less expensive in terms of pesos 
D) make foreign goods more expensive in terms of pesos 
E) make Mexican goods more expensive in terms of foreign exchange

Question 19

Which of the following is not true of the statistical discrepancy in the balance of payments?

Accepted Answer

A) It is residual. 
B) It is a measure of net error in the balance of payments data. 
C) It is necessary because some transactions go unreported. 
D) An excess of credits in all other accounts must be offset by equivalent debits in the statistical discrepancy account. 
E) A difference between credits and debits is taken care of by changes in the official reserve transaction account. 
A) It is residual. 
B) It is a measure of net error in the balance of payments data. 
C) It is necessary because some transactions go unreported. 
D) An excess of credits in all other accounts must be offset by equivalent debits in the statistical discrepancy account. 
E) A difference between credits and debits is taken care of by changes in the official reserve transaction account.

Question 20

Flexible exchange rates are more volatile than floating ones.

Accepted Answer

A) True 
 B)False

Exam 20: International Finance

Foreign exchange rates tend toward equality around the world because of the actions of

The current account records

An increase in the U.S.demand for foreign exchange will

Bank deposits denominated in Mexican pesos are an example of foreign exchange.

When an American buys a Swedish financial asset,

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

The reason for calling the current exchange rate system a "managed float" is

As the price of foreign exchange decreases relative to the U.S.dollar,

Critics of the current system of flexible exchange rates allege that it

If the same basket of goods costs $400 in the United States and 200 pounds in Britain,then according to the purchasing power parity theory,

The supply of foreign exchange to the United States is generated by the desire for foreigners to acquire dollars for all except one of the following reasons.Which is the exception?

Which of the following is true concerning unilateral transfers in the U.S.balance of payments?

A nation has an unfavorable balance of trade when

Suppose the exchange rate is such that 1 U.S.dollar equals 1 euro in New York and 0.9 euros in Paris.An arbitrageur would sell euros

In the United States,imports have exceeded exports in every year since 1979.

The demand curve for euros shows

The breakdown of the Bretton Woods system occurred because

A rightward shift of the Mexican demand curve for foreign exchange will

Which of the following is not true of the statistical discrepancy in the balance of payments?

Flexible exchange rates are more volatile than floating ones.

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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