Question 1

"If the official settlements balance is zero, a current account surplus implies an equal capital account deficit." Is the previous statement correct or incorrect?
 Briefly explain your answer.

Accepted Answer

The answer of "If the official settlements balance is zero,...

Question 2

The value of imports and exports is recorded in

Accepted Answer

A)  international trade account. 
B)  official settlements account. 
C)  capital account. 
D)  current account. 
E)  official reserves account.

Question 3

Yesterday, the dollar was trading in the foreign exchange market at 1.10 euros per dollar.Today, the dollar is trading at 1.20 euros per dollar.The dollar has ________ and a possible reason for the change is ________ in the expected future exchange rate.

Accepted Answer

A)  appreciated; an increase 
B)  appreciated; a decrease 
C)  depreciated; an increase 
D)  depreciated; a decrease 
E)  appreciated; because there has been no change

Question 4

During 2009, a country reports imports of $1,000 billion, exports of $1,100 billion, foreign investment in the country of $900 billion, investment abroad of $1,200 billion, net interest and net transfers of zero.What is the country's current account balance?

Accepted Answer

The answer of During 2009, a country reports imports of...

Question 5

If the exchange rate changes from 1.5 euros per dollar to 1.0 euro per dollar, the euro has

Accepted Answer

A)  depreciated against the dollar. 
B)  appreciated against the dollar. 
C)  fallen inversely in value. 
D)  depreciated against the euro. 
E)  appreciated against the euro.

Question 6

Interest rate parity occurs when

Accepted Answer

A)  the interest rate in one currency equals the interest rate in another currency when exchange rate changes are taken into account. 
B)  interest rate differentials are always maintained across nations. 
C)  interest rates are equal across nations. 
D)  prices are equal across nations when exchange rates are taken into account. 
E)  interest rates no longer affect the exchange rate.

Question 7

If U.S.exports exceed U.S.imports and official reserves do not change, the United States

Accepted Answer

A)  borrows from the rest of the world. 
B)  makes loans to the rest of the world. 
C)  borrows from the U.S.government. 
D)  makes loans to the U.S.government. 
E)  cannot sell any capital to foreigners.

Question 8

The figure above shows demand curves for dollars in the foreign exchange market.
-Based on the figure above, which of the following factors could lead the demand curve to shift rightward from D₀ to D₁?

Accepted Answer

A)  a rise in the U.S.exchange rate 
B)  a fall in the U.S.exchange rate 
C)  a rise in the U.S.interest rate 
D)  a fall in expected future U.S.exchange rate 
E)  a rise in foreign interest rates

Question 9

The private sector balance equals

Accepted Answer

A)  saving plus investment. 
B)  saving minus investment. 
C)  net taxes minus government expenditures. 
D)  net taxes plus government expenditures. 
E)  investment minus saving.

Question 10

The figure above shows the supply curve of dollars in the foreign exchange market.
-If the exchange rate rises as shown by the arrow, the price of imports coming into the United States will be ________, Americans will supply ________ dollars in order to get the foreign exchange to purchase ________ imported goods.

Accepted Answer

A)  lower; fewer; more 
B)  higher; more; more 
C)  lower; fewer; fewer 
D)  lower; more; more 
E)  higher; fewer; more

Question 11

From the early 1990s through 2008, the U.S.

Accepted Answer

A)  balance of payments exceeded the capital account. 
B)  current account was negative. 
C)  capital account was negative. 
D)  actual balance of payments deficit exceeded what the United States measured as the balance of payments deficit. 
E)  current account and U.S.capital account were both positive.

Question 12

There are three balance of payments accounts.The sum of the balances on these three accounts will equal

Accepted Answer

A)  the total amount of the nation's foreign borrowing. 
B)  the total amount of the nation's foreign lending. 
C)  zero. 
D)  the total amount of the nation's exports. 
E)  the total amount of the nation's imports.

Question 13

If the expected future U.S.exchange rate falls, then in the foreign exchange market the current

Accepted Answer

A)  quantity supplied of dollars decreases. 
B)  quantity supplied of dollars increases. 
C)  supply of dollars decreases. 
D)  supply of dollars increases. 
E)  demand for dollars increases.

Question 14

The figure above shows demand curves for dollars in the foreign exchange market.
-Based on the figure above, which of the following factors could lead the demand curve to shift leftward from D₀ to D₂?

Accepted Answer

A)  a rise in the U.S.exchange rate 
B)  a fall in the U.S.exchange rate 
C)  a rise in the U.S.interest rate 
D)  a fall in expected future U.S.exchange rate 
E)  a rise in foreign interest rates

Question 15

Which of the following is a factor in determining the demand for the dollar on the foreign exchange market?
i. the exchange rate
ii. interest rates in the United States and other countries
iii. the expected future exchange rate

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  i, ii, and iii

Question 16

$$\begin{array} { l c } 
\text { Balance of payments accounts } & \text { (billions of dollars) } \
\hline \text { Syldavia investment abroad } & 170 \
\text { Exports of goods and services } & 140 \
\text { Net transfers } & 0 \
\text { Change in official reserves } & 0 \
\text { Net interest } & 0 \
\text { Imports of goods and services } & 180 \
\text { Foreign investment in Syldavia } & 210 \
\hline
\end{array}$$
-The table above gives data for the nation of Syldavia.The sum of the current account balance, capital account balance, and the official settlements account balances of Syldavia is equal to

Accepted Answer

A)  $30 billion. 
B)  -$10 billion. 
C)  $10 billion. 
D)  zero. 
E)  $40 billion.

Question 17

-The figure above illustrates the U.S.foreign exchange market.Illustrate how the exchange rate changes if the expected future exchange rate falls.Does the dollar appreciate or depreciate?

Accepted Answer

The answer of 
-The figure above illustrates the U.S.foreign exchange...

Question 18

The exchange rate is volatile because

Accepted Answer

A)  when a relevant factor changes, demand and supply tend to change in opposite directions. 
B)  when a relevant factor changes, demand and supply tend to change in the same direction. 
C)  the demand curve is vertical. 
D)  the supply curve is vertical. 
E)  the demand curve and the supply curve are horizontal.

Question 19

If the Fed wants to maintain a dollar exchange rate of 1.20 euros per dollar but the exchange rate rises, then in the short run the Fed can

Accepted Answer

A)  sell dollars and buy euros. 
B)  buy dollars and sell euros. 
C)  buy dollars and buy euros. 
D)  sell dollars and sell euros. 
E)  do nothing.

Question 20

"Fluctuations in exchange rates, other things remaining the same, creates a situation in which money buys the same amount of goods and services in different currencies." What does the previous statement describe?
 Will these fluctuations occur in the short run or the long run?

Accepted Answer

The answer of "Fluctuations in exchange rates, other things remaining...

Exam 19: International Finance

"If the official settlements balance is zero, a current account surplus implies an equal capital account deficit." Is the previous statement correct or incorrect? Briefly explain your answer.

The value of imports and exports is recorded in

Yesterday, the dollar was trading in the foreign exchange market at 1.10 euros per dollar.Today, the dollar is trading at 1.20 euros per dollar.The dollar has and a possible reason for the change is in the expected future exchange rate.

During 2009, a country reports imports of $1,000 billion, exports of $1,100 billion, foreign investment in the country of $900 billion, investment abroad of $1,200 billion, net interest and net transfers of zero.What is the country's current account balance?

If the exchange rate changes from 1.5 euros per dollar to 1.0 euro per dollar, the euro has

Interest rate parity occurs when

If U.S.exports exceed U.S.imports and official reserves do not change, the United States

The figure above shows demand curves for dollars in the foreign exchange market. -Based on the figure above, which of the following factors could lead the demand curve to shift rightward from D₀ to D₁?

The private sector balance equals

The figure above shows the supply curve of dollars in the foreign exchange market. -If the exchange rate rises as shown by the arrow, the price of imports coming into the United States will be , Americans will supply dollars in order to get the foreign exchange to purchase imported goods.

From the early 1990s through 2008, the U.S.

There are three balance of payments accounts.The sum of the balances on these three accounts will equal

If the expected future U.S.exchange rate falls, then in the foreign exchange market the current

The figure above shows demand curves for dollars in the foreign exchange market. -Based on the figure above, which of the following factors could lead the demand curve to shift leftward from D₀ to D₂?

Which of the following is a factor in determining the demand for the dollar on the foreign exchange market? i. the exchange rate ii. interest rates in the United States and other countries iii. the expected future exchange rate

-The figure above illustrates the U.S.foreign exchange market.Illustrate how the exchange rate changes if the expected future exchange rate falls.Does the dollar appreciate or depreciate?

The exchange rate is volatile because

If the Fed wants to maintain a dollar exchange rate of 1.20 euros per dollar but the exchange rate rises, then in the short run the Fed can

"Fluctuations in exchange rates, other things remaining the same, creates a situation in which money buys the same amount of goods and services in different currencies." What does the previous statement describe? Will these fluctuations occur in the short run or the long run?