Question 1

When the interest rate on newly issued bonds increases, the price of existing bonds:

Accepted Answer

A) increases. 
B) decreases. 
C) increases only if the coupon rate is below the new rate. 
D) may either increase or decrease.

Question 2

Which of the following events will decrease the domestic real interest rate in an open economy?

Accepted Answer

A) An increase in domestic saving 
B) A decrease in the domestic saving 
C) An increase in the perceived riskiness of investing in the domestic economy 
D) An decrease in net capital inflow

Question 3

An economy with a trade surplus must also have:

Accepted Answer

A) a trade deficit. 
B) a budget surplus. 
C) positive net capital outflows. 
D) positive net capital inflows.

Question 4

When the Chinese government buys U.S. government bonds, from the perspective of China, this is a(n):

Accepted Answer

A) import. 
B) export. 
C) capital outflow. 
D) capital inflow.

Question 5

The U.S. trade deficit has been mainly caused by:

Accepted Answer

A) production of inferior goods in the U.S. 
B) unfair trade restrictions imposed by other countries on imports. 
C) a low rate of national saving. 
D) cheap labor in other countries.

Question 6

Privately-owned firms that accept deposits from individuals and businesses and use those deposits to make loans are called:

Accepted Answer

A) mortgage banks. 
B) brokerage firms. 
C) commercial banks. 
D) investment banks.

Question 7

When a Peruvian buys a U.S. government bond, from the perspective of Peru, this is a(n):

Accepted Answer

A) import. 
B) export. 
C) capital outflow. 
D) capital inflow.

Question 8

Stock prices increase when expected future dividends ________, interest rates ________, and/or the risk premium ________.

Accepted Answer

A) increase; increase; increases 
B) increase; increase; decreases 
C) decrease; decrease; increases 
D) increase; decrease; decreases

Question 9

In an open economy with a given level of real interest rates and risk, an increase in real interest rates abroad will ________ capital inflows and ________ the equilibrium domestic real interest rate.

Accepted Answer

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

Question 10

Suppose you have $200 with which you can buy shares of stock from two companies: ABC Hot Chocolate Company and XYZ Lemonade. Each company's stock currently sells for $100 per share. If the temperature next year is lower than average, the stock price for ABC will increase by $20, and the stock price for XYZ will not change. If the temperature next year is higher than average, the stock price for XYZ will increase by $20, and the stock price for ABC will not change. There is a 50 percent chance that it will be colder than average next year, and a 25 percent chance that it will be warmer than average. If you purchase two shares of XYZ stock and no shares of ABC stock, your expected gain will be ________.

Accepted Answer

A) $0 
B) $10 
C) $20 
D) $30

Question 11

The financial system consists of financial ________, such as commercial banks, and financial markets, such as the stock market.

Accepted Answer

A) corporations 
B) allocations 
C) intermediaries 
D) brokers

Question 12

Which of the following equations is equivalent to the equation S - NX = I?

Accepted Answer

A) S + KI = I 
B) S − I = KI 
C) S − KI = NX 
D) S + I = NX - KI

Question 13

The value of exports minus the value of imports in a period is called the:

Accepted Answer

A) budget balance. 
B) trade balance. 
C) trade gap. 
D) international equilibrium.

Question 14

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ________ and there is a capital ________ the United States.

Accepted Answer

A) imports increase; outflow from 
B) imports decrease; inflow to 
C) imports increase; inflow to 
D) exports increase; outflow from

Question 15

The sum of national saving and capital inflows from abroad must equal:

Accepted Answer

A) domestic investment in new capital goods. 
B) capital outflows. 
C) aggregate demand. 
D) the trade deficit.

Question 16

Pat pays $10,000 for a newly issued two-year government bond with a $10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, Pat sells the bond. If the current one-year interest rate on government bonds is 5 percent, then the price Pat receives is:

Accepted Answer

A) $10,000. 
B) $500. 
C) greater than $10,000. 
D) less than $10,000.

Question 17

You own shares in a start-up internet company. If the company announces that it will not pay dividends next year as it has in the past, then the price of your shares will ________, holding other factors constant.

Accepted Answer

A) increase 
B) decrease 
C) not change 
D) either increase or decrease

Question 18

An increase in interest rates results in a(n)________ in the required rate of return to hold stocks and ________ current stock prices.

Accepted Answer

A) increase; reduces 
B) increase; raises 
C) decrease; raises 
D) decrease; reduces

Question 19

When an American buys stock in a French company, from the perspective of France, this is a(n):

Accepted Answer

A) import. 
B) export. 
C) capital outflow. 
D) capital inflow.

Question 20

If the principal amount of a bond is $10,000,000, the coupon rate is 7 percent, and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is:

Accepted Answer

A) $70,000. 
B) $300,000. 
C) $400,000. 
D) $700,000.

Exam 23: Financial Markets and International Capital Flows

When the interest rate on newly issued bonds increases, the price of existing bonds:

Which of the following events will decrease the domestic real interest rate in an open economy?

An economy with a trade surplus must also have:

When the Chinese government buys U.S. government bonds, from the perspective of China, this is a(n) :

The U.S. trade deficit has been mainly caused by:

Privately-owned firms that accept deposits from individuals and businesses and use those deposits to make loans are called:

When a Peruvian buys a U.S. government bond, from the perspective of Peru, this is a(n) :

Stock prices increase when expected future dividends , interest rates , and/or the risk premium .

In an open economy with a given level of real interest rates and risk, an increase in real interest rates abroad will capital inflows and the equilibrium domestic real interest rate.

The financial system consists of financial ________, such as commercial banks, and financial markets, such as the stock market.

Which of the following equations is equivalent to the equation S - NX = I?

The value of exports minus the value of imports in a period is called the:

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. and there is a capital the United States.

The sum of national saving and capital inflows from abroad must equal:

Pat pays $10,000 for a newly issued two-year government bond with a $10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, Pat sells the bond. If the current one-year interest rate on government bonds is 5 percent, then the price Pat receives is:

You own shares in a start-up internet company. If the company announces that it will not pay dividends next year as it has in the past, then the price of your shares will ________, holding other factors constant.

An increase in interest rates results in a(n) in the required rate of return to hold stocks and current stock prices.

When an American buys stock in a French company, from the perspective of France, this is a(n) :

If the principal amount of a bond is $10,000,000, the coupon rate is 7 percent, and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is:

Exam 23: Financial Markets and International Capital Flows

When the interest rate on newly issued bonds increases, the price of existing bonds:

Which of the following events will decrease the domestic real interest rate in an open economy?

An economy with a trade surplus must also have:

When the Chinese government buys U.S. government bonds, from the perspective of China, this is a(n) :

The U.S. trade deficit has been mainly caused by:

Privately-owned firms that accept deposits from individuals and businesses and use those deposits to make loans are called:

When a Peruvian buys a U.S. government bond, from the perspective of Peru, this is a(n) :

Stock prices increase when expected future dividends ________, interest rates ________, and/or the risk premium ________.

In an open economy with a given level of real interest rates and risk, an increase in real interest rates abroad will ________ capital inflows and ________ the equilibrium domestic real interest rate.

The financial system consists of financial ________, such as commercial banks, and financial markets, such as the stock market.

Which of the following equations is equivalent to the equation S - NX = I?

The value of exports minus the value of imports in a period is called the:

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ________ and there is a capital ________ the United States.

The sum of national saving and capital inflows from abroad must equal:

Pat pays $10,000 for a newly issued two-year government bond with a $10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, Pat sells the bond. If the current one-year interest rate on government bonds is 5 percent, then the price Pat receives is:

You own shares in a start-up internet company. If the company announces that it will not pay dividends next year as it has in the past, then the price of your shares will ________, holding other factors constant.

An increase in interest rates results in a(n) ________ in the required rate of return to hold stocks and ________ current stock prices.

When an American buys stock in a French company, from the perspective of France, this is a(n) :

If the principal amount of a bond is $10,000,000, the coupon rate is 7 percent, and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is:

Stock prices increase when expected future dividends , interest rates , and/or the risk premium .

In an open economy with a given level of real interest rates and risk, an increase in real interest rates abroad will capital inflows and the equilibrium domestic real interest rate.

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. and there is a capital the United States.

An increase in interest rates results in a(n) in the required rate of return to hold stocks and current stock prices.