Question 1

Changes in which of the following will cause a change in exchange rates?

Accepted Answer

A)  real interest rates 
B)  consumer preferences 
C)  perceptions of economic and political stability 
D)  all of the above 
A)  real interest rates 
B)  consumer preferences 
C)  perceptions of economic and political stability 
D)  all of the above

Question 2

Unilateral transfers are

Accepted Answer

A)  transactions that take place within the geographic boundaries of a country. 
B)  gifts from residents of one country to foreign residents. 
C)  transactions that take place across geographic boundaries but in which both participants are citizens of the same country. 
D)  government transactions that involve reserves. 
A)  transactions that take place within the geographic boundaries of a country. 
B)  gifts from residents of one country to foreign residents. 
C)  transactions that take place across geographic boundaries but in which both participants are citizens of the same country. 
D)  government transactions that involve reserves.

Question 3

Exchange rates that are allowed to fluctuate in the open market in response to changes in supply and demand are known as

Accepted Answer

A)  fixed exchange rates. 
B)  gold exchange rates. 
C)  flexible exchange rates. 
D)  IMF exchange rates. 
A)  fixed exchange rates. 
B)  gold exchange rates. 
C)  flexible exchange rates. 
D)  IMF exchange rates.

Question 4

The demand for dollars will increase when

Accepted Answer

A)  real interest rates in the United States fall. 
B)  U.S. labor productivity increases relative to the world. 
C)  the world is perceived as more stable than it used to be. 
D)  U.S. residents develop a taste for more imported products. 
A)  real interest rates in the United States fall. 
B)  U.S. labor productivity increases relative to the world. 
C)  the world is perceived as more stable than it used to be. 
D)  U.S. residents develop a taste for more imported products.

Question 5

Any transaction that leads to a payment by a country's residents or government is a(n)

Accepted Answer

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

Question 6

-Based on the transactions in the above table, what is the change in the U.S. financial account?

Accepted Answer

A)  $9,800 
B)  $10,000 
C)  -$20,000 
D)  -$20,200 
A)  $9,800 
B)  $10,000 
C)  -$20,000 
D)  -$20,200

Question 7

The use of foreign exchange reserves to keep exchange rates constant over time is called

Accepted Answer

A)  a fixed exchange rate system. 
B)  the Bretton Woods system. 
C)  barter exchange system. 
D)  a floating exchange rate system. 
A)  a fixed exchange rate system. 
B)  the Bretton Woods system. 
C)  barter exchange system. 
D)  a floating exchange rate system.

Question 8

A reduction in a country's rate of inflation should

Accepted Answer

A)  increase its imports. 
B)  increase its exports. 
C)  lead to a negative trade balance. 
D)  lead to an outflow of SDRs. 
A)  increase its imports. 
B)  increase its exports. 
C)  lead to a negative trade balance. 
D)  lead to an outflow of SDRs.

Question 9

If the foreign exchange rate is 70 cents for one Swiss franc, then

Accepted Answer

A)  a car that costs 40,000 francs will cost $7,143.00. 
B)  a wine that costs 200 francs will cost $14.00. 
C)  a clock that costs 500 francs will cost $350.00. 
D)  a house that costs 100,000 francs will cost $700,000.00. 
A)  a car that costs 40,000 francs will cost $7,143.00. 
B)  a wine that costs 200 francs will cost $14.00. 
C)  a clock that costs 500 francs will cost $350.00. 
D)  a house that costs 100,000 francs will cost $700,000.00.

Question 10

-Based on the transactions in the above table, what is the change in the U.S. current account balance?

Accepted Answer

A)  $30,000 
B)  $31,000 
C)  -$32,500 
D)  -$32,700 
A)  $30,000 
B)  $31,000 
C)  -$32,500 
D)  -$32,700

Question 11

-In the above figure, suppose the value of the European euro is P1 and U.S. demand for French wine declines. The effect on the euro can be shown by

Accepted Answer

A)  an increase in the value of the euro to P2. 
B)  the excess demand of euro equal to Q3 - Q1. 
C)  the decrease in the value of the euro to P0. 
D)  a shift in the demand for euros from D1 to D0, but no change in the value of the euro. 
A)  an increase in the value of the euro to P2. 
B)  the excess demand of euro equal to Q3 - Q1. 
C)  the decrease in the value of the euro to P0. 
D)  a shift in the demand for euros from D1 to D0, but no change in the value of the euro.

Question 12

Financial account transactions occur

Accepted Answer

A)  when an U.S. company purchases goods from a foreign company. 
B)  because of cross-border flows of financial assets. 
C)  when you move money from one U.S. bank to another U.S. bank. 
D)  when an U.S. citizen purchases stock in an U.S. corporation. 
A)  when an U.S. company purchases goods from a foreign company. 
B)  because of cross-border flows of financial assets. 
C)  when you move money from one U.S. bank to another U.S. bank. 
D)  when an U.S. citizen purchases stock in an U.S. corporation.

Question 13

The demand for foreign currency in the United States is a

Accepted Answer

A)  direct demand. 
B)  derived demand based on the demand for U.S. products. 
C)  derived demand based on the demand for foreign products. 
D)  direct demand based on the demand for U.S. dollars. 
A)  direct demand. 
B)  derived demand based on the demand for U.S. products. 
C)  derived demand based on the demand for foreign products. 
D)  direct demand based on the demand for U.S. dollars.

Question 14

Which of the following is an advantage of fixing exchange rates?

Accepted Answer

A)  limiting foreign exchange risk 
B)  making residents more mobile across countries 
C)  eliminating trade deficits 
D)  making the prices of foreign goods more flexible in the domestic market 
A)  limiting foreign exchange risk 
B)  making residents more mobile across countries 
C)  eliminating trade deficits 
D)  making the prices of foreign goods more flexible in the domestic market

Question 15

Why does the demand curve for Japanese yen slope down?

Accepted Answer

The demand for Japanese yen is derived f

Question 16

When there is political instability in another country, the United States can expect

Accepted Answer

A)  an increase in the financial account balance due to an increase in the current account. 
B)  an increase in the financial account balance due to the movement of assets to the U.S. 
C)  a decrease in the balance of payments due to a decrease in official reserve transactions. 
D)  a decrease in the balance of payments due to a decrease in the demand for goods and services. 
A)  an increase in the financial account balance due to an increase in the current account. 
B)  an increase in the financial account balance due to the movement of assets to the U.S. 
C)  a decrease in the balance of payments due to a decrease in official reserve transactions. 
D)  a decrease in the balance of payments due to a decrease in the demand for goods and services.

Question 17

A U.S. family flies from Boston to Shanghai on a China Airlines plane. This transaction is

Accepted Answer

A)  considered an export of service in the U.S balance of payment accounts. 
B)  a deficit item in the balance of payment accounts of China. 
C)  Both of the above are correct. 
D)  none of the above. 
A)  considered an export of service in the U.S balance of payment accounts. 
B)  a deficit item in the balance of payment accounts of China. 
C)  Both of the above are correct. 
D)  none of the above.

Question 18

Which of the following statements is TRUE about the role of gifts given to U.S. citizens from foreign residents?

Accepted Answer

A)  Gifts are not included in the balance of payments because of the nature of the gift. 
B)  Gifts are only included in the balance of payments if the gift is given to a government official. 
C)  Gifts are included in the balance of payments. 
D)  Gifts given to U.S. citizens are not included in the balance of payments but gifts given to foreigners are included. 
A)  Gifts are not included in the balance of payments because of the nature of the gift. 
B)  Gifts are only included in the balance of payments if the gift is given to a government official. 
C)  Gifts are included in the balance of payments. 
D)  Gifts given to U.S. citizens are not included in the balance of payments but gifts given to foreigners are included.

Question 19

In foreign exchange markets, who demands dollars and who supplies dollars?

Accepted Answer

Foreign residents buying U.S. goods, ser

Question 20

Which of the following is an example of a surplus item on the balance of payments?

Accepted Answer

A)  private gifts to foreign residents 
B)  public gifts to foreign residents 
C)  interest receipts from foreign residents 
D)  purchases of gold from foreign residents 
A)  private gifts to foreign residents 
B)  public gifts to foreign residents 
C)  interest receipts from foreign residents 
D)  purchases of gold from foreign residents

Exam 33: Exchange Rates and the Balance of Payments

Changes in which of the following will cause a change in exchange rates?

Unilateral transfers are

Exchange rates that are allowed to fluctuate in the open market in response to changes in supply and demand are known as

The demand for dollars will increase when

Any transaction that leads to a payment by a country's residents or government is a(n)

-Based on the transactions in the above table, what is the change in the U.S. financial account?

The use of foreign exchange reserves to keep exchange rates constant over time is called

A reduction in a country's rate of inflation should

If the foreign exchange rate is 70 cents for one Swiss franc, then

-Based on the transactions in the above table, what is the change in the U.S. current account balance?

-In the above figure, suppose the value of the European euro is P1 and U.S. demand for French wine declines. The effect on the euro can be shown by

Financial account transactions occur

The demand for foreign currency in the United States is a

Which of the following is an advantage of fixing exchange rates?

Why does the demand curve for Japanese yen slope down?

When there is political instability in another country, the United States can expect

A U.S. family flies from Boston to Shanghai on a China Airlines plane. This transaction is

Which of the following statements is TRUE about the role of gifts given to U.S. citizens from foreign residents?

In foreign exchange markets, who demands dollars and who supplies dollars?

Which of the following is an example of a surplus item on the balance of payments?

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