Question 1

If the U.S. continually runs a bilateral trade deficit with Japan, then

Accepted Answer

A)  Japan's trade policies must be unfair to the United States. 
B)  the United States is worse off as the result of its trade with Japan. 
C)  Japan is the low-cost supplier of goods that we import intensively. 
D)  both a and b are true.

Question 2

Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?

Accepted Answer

A)  higher interest rates in the United States 
B)  a relatively low rate of inflation in the United States 
C)  high rates of income growth in Europe 
D)  all of the above

Question 3

Figure 18-3   Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph (A) is comprised of

Accepted Answer

A)  U.S. citizens attempting to purchase Japanese-made goods. 
B)  Japanese attempting to purchase U.S.-made goods. 
C)  U.S. businesses attempting to sell to the Japanese. 
D)  Japanese businesses attempting to sell to the U.S. 
E)  the U.S. government attempting to unload dollars to the international market.

Question 4

If real interest rates in the United States are higher than those of our trading partners, what will tend to happen to the foreign exchange value of the dollar and the U.S. current account deficit or surplus?

Accepted Answer

A)  The dollar will depreciate; the current account will move toward a deficit. 
B)  The dollar will depreciate; the current account will move toward a surplus. 
C)  The dollar will appreciate; the current account will move toward a deficit. 
D)  The dollar will appreciate; the current account will move toward a surplus.

Question 5

Figure 18-3   Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The supply curve in graph (B) is comprised of

Accepted Answer

A)  U.S. citizens attempting to purchase Japanese-made goods. 
B)  Japanese attempting to purchase U.S.-made goods. 
C)  U.S. businesses attempting to sell to the Japanese. 
D)  Japanese businesses attempting to sell to the U.S. 
E)  the U.S. government attempting to unload dollars to the international market.

Question 6

If the exchange rate between the U.S. dollar and the Euro were 1.50 ($1.50 = one Euro), what would be the price in dollars of a German automobile that cost 40,000 Euros?

Accepted Answer

A)  $10,000 
B)  $20,000 
C)  $60,000 
D)  $200,000

Question 7

Which of the following is true?

Accepted Answer

A)  The U.S. current account deficit is a financial obligation of the federal government. 
B)  A nation cannot run a current account deficit over a long period. 
C)  A country with relatively poor (compared with other countries) domestic investment opportunities and a high saving rate will tend to run a current account deficit. 
D)  A country with highly attractive (compared with other countries) domestic investment opportunities and a low saving rate will tend to run a current account deficit.

Question 8

Which one of the following would supply dollars to the foreign exchange market?

Accepted Answer

A)  the spending of U.S. tourists in Europe 
B)  the purchase of U.S. automobiles by Japanese consumers 
C)  the sale of U.S. automobiles to European consumers 
D)  the purchase of an American electronics factory by a Japanese investor

Question 9

An increase in the dollar price of the Mexican peso (an appreciation of the peso) would cause

Accepted Answer

A)  Mexico's imports to increase and exports to decline. 
B)  Mexico's exports to increase and imports to decline. 
C)  both Mexico's imports and exports to decline. 
D)  both Mexico's imports and exports to rise.

Question 10

Which of the following will enter as a credit in the U.S. balance of payments capital account?

Accepted Answer

A)  the purchase of a Japanese automobile by a U.S. consumer 
B)  the sale of Japanese electronics to an American 
C)  the sale of an American baseball team to a Japanese industrialist 
D)  the purchase of a Japanese electronics plant by an American industrialist

Question 11

With time, a depreciation in the value of a nation's currency in the foreign market will cause the nation's

Accepted Answer

A)  imports to increase and exports to decline. 
B)  exports to increase and imports to decline. 
C)  imports and exports to decline. 
D)  imports and exports to rise.

Question 12

Suppose a German-produced car becomes very popular in the United States. This would tend to

Accepted Answer

A)  affect the U.S. balance of payments but not the balance of trade. 
B)  reduce any existing balance of trade deficit in the United States. 
C)  increase a balance of trade surplus in the United States. 
D)  increase a balance of trade deficit in the United States.

Question 13

If the exchange rate between the U.S. dollar and the Japanese yen were such that one U.S. dollar equals 100 yen, what would be the price in dollars of a Japanese automobile that cost 2,000,000 yen?

Accepted Answer

A)  $100 
B)  $20,000 
C)  $120,000 
D)  $2,000,000

Question 14

If Japanese tourists visit Disney World, what is the effect in the foreign exchange market?

Accepted Answer

A)  It will increase demand for Japanese yen. 
B)  It will decrease demand for Japanese yen. 
C)  It will increase supply of Japanese yen. 
D)  It will decrease supply of Japanese yen.

Question 15

Because the United States purchases more cars, stereos, and other goods from Japan than Japan purchases from the United States, it is often said that the United States has a "trade deficit" with Japan. Does this mean that the U.S. balance of payments is running a deficit? How would you more accurately characterize the effect that trade with Japan has on the balance of payments?

Accepted Answer

The answer of Because the United States purchases more cars,...

Question 16

Suppose the dollar rises from 100 to 125 yen. As a result,

Accepted Answer

A)  imports from Japan will likely increase. 
B)  exports to Japan will likely increase. 
C)  Japanese tourists will be more likely to visit the United States. 
D)  U.S. businesses will less likely use Japanese shipping lines to transport their products.

Question 17

Use the figure below to answer the following question(s). Figure 18-1
 Figure 18-1 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. If the dollar price of pounds is $1.20, which of the following is true?

Accepted Answer

A)  There is an excess supply of pounds, and the dollar price of pounds will rise. 
B)  There is an excess demand for pounds, and the dollar price of pounds will rise. 
C)  There is an excess supply of pounds, and the dollar price of pounds will fall. 
D)  There is an excess demand for pounds, and the dollar price of pounds will fall.

Question 18

If the U.S. exports passenger jet aircraft, what is the effect in the foreign exchange market?

Accepted Answer

A)  It will create demand for U.S. dollars. 
B)  It will reduce demand for U.S. dollars. 
C)  It will increase supply of U.S. dollars. 
D)  It will decrease supply of U.S. dollars.

Question 19

A Japanese automobile manufacturer building an auto plant in the United States creates a

Accepted Answer

A)  supply of dollars and demand for yen in the foreign exchange market. 
B)  demand for dollars and a supply of yen in the foreign exchange market. 
C)  demand for both dollars and yen in the foreign exchange market. 
D)  supply of both dollars and yen in the foreign exchange market.

Question 20

Under a system of flexible exchange rates, which of the following will cause the nation's currency to depreciate in the exchange market?

Accepted Answer

A)  an increase in foreign incomes 
B)  a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices 
C)  an increase in domestic interest rates 
D)  a reduction in interest rates abroad

Exam 19: International Finance and the Foreign Exchange Market