Question 1

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

Accepted Answer

A)  2 percent. 
B)  4 percent. 
C)  3 percent. 
D)  1 percent.

Question 2

Suppose that the U.S. interest rate is 5 percent and the Japanese interest rate is 1 percent. The effect of this difference in the foreign exchange market is that

Accepted Answer

A)  investors expect the yen to appreciate against the dollar. 
B)  all funds flow to the United States to get the higher interest rate. 
C)  investors expect the yen to depreciate against the dollar. 
D)  a Japanese investor is guaranteed to make an additional 4 percent in yen terms by investing in the United States.

Question 3

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the

Accepted Answer

A)  demand curve for South Korean won shifts leftward. 
B)  demand curve for U.S. dollars shifts leftward. 
C)  demand curve for South Korean won shifts rightward. 
D)  demand curve for U.S. dollars shifts rightward.

Question 4

In the foreign exchange market, a decrease in the supply of dollars leads to an appreciation of the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 5

-Using the table above, if the current market value of the dollar is 70 francs,

Accepted Answer

A)  investor A expects dollar appreciation, but B and C expect depreciation. 
B)  all three investors expect the dollar to appreciate. 
C)  investor A expects dollar depreciation, but B and C expect appreciation. 
D)  all three investors expect the dollar to depreciate.

Question 6

The law of demand in the foreign exchange market refers to the relationship between

Accepted Answer

A)  exchange rates and quantity of U.S. dollars demanded 
B)  U.S. price levels and nominal exchange rates 
C)  interest rates and the quantity of U.S. dollars demanded 
D)  real exchange rates and nominal exchange rates

Question 7

-Using the table above, if the current market value of the dollar is 125 francs per dollar,

Accepted Answer

A)  all three investors expect the dollar to depreciate. 
B)  investor A expects dollar appreciation, but B and C expect depreciation. 
C)  investor A expects dollar depreciation, but B and C expect appreciation. 
D)  all three investors expect the dollar to appreciate.

Question 8

An increase in U.S. exports will the demand for dollars and lead the dollar to .

Accepted Answer

A)  decrease; appreciate 
B)  increase; depreciate 
C)  decrease; depreciate 
D)  increase; appreciate

Question 9

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for dollars?

Accepted Answer

A)  the interest rate in the foreign country 
B)  the interest rate in the domestic country 
C)  the exchange rate 
D)  the expected future exchange rate

Question 10

Suppose the market for dollars is in equilibrium, then the expected future exchange rate rises. What effect does this change have on the current exchange rate?

Accepted Answer

A)  It will remain unchanged. 
B)  It will rise. 
C)  It will fall. 
D)  Because both the supply and demand curves shift, you can't predict what will happen to the exchange rate.

Question 11

Which of the following is a factor that determines the amount of dollars supplied in the foreign exchange market?

Accepted Answer

A)  the exchange rate 
B)  interest rates in foreign countries 
C)  U.S. interest rate 
D)  All of the above affect the number of dollars supplied in the foreign exchange market.

Question 12

-In the above table, the government sector surplus or deficit is a

Accepted Answer

A)  surplus of $200 billion. 
B)  deficit of $100 billion. 
C)  deficit of $200 billion. 
D)  surplus of $100 billion.

Question 13

Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar. If interest rates in the United States increase and interest rates in Europe remain unchanged then

Accepted Answer

A)  the demand for dollars will decrease. 
B)  the demand for dollars will increase. 
C)  the demand for euros will increase. 
D)  None of the above answers is correct.

Question 14

-In the figure above, the shift in the supply curve for U.S. dollars from S0 to S1 could occur when

Accepted Answer

A)  the expected future exchange rate falls. 
B)  the current exchange rate falls. 
C)  the U.S. interest rate falls. 
D)  foreign interest rates fall.

Question 15

Which of the following statements is INCORRECT?

Accepted Answer

A)  Net interest income is recorded in the official settlements account. 
B)  A change in U.S. official reserves is recorded in the official settlements account. 
C)  Payments for imports and receipts from exports are recorded in the current account. 
D)  Foreign investment in the United States and U.S. investment abroad are recorded in the capital account.

Question 16

Which of the following is included in the U.S. capital account?

Accepted Answer

A)  U.S. investment abroad 
B)  foreign investment in the United States 
C)  exports of goods and services 
D)  Both answers A and B are correct.

Question 17

If the exchange rate rises from 100 yen per dollar to 120 yen per dollar, the dollar has appreciated.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following contributes to a current account surplus for a country?

Accepted Answer

A)  importing textiles 
B)  importing financial services 
C)  having tourists visit the country 
D)  having foreigners buy government securities from the country's government

Question 19

-The above table gives data for the nation of Sueland. What is the value of net exports?

Accepted Answer

A)  $43 billion 
B)  - $43 billion 
C)  $511 billion 
D)  $234 billion

Question 20

-The data in the table above are the U.S. balance of payments. The data show that

Accepted Answer

A)  The United States loaned $400 billion to the rest of the world. 
B)  the United States has a current account surplus. 
C)  the United States has a capital account surplus. 
D)  Both answers A and B are correct.

Exam 9: The Exchange Rate and the Balance of Payments

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

Suppose that the U.S. interest rate is 5 percent and the Japanese interest rate is 1 percent. The effect of this difference in the foreign exchange market is that

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the

In the foreign exchange market, a decrease in the supply of dollars leads to an appreciation of the U.S. dollar.

-Using the table above, if the current market value of the dollar is 70 francs,

The law of demand in the foreign exchange market refers to the relationship between

-Using the table above, if the current market value of the dollar is 125 francs per dollar,

An increase in U.S. exports will the demand for dollars and lead the dollar to .

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for dollars?

Suppose the market for dollars is in equilibrium, then the expected future exchange rate rises. What effect does this change have on the current exchange rate?

Which of the following is a factor that determines the amount of dollars supplied in the foreign exchange market?

-In the above table, the government sector surplus or deficit is a

Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar. If interest rates in the United States increase and interest rates in Europe remain unchanged then

-In the figure above, the shift in the supply curve for U.S. dollars from S₀to S₁could occur when

Which of the following statements is INCORRECT?

Which of the following is included in the U.S. capital account?

If the exchange rate rises from 100 yen per dollar to 120 yen per dollar, the dollar has appreciated.

Which of the following contributes to a current account surplus for a country?

-The above table gives data for the nation of Sueland. What is the value of net exports?

-The data in the table above are the U.S. balance of payments. The data show that