Question 1

Current account transactions are all payments that are related to the purchase or sale of

Accepted Answer

A)  goods only. 
B)  services only. 
C)  goods and services only. 
D)  goods and services excluding government purchases. 
A)  goods only. 
B)  services only. 
C)  goods and services only. 
D)  goods and services excluding government purchases.

Question 2

The sum of the current account, the capital account, and the official reserve transaction account is

Accepted Answer

A)  always positive. 
B)  always negative. 
C)  positive when exports are greater than imports. 
D)  zero. 
A)  always positive. 
B)  always negative. 
C)  positive when exports are greater than imports. 
D)  zero.

Question 3

A depreciation of a nation's currency is

Accepted Answer

A)  a situation in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. 
B)  the increase in the exchange value of one nation's currency in terms of an other nation. 
C)  a nation in which households, firms, and governments buy and sell national currencies. 
D)  the decrease in the exchange value of one nation's currency in terms of another nation. 
A)  a situation in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand. 
B)  the increase in the exchange value of one nation's currency in terms of an other nation. 
C)  a nation in which households, firms, and governments buy and sell national currencies. 
D)  the decrease in the exchange value of one nation's currency in terms of another nation.

Question 4

The foreign exchange system that has the highest foreign exchange risk is

Accepted Answer

A)  the Gold Standard 
B)  the fixed exchange rate. 
C)  the floating exchange rate. 
D)  the Bretton Woods system. 
A)  the Gold Standard 
B)  the fixed exchange rate. 
C)  the floating exchange rate. 
D)  the Bretton Woods system.

Question 5

The international financial market moved towards equilibrium under the gold standard due to

Accepted Answer

A)  shifts in exchange rates caused by changes in supply and demand for foreign exchange. 
B)  changes in interest rates. 
C)  negotiations among central banks. 
D)  flows of gold among countries. 
A)  shifts in exchange rates caused by changes in supply and demand for foreign exchange. 
B)  changes in interest rates. 
C)  negotiations among central banks. 
D)  flows of gold among countries.

Question 6

If an exporter wants to limit the effect of possible changes in the exchange rate on the value of her exports, then she can adopt a strategy known as

Accepted Answer

A)  floating. 
B)  speculating. 
C)  hedging. 
D)  appreciating. 
A)  floating. 
B)  speculating. 
C)  hedging. 
D)  appreciating.

Question 7

The possibility that changes in the value of a nation's currency will result in variations in the market value of a business's assets is referred to as

Accepted Answer

A)  hedge risk. 
B)  foreign exchange risk. 
C)  conversion risk. 
D)  transaction risk. 
A)  hedge risk. 
B)  foreign exchange risk. 
C)  conversion risk. 
D)  transaction risk.

Question 8

When a Japanese resident buys a good or service from a U.S. producer, there is a(n)

Accepted Answer

A)  increase in the supply of yen in the foreign exchange market. 
B)  decrease in the supply of yen in the foreign exchange market. 
C)  increase in the demand for yen in the foreign exchange market. 
D)  decrease in the demand for yen in the foreign exchange market. 
A)  increase in the supply of yen in the foreign exchange market. 
B)  decrease in the supply of yen in the foreign exchange market. 
C)  increase in the demand for yen in the foreign exchange market. 
D)  decrease in the demand for yen in the foreign exchange market.

Question 9

The International Monetary Fund was created

Accepted Answer

A)  in 1945 by the Bretton Woods Agreement. 
B)  to collect money from member countries that were running balance of payments deficits. 
C)  in 1971 when President Richard Nixon signed the Bretton Woods Agreement. 
D)  in the aftermath of World War II to help nations move off of the gold standard. 
A)  in 1945 by the Bretton Woods Agreement. 
B)  to collect money from member countries that were running balance of payments deficits. 
C)  in 1971 when President Richard Nixon signed the Bretton Woods Agreement. 
D)  in the aftermath of World War II to help nations move off of the gold standard.

Question 10

Assume the following exchange rates for today: $1=140 yen and 1 Danish krone = $0.10. We can conclude

Accepted Answer

A)  1 yen = 280 kr. 
B)  1 yen = 14 kr. 
C)  1 kr. = 28 yen. 
D)  1 kr. = 14 yen. 
A)  1 yen = 280 kr. 
B)  1 yen = 14 kr. 
C)  1 kr. = 28 yen. 
D)  1 kr. = 14 yen.

Question 11

In the balance of payments, any transaction that leads to a receipt by a resident of a country or its government is a(n)

Accepted Answer

A)  asset. 
B)  minus item. 
C)  deficit item. 
D)  surplus item. 
A)  asset. 
B)  minus item. 
C)  deficit item. 
D)  surplus item.

Question 12

Explain the three categories of balance of payments transactions.

Accepted Answer

Current account transactions relate to s

Question 13

The demand for Canadian cheese by a U.S. store is also a

Accepted Answer

A)  demand for Canadian dollars. 
B)  demand for SDRs. 
C)  supply of U.S. dollars. 
D)  supply of Canadian dollars. 
A)  demand for Canadian dollars. 
B)  demand for SDRs. 
C)  supply of U.S. dollars. 
D)  supply of Canadian dollars.

Question 14

All of the following are market determinants of exchange rates EXCEPT

Accepted Answer

A)  changes in productivity in one country relative to another. 
B)  changes in real interest rates in one country relative to another. 
C)  changes in product preferences between countries. 
D)  changes in the relative prices of goods and services within a country. 
A)  changes in productivity in one country relative to another. 
B)  changes in real interest rates in one country relative to another. 
C)  changes in product preferences between countries. 
D)  changes in the relative prices of goods and services within a country.

Question 15

All of the following are deficit items in the balance of payments EXCEPT

Accepted Answer

A)  purchases of foreign assets. 
B)  imports of merchandise. 
C)  foreign tourist expenditures. 
D)  purchases of foreign currency. 
A)  purchases of foreign assets. 
B)  imports of merchandise. 
C)  foreign tourist expenditures. 
D)  purchases of foreign currency.

Question 16

-Refer to the above table. The financial account balance is

Accepted Answer

A)  0. 
B)  -$260. 
C)  -$200. 
D)  -$155. 
A)  0. 
B)  -$260. 
C)  -$200. 
D)  -$155.

Question 17

Unilateral transfers are

Accepted Answer

A)  transactions that take place across national boundaries but in which both transactions are citizens of the same country. 
B)  government transactions that use gold and other official reserves. 
C)  gifts from a resident of one country to a resident in a foreign country. 
D)  the payments of interest to residents of another country. 
A)  transactions that take place across national boundaries but in which both transactions are citizens of the same country. 
B)  government transactions that use gold and other official reserves. 
C)  gifts from a resident of one country to a resident in a foreign country. 
D)  the payments of interest to residents of another country.

Question 18

Assume there is an increased demand in the United States for Australian wines. If all other factors are held constant, this will result in

Accepted Answer

A)  an increase in the U.S. dollar exchange rate for Australian dollars. 
B)  an appreciation of the U.S. dollar. 
C)  a movement along the demand curve for Australian wine. 
D)  a decrease in the par value of the Australian dollar. 
A)  an increase in the U.S. dollar exchange rate for Australian dollars. 
B)  an appreciation of the U.S. dollar. 
C)  a movement along the demand curve for Australian wine. 
D)  a decrease in the par value of the Australian dollar.

Question 19

Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect

Accepted Answer

A)  political instability in the United States. 
B)  a worsening of the U.S. balance of payments. 
C)  an appreciation of U.S. currency. 
D)  that a "dirty float" will emerge. 
A)  political instability in the United States. 
B)  a worsening of the U.S. balance of payments. 
C)  an appreciation of U.S. currency. 
D)  that a "dirty float" will emerge.

Question 20

If U.S. residents boycotts French goods, this will

Accepted Answer

A)  reduce the demand for euros in the foreign exchange market. 
B)  increase the demand for euros in the foreign exchange market. 
C)  cause the euro to appreciate. 
D)  have no effect on the euro. 
A)  reduce the demand for euros in the foreign exchange market. 
B)  increase the demand for euros in the foreign exchange market. 
C)  cause the euro to appreciate. 
D)  have no effect on the euro.

Exam 33: Exchange Rates and the Balance of Payments

Current account transactions are all payments that are related to the purchase or sale of

The sum of the current account, the capital account, and the official reserve transaction account is

A depreciation of a nation's currency is

The foreign exchange system that has the highest foreign exchange risk is

The international financial market moved towards equilibrium under the gold standard due to

If an exporter wants to limit the effect of possible changes in the exchange rate on the value of her exports, then she can adopt a strategy known as

The possibility that changes in the value of a nation's currency will result in variations in the market value of a business's assets is referred to as

When a Japanese resident buys a good or service from a U.S. producer, there is a(n)

The International Monetary Fund was created

Assume the following exchange rates for today: $1=140 yen and 1 Danish krone = $0.10. We can conclude

In the balance of payments, any transaction that leads to a receipt by a resident of a country or its government is a(n)

Explain the three categories of balance of payments transactions.

The demand for Canadian cheese by a U.S. store is also a

All of the following are market determinants of exchange rates EXCEPT

All of the following are deficit items in the balance of payments EXCEPT

-Refer to the above table. The financial account balance is

Unilateral transfers are

Assume there is an increased demand in the United States for Australian wines. If all other factors are held constant, this will result in

Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect

If U.S. residents boycotts French goods, this will

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