Question 1

The balance of goods and services is:

Accepted Answer

A) the same as the merchandise trade balance since services cannot be traded. 
B) equivalent to the trade balance. 
C) the value of all tangible and intangible products exported minus the value of all tangible and intangible products imported. 
D) the value of all tangible products exported minus the value of all tangible products imported. 
E) the value of all tangible products exported minus the value of all tangible products imported,and the transactions to finance the difference.

Question 2

Which of the following is not classified as a service in the current account?

Accepted Answer

A) Transportation 
B) Insurance 
C) Tourist expenditures 
D) Computer software development 
E) Unilateral transfers

Question 3

If the U.S.dollar depreciates,it becomes cheaper for U.S.residents to travel in foreign countries.

Accepted Answer

A) True 
 B)False

Question 4

If the U.S.dollar depreciates relative to the Swiss franc,then:

Accepted Answer

A) Swiss goods become more expensive in the U.S. 
B) U.S.goods become more expensive in Switzerland. 
C) Swiss investors will pay more Swiss francs to buy one unit of U.S.dollar. 
D) the U.S.import of Swiss goods will increase. 
E) the U.S.dollar per Swiss franc exchange rate will decrease.

Question 5

In 2014,the United States' balance of trade deficit with China was about 10 times as large as the balance of trade deficit with Canada

Accepted Answer

A) True 
 B)False

Question 6

A leftward shift of a country's demand curve for foreign exchange will:

Accepted Answer

A) increase the price of foreign exchange in the country. 
B) decrease the value of its currency. 
C) make foreign goods more expensive in the domestic market. 
D) make foreign goods less expensive in the domestic market. 
E) make its goods less expensive in the foreign market.

Question 7

An arbitrageur in foreign exchange is a person who:

Accepted Answer

A) buys foreign currency,hoping to profit by selling it at a higher exchange rate at some later date. 
B) earns illegal profit by manipulating foreign exchange. 
C) causes differences in exchange rates in different geographic markets. 
D) simultaneously buys large amounts of a currency in one market and sells it in another market. 
E) mediates disputes when there is no agreement on exchange rates in international currency markets.

Question 8

In 2014,the United States had the largest merchandise trade deficit with:

Accepted Answer

A) the European Union. 
B) Canada. 
C) China. 
D) Mexico. 
E) Brazil.

Question 9

Which of the following statements is true of speculators?

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.

Question 10

If the British pound appreciates,U.S.television stations need fewer dollars to buy episodes of a British sitcom from the British Broadcasting Company.

Accepted Answer

A) True 
 B)False

Question 11

The theory of _____ states that changes in the exchange rate reflect only changes in the price levels of two countries.

Accepted Answer

A) floating exchange rate 
B) fixed exchange rate 
C) flexible exchange rate 
D) purchasing power parity 
E) managed exchange rate

Question 12

The trade balance of the country of Utopia would be in deficit only if:

Accepted Answer

A) its import of services exceed its export of services. 
B) its merchandise exports exceed its merchandise imports. 
C) its merchandise imports exceed its merchandise exports. 
D) foreign investors invest in domestic assets. 
E) the citizens of Utopia purchase foreign securities to earn a high return and diversify their investment.

Question 13

If foreigners increase their ownership of U.S.assets,this would help to offset:

Accepted Answer

A) a deficit in the U.S.current account. 
B) a deficit in the U.S.capital account. 
C) a surplus in the U.S.current account. 
D) a surplus in the U.S.capital account. 
E) a surplus in the overall balance of payments.

Question 14

The balance of payments always balances because each of the specific accounts must,by definition,be in balance.

Accepted Answer

A) True 
 B)False

Question 15

An exchange rate is:

Accepted Answer

A) the rate at which goods are traded between countries. 
B) the rate at which the central bank of a country gives loans to commercial banks. 
C) the rate at which commercial banks give loans to individuals. 
D) the price of one currency in terms of another. 
E) the price at which one good trades for another.

Question 16

The balance of payments summarizes the transactions that occur during a given time period between:

Accepted Answer

A) the local governments of a country and the federal government of the country. 
B) the producers and consumers of all goods and services within a country. 
C) individuals,firms,and government of one country and individuals,firms,and governments of the other countries. 
D) two firms that operate in two different states in a country. 
E) the firms in a country and the government of the country.

Question 17

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

Accepted Answer

A) goods and services must cost half as much in Britain as in the U.S. 
B) exchange rate should approach $2 per pound. 
C) exchange rate should approach $0.50 per pound. 
D) goods and services must cost twice as much in Britain as in the U.S. 
E) reason for the difference in price is a difference in the cost of transportation in the two countries.

Question 18

The main goal of the Bretton Woods meeting was to:

Accepted Answer

A) curb inflation that affected almost every developed country after the Second World War. 
B) encourage gold production in the third world nations. 
C) set world prices for gold in order to achieve stable exchange rates. 
D) set up a new international system of payments and to stabilize exchange rates. 
E) help less developed countries of the world to experience growth and development.

Question 19

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 20

Imagine that there are only two nations in the world,the United States and Mexico.If Americans buy more goods made in Mexico,other things constant,the:

Accepted Answer

A) U.S.demand curve for Mexican pesos will shift rightward. 
B) U.S.demand curve for Mexican pesos will shift leftward. 
C) U.S.supply curve of Mexican pesos will shift leftward. 
D) U.S.supply curve of Mexican pesos will shift rightward. 
E) U.S.supply curve of Mexican pesos will become perfectly inelastic.

Exam 18: International Finance

The balance of goods and services is:

Which of the following is not classified as a service in the current account?

If the U.S.dollar depreciates,it becomes cheaper for U.S.residents to travel in foreign countries.

If the U.S.dollar depreciates relative to the Swiss franc,then:

In 2014,the United States' balance of trade deficit with China was about 10 times as large as the balance of trade deficit with Canada

A leftward shift of a country's demand curve for foreign exchange will:

An arbitrageur in foreign exchange is a person who:

In 2014,the United States had the largest merchandise trade deficit with:

Which of the following statements is true of speculators?

If the British pound appreciates,U.S.television stations need fewer dollars to buy episodes of a British sitcom from the British Broadcasting Company.

The theory of _____ states that changes in the exchange rate reflect only changes in the price levels of two countries.

The trade balance of the country of Utopia would be in deficit only if:

If foreigners increase their ownership of U.S.assets,this would help to offset:

The balance of payments always balances because each of the specific accounts must,by definition,be in balance.

An exchange rate is:

The balance of payments summarizes the transactions that occur during a given time period between:

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

The main goal of the Bretton Woods meeting was to:

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.

Imagine that there are only two nations in the world,the United States and Mexico.If Americans buy more goods made in Mexico,other things constant,the: