Question 1

The purchases of goods and assets by foreign residents from domestic residents are ________ because they are a source of foreign exchange.________ increase the supply of foreign money in the foreign exchange market.

Accepted Answer

A)   credit transactions
B)   current account transactions
C)   debit transactions
D)   capital account transactions A

Question 2

Purchases and sales of foreign assets by domestic residents would appear in the ________ account of the balance of payments.

Accepted Answer

A)   current
B)   capital
C)   trade merchandise
D)   official settlement B

Question 3

Suppose the U.S.imposes import restrictions on Japanese cars.What is likely to happen to the U.S.current-account deficit?

Accepted Answer

Nothing will happen to the U.S.current account deficit,unless the import restrictions cause a change in savings or investment behavior.Absent these changes,which are unlikely,reduced U.S.imports of Japanese cars will lower the U.S.demand for yen,which will lead to a rise in the dollar's value.The appreciating dollar will make U.S.exports less competitive and other foreign imports more attractive.The net result is that a reduction in U.S.imports of Japanese cars is balanced by reduced U.S.exports of goods and services and increased U.S.non-steel imports.

Question 4

The purchases of goods and assets by domestic residents from foreign residents are ________ because they cause an outflow of foreign exchange.________ increase the demand for the foreign money in the foreign exchange market.

Accepted Answer

A)   credit transactions
B)   current account transactions
C)   debit transactions
D)   capital account transactions

Question 5

Explain the double-entry system of the balance of payments.

Accepted Answer

The answer of Explain the double-entry system of the balance...

Question 6

The U.S.Department of Commerce breaks the total net change in U.S.assets abroad into transactions.Which one of the following options is not part of the three categories?

Accepted Answer

A)   transactions in "U.S. official reserve assets"
B)   transactions in "other U.S. governmental assets"
C)   transactions in "U.S. private assets"
D)   transactions in "other U.S. public assets"

Question 7

Every ________ can be considered to have a corresponding flow of foreign money associated with it,and this flow of foreign money is recorded as a ________.

Accepted Answer

A)   credit transaction
B)   current account transaction
C)   debit transaction
D)   capital account transaction

Question 8

In a freely floating exchange rate system,the sale of Japanese cars to the United States will be offset by which item on the US balance of payments?

Accepted Answer

A)   a credit on the current account
B)   a credit on the capital account
C)   a debit on the trade account
D)   A or B

Question 9

A nation that is running a savings deficit

Accepted Answer

A)   must spend more than it produces.
B)   will invest domestically more than it saves.
C)   must have a net capital outflow.
D)   A and B only.

Question 10

What does it mean for a country to experience a capital inflow? Is this associated with a surplus or a deficit on the country's capital account?

Accepted Answer

The answer of What does it mean for a country...

Question 11

Suppose Lufthansa buys 10 Boeing 747s for $150 million in 1991,financed by a five year loan from the US Export Import Bank.There is a one-year grace period on principal and interest payments.The net impact of this sale in 1991 is

Accepted Answer

A)   a $150 million reduction in the U.S. trade deficit.
B)   a $150 million reduction in the U.S. capital account surplus.
C)   zero change in the U.S. balance of payments in 1991.
D)   all of the above.

Question 12

During the 1990s the countries of Mexico and Argentina went from economic paupers with huge foreign debts (capital account deficits)to countries posting strong economic growth and welcoming foreign investment.What would you expect these changes to do to their current account balances?

Accepted Answer

The answer of During the 1990s the countries of Mexico...

Question 13

In a freely floating exchange rate system,if the capital account is running a deficit

Accepted Answer

A)   the balance of payments must run a deficit.
B)   the balance of payments must be zero.
C)   the current account must run a surplus.
D)   both B and C.

Question 14

As the real value of the dollar rises,the balance on the current account is likely to ________.

Accepted Answer

A)   increase
B)   decrease
C)   stay the same
D)   move with the capital account adjustments factor

Question 15

In a freely floating exchange rate system,if the capital account surplus for the U.S.rises,what will most likely happen to the real value of the dollar?

Accepted Answer

A)   It will decline.
B)   It will rise.
C)   There is no impact on the dollar.
D)   The IMF will step in to adjust rising exchange rates.

Question 16

Give an example of how the balance of payments provides information concerning exchange rate determination?

Accepted Answer

The answer of Give an example of how the balance...

Question 17

The Japanese current account surplus can best be attributed to

Accepted Answer

A)   the high rate of Japanese domestic investment.
B)   Japanese protectionism.
C)   the high rate of Japanese savings.
D)   government budget deficits.

Question 18

The sale of American computers to the Spanish government shows up as

Accepted Answer

A)   a debit on the official reserves account.
B)   a credit on the official reserves account.
C)   a credit on the trade account.
D)   a debit on the current account.

Question 19

The most likely way for the Japanese to reduce a trade surplus is to

Accepted Answer

A)   revalue the Japanese yen.
B)   impose quotas on imports from Japan.
C)   boost Japanese savings.
D)   boost Japanese consumption abroad.

Question 20

Persistent,large current account deficits are often associated with currency crises for floating rate currencies in which the currency with the crisis ________ substantially.

Accepted Answer

A)   appreciates
B)   devaluates
C)   depreciates
D)   revaluates

Exam 4: The Balance of Payments

The purchases of goods and assets by foreign residents from domestic residents are because they are a source of foreign exchange. increase the supply of foreign money in the foreign exchange market.