Question 1

A domestic firm exports a computer server to a foreign firm. In the domestic country-s balance of payments we would record:

Accepted Answer

A)   a debit in the services account.
B)   a credit in the goods account.
C)   a debit in unilateral transfers.
D)   a credit in the private capital and financial account. B

Question 2

The sum of the debits is less than the sum of the credits in the current account and private capital account. This country has a:

Accepted Answer

A)   balance of payments equilibrium.
B)   positive value in the official settlements account.
C)   balance of payments deficit.
D)   balance of payments surplus. D

Question 3

The rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) and the rate of exchange between the U.S. dollar and the euro is 1.350 (dollar/euro) The cross-rate of exchange between the peso and the euro is 9.370.

Accepted Answer

A) True 
 B)False  False

Question 4

The spot rate of exchange between the dollar and the pound is 1.50 (dollar/pound) The forward rate of exchange is 1.60 (dollar/pound) We can say that the pound is selling at a premium in the forward market.

Accepted Answer

A) True 
 B)False

Question 5

A domestic firm has a plant located in another nation. This firm has a:

Accepted Answer

A)   covered exposure.
B)   translation exposure.
C)   transaction exposure.
D)   economic exposure.

Question 6

A foreign exchange option contract that allows the holder to buy or sell an amount of a currency on any day up to and including the day the contract expires is called:

Accepted Answer

A)   a call option.
B)   a currency swap.
C)   an American option.
D)   a European option.

Question 7

On Monday the spot rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) On the following Tuesday the rate is 13.250. We can say that the U.S. dollar appreciated relative to the Mexican peso.

Accepted Answer

A) True 
 B)False

Question 8

A balance of payments surplus corresponds to a negative official settlements account balance.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about the foreign exchange market is correct?

Accepted Answer

A)   It is a relatively new market.
B)   It is a small market compared with global exports of goods and services.
C)   It primarily comprises transactions in hard currency.
D)   The average daily turnover is in the trillions of dollars.

Question 10

The current value of an effective rate of exchange for a particular currency is 125. This tells us the currency has appreciated:

Accepted Answer

A)   125 percent since the base year.
B)   25 percent since the base year.
C)   125 percent since the previous year.
D)   25 percent since the previous year.

Question 11

The domestic government of a country recently affected by an earthquake receives medical supplies from another country. The foreign government expects no payment in return, so this transaction has only one entry.

Accepted Answer

A) True 
 B)False

Question 12

A contract to deliver to another party a standardized quantity of a specific nation-s currency at a designated date is called a:

Accepted Answer

A)   forward exchange contract.
B)   currency swap.
C)   currency futures contract.
D)   currency option contract.

Question 13

A Canadian firm must make a payment denominated in euros in the near future. The firm is said to be long the euro.

Accepted Answer

A) True 
 B)False

Question 14

An exchange of payment flows denominated in different currencies is called a currency option.

Accepted Answer

A) True 
 B)False

Question 15

A foreign firm is hired by a domestic firm to provide accounting services. This would be recorded as a debit entry in the services category of the balance of payments framework.

Accepted Answer

A) True 
 B)False

Question 16

On Monday the spot rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) On the following Tuesday the rate is 13.250. We can say that the U.S. dollar appreciated 2.5 percent relative to the Mexican peso.

Accepted Answer

A) True 
 B)False

Question 17

A domestic firm exports a tractor. This would be recorded as a credit entry in the goods category of the balance of payments framework.

Accepted Answer

A) True 
 B)False

Question 18

Recent increases in household income in China have led to more Chinese residents wanting to tour Europe and attend universities in Europe. All other things held constant, this would result in:

Accepted Answer

A)   an increase in supply of the euro and a depreciation of the euro.
B)   a decrease in supply of the euro and an appreciation of the euro.
C)   an increase in demand of the euro and an appreciation of the euro.
D)   a decrease in demand for the euro and a depreciation of the euro.

Question 19

The overall balance of payments is necessarily equal to zero.

Accepted Answer

A) True 
 B)False

Question 20

A weighted-average measure of a currency relative to two or more currencies is an effective exchange rate.

Accepted Answer

A) True 
 B)False

Exam 6: Balance of Payments and Foreign Exchange Markets

A domestic firm exports a computer server to a foreign firm. In the domestic country-s balance of payments we would record:

The sum of the debits is less than the sum of the credits in the current account and private capital account. This country has a:

The rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) and the rate of exchange between the U.S. dollar and the euro is 1.350 (dollar/euro) The cross-rate of exchange between the peso and the euro is 9.370.

The spot rate of exchange between the dollar and the pound is 1.50 (dollar/pound) The forward rate of exchange is 1.60 (dollar/pound) We can say that the pound is selling at a premium in the forward market.

A domestic firm has a plant located in another nation. This firm has a:

A foreign exchange option contract that allows the holder to buy or sell an amount of a currency on any day up to and including the day the contract expires is called:

On Monday the spot rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) On the following Tuesday the rate is 13.250. We can say that the U.S. dollar appreciated relative to the Mexican peso.

A balance of payments surplus corresponds to a negative official settlements account balance.

Which of the following statements about the foreign exchange market is correct?

The current value of an effective rate of exchange for a particular currency is 125. This tells us the currency has appreciated:

The domestic government of a country recently affected by an earthquake receives medical supplies from another country. The foreign government expects no payment in return, so this transaction has only one entry.

A contract to deliver to another party a standardized quantity of a specific nation-s currency at a designated date is called a:

A Canadian firm must make a payment denominated in euros in the near future. The firm is said to be long the euro.

An exchange of payment flows denominated in different currencies is called a currency option.

A foreign firm is hired by a domestic firm to provide accounting services. This would be recorded as a debit entry in the services category of the balance of payments framework.

On Monday the spot rate of exchange between the Mexican peso and the U.S. dollar is 12.650 (peso/dollar) On the following Tuesday the rate is 13.250. We can say that the U.S. dollar appreciated 2.5 percent relative to the Mexican peso.

A domestic firm exports a tractor. This would be recorded as a credit entry in the goods category of the balance of payments framework.

Recent increases in household income in China have led to more Chinese residents wanting to tour Europe and attend universities in Europe. All other things held constant, this would result in:

The overall balance of payments is necessarily equal to zero.

A weighted-average measure of a currency relative to two or more currencies is an effective exchange rate.