Question 1

-The above figure shows the demand curve for dollars in the yen/dollar exchange market. A movement from point A to point B means that the

Accepted Answer

A)  quantity supplied of dollars has increased. 
B)  quantity demanded of dollars has increased. 
C)  quantity demanded of dollars has decreased. 
D)  quantity demanded of yen has decreased.

Question 2

If people expect the dollar to depreciate, then the

Accepted Answer

A)  demand for dollars will decrease, the supply of dollars will increase, and the exchange rate will fall. 
B)  demand for dollars will decrease, the supply of dollars will not change, and the exchange rate will fall. 
C)  supply of dollars will increase, the demand for dollars will not change, and the exchange rate will fall. 
D)  demand for dollars will increase, the supply of dollars will decrease, and the exchange rate will rise.

Question 3

-In the figure above, if the exchange rate is equal to 1 Canadian dollar per U.S. dollar, there is a ________ of ________currency and the exchange rate will________.

Accepted Answer

A)  shortage; domestic; rise 
B)  surplus; domestic; rise 
C)  shortage; foreign; rise 
D)  surplus; foreign; fall

Question 4

An increase in the Japanese interest rate will ________ the demand for dollars and lead the dollar to ________.

Accepted Answer

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

Question 5

In 2009, Germany's capital account was -$135 million. This implies that

Accepted Answer

A)  Germany invested more in other countries than those countries invested in Germany. 
B)  Germany's currency must have appreciated during 2009. 
C)  Germany imported more goods from its trading partners than it exported. 
D)  Germany's official settlements account in 2009 must have been positive.

Question 6

-The citizens of Exland, whose currency is the bun, conduct the transactions outlined in the table above.
a) What is Exland's current account balance?
b) What is Exland's capital account balance?
c) What is Exland's official settlement balance?
d) What is Exland's net foreign borrowing?

Accepted Answer

The answer of 
-The citizens of Exland, whose currency is...

Question 7

-The figure above shows the demand and supply of dollars in the foreign exchange market. At a price of 1.20 Brazilian reals per dollar

Accepted Answer

A)  there will be a shortage of dollars. 
B)  $120 billion dollars will be supplied. 
C)  $40 billion dollars will be demanded. 
D)  there will be a surplus of dollars.

Question 8

-The data in the table above illustrates items from the U.S. balance of payments accounts. Given this information, the current account balance is

Accepted Answer

A)  $140 billion. 
B)  $155 billion. 
C)  $170 billion. 
D)  -$45 billion.

Question 9

-Using the above figure, an increase in the demand for Dutch goods by U. S. consumers will lead to

Accepted Answer

A)  a depreciation in the Dutch currency (i.e. the guilder). 
B)  an appreciation in the Dutch currency. 
C)  an increase in the supply of Dutch currency as foreign exchange. 
D)  a decrease in the supply of Dutch currency as foreign exchange.

Question 10

-The data in the table above illustrates items from the U.S. balance of payments accounts. What is the capital and financial account balance?

Accepted Answer

A)  $0 
B)  $150 billion 
C)  -$350 billion 
D)  -$150 billion

Question 11

Suppose that the U.S. government gives foreign aid to Turkey. This transaction would directly

Accepted Answer

A)  increase the U.S. current account. 
B)  decrease the U.S. current account. 
C)  increase the U.S. capital and financial account. 
D)  decrease the U.S. capital and financial account.

Question 12

-In the above figure, suppose the demand for dollars permanently decreases to D2. To maintain the target, the Fed

Accepted Answer

A)  can buy dollars. 
B)  can sell dollars. 
C)  must decrease the nation's net exports. 
D)  cannot permanently maintain the exchange rate target of 150 yen per dollar.

Question 13

-In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D1. To maintain the target exchange rate, the Fed

Accepted Answer

A)  can sell dollars. 
B)  can buy dollars. 
C)  must violate interest rate parity but not purchasing power parity. 
D)  cannot maintain the target exchange rate.

Question 14

The Fed in the U.S.

Accepted Answer

A)  allows a flexible exchange rate, though their actions can impact the exchange rate. 
B)  has no influence on the exchange rate. 
C)  sells U.S. dollars to China in an attempt to depreciate the U.S. dollar. 
D)  alternates between a flexible, fixed, and crawling peg exchange rate policy depending on economic conditions.

Question 15

Define official settlements account and U.S. official reserves. Discuss the differences between the two terms.

Accepted Answer

The answer of Define official settlements account and U.S. official...

Question 16

By fixing its exchange rate, China is most likely

Accepted Answer

A)  achieving a low inflation rate by anchoring to the U.S. inflation rate. 
B)  keeping its export prices low. 
C)  making it easier to compete in world markets. 
D)  Both B and C.

Question 17

The exchange rate can be influenced by a nation's central bank.

Accepted Answer

A) True 
 B)False

Question 18

Suppose that your firm wants to import sugarcane from Brazil. The exchange rate is 3 Brazilian reals per U.S. dollar and sugarcane costs 36 reals per ton. How much is a ton of sugarcane in U.S. dollars?

Accepted Answer

A)  $12 
B)  $39 
C)  $108 
D)  $109

Question 19

As the expected future exchange rate for dollars increases

Accepted Answer

A)  the demand for U.S. dollars increases. 
B)  the supply of U.S. dollars decreases. 
C)  both the demand for U.S. dollars and the supply of U.S. dollars increase 
D)  Both answers A and B are correct.

Question 20

The law of demand for dollars in the foreign exchange market means that the

Accepted Answer

A)  lower the exchange rate, the greater the quantity of dollars demanded. 
B)  higher the exchange rate, the smaller the quantity of dollars demanded. 
C)  lower the exchange rate, the smaller the quantity of U.S. exports demanded. 
D)  Both answers A and B are correct.

Exam 9: The Exchange Rate and the Balance of Payments