Question 1

If the rate of inflation overseas rises relative to the rate of inflation in the United States, U.S. net exports will tend to ____, causing the exchange value of the U.S. dollar to ____.

Accepted Answer

A) ​rise; rise 
B) ​rise; fall 
C) ​fall; rise 
D) ​fall; fall

Question 2

If interest rates rise in the United States relative to those in the rest of the world, the exchange value of the dollar will tend to appreciate.

Accepted Answer

A) True 
 B)False

Question 3

If real incomes in foreign nations were growing less rapidly than U.S. real incomes, one would expect that as a result,

Accepted Answer

A) ​the exchange value of the dollar would decline relative to other currencies. 
B) ​the exchange value of the dollar would increase relative to other currencies. 
C) ​there would likely be no effect on the exchange value of the dollar relative to other currencies. 
D) ​there would be an indeterminate effect on the exchange value of the dollar relative to other currencies.

Question 4

Suppose that the exchange rate between Japanese yen and U.S. dollars is originally 130 yen to the dollar. If it then changes to 150 yen to the dollar, imports of Japanese goods into the United States will tend to:

Accepted Answer

A) ​rise. 
B) ​fall. 
C) ​stay the same. 
D) ​change in an indeterminate direction.

Question 5

The exchange rate of a currency will increase if the quantity demanded exceeds quantity supplied at the current exchange rate.

Accepted Answer

A) True 
 B)False

Question 6

The recent flexible exchange rate system developed because of:

Accepted Answer

A) ​the controversies generated by trade surplus nations wanting to devalue their currencies. 
B) ​the huge debts owed to the IMF by less-developed countries. 
C) ​governments were unable to agree on an alternative to a fixed-rate approach when the Bretton Woods system collapsed. 
D) ​the controversies generated by trade deficit nations wanting to raise the value of their currencies.

Question 7

Classify each of the following as debits or credits in the U.S. balance of payments.
​
A.Russian tourists travel to United States.
B.U.S. gives foreign aid to BosniA
C.British investors purchase U.S. government bonds.
D.American tourists travel to AustraliA
E.Volkswagen earns profits in the United States from its new cars.
F.Toyota builds a new plant in Ohio.
G.Capital Records sells rock and roll music in Sweden.
H.German consumer buy Ronco Vegematics made in United States.
I.Procter & Gamble earns profits in their Mexican facility.

Accepted Answer

The answer of Classify each of the following as debits...

Question 8

The record of all international financial transactions in which a nation has engaged over a year is known as the:

Accepted Answer

A) ​current account. 
B) ​capital account. 
C) ​balance of payments. 
D) ​the unilateral transfers balance.

Question 9

Which of the following would be a debit in the U.S. balance of payments?

Accepted Answer

A) ​the purchase of a Japanese car by an American 
B) ​the purchase of air service from a U.S.airline by a Japanese traveler 
C) ​a short-term loan extended to a Japanese manufacturer by a U.S.bank 
D) ​the purchase of U.S.grain by a Japanese bakery

Question 10

If a British student pays her way to attend Harvard University, her actions will:

Accepted Answer

A) ​create a supply of dollars and a demand for pounds in the foreign currency market. 
B) ​create a supply of pounds and a demand for dollars in the foreign currency market. 
C) ​cause the British pound to appreciate. 
D) ​cause the U.S.dollar to depreciate.

Question 11

Whenever there is a surplus in the current account, the capital account:

Accepted Answer

A) ​will be negative. 
B) ​will be positive. 
C) ​will be zero. 
D) ​could be negative, positive, or zero.

Question 12

One of the disadvantages of a fixed exchange rate system is:

Accepted Answer

A) ​too much stability in exchange rates. 
B) ​import and export industries forego the benefits of highly variable exchange rates. 
C) ​that to maintain fixed exchange rates, nations must give up control of their monetary policies. 
D) ​None of the above are disadvantages of a fixed exchange rate system.

Question 13

Stock in a German corporation can be purchased directly with currency from any other country.

Accepted Answer

A) True 
 B)False

Question 14

The demand for foreign currency is derived from the demand for that country's goods and services.

Accepted Answer

A) True 
 B)False

Question 15

If the interest rate in two countries were the same, you would prefer to invest in assets of the country:

Accepted Answer

A) ​whose currency was likely to appreciate. 
B) ​whose currency was likely to depreciate. 
C) ​whose currency had the greatest exchange value. 
D) ​none of the above; it would not matter what was likely to happen to a country's currency exchange rate.

Question 16

Differences among nations in real economic growth rates, real interest rates, and inflation rates will each affect the exchange rates among their currencies.

Accepted Answer

A) True 
 B)False

Question 17

Fixed exchange rates give countries too much freedom over their monetary policies, thereby threatening higher rates of inflation.

Accepted Answer

A) True 
 B)False

Question 18

If real interest rates in the United States fell and real interest rates in England rose, we would expect people to:

Accepted Answer

A) ​increase their demand for British pounds. 
B) ​borrow more from U.S.sources. 
C) ​buy relatively more British assets. 
D) ​all of the above

Question 19

Critics of flexible exchange rates argue that flexible rates:

Accepted Answer

A) ​reduce uncertainty in international trade. 
B) ​automatically create an equilibrium price for each currency in the foreign exchange market. 
C) ​make nations more constrained in carrying out internal macroeconomic policies. 
D) ​increase uncertainty in international trade.

Question 20

Can the U.S. dollar and the euro both appreciate relative to each other?

Accepted Answer

A) ​Yes, both countries can gain in this manner. 
B) ​Yes, provided the central banks agree to permit it. 
C) ​No, if one currency appreciates relative to another, the other depreciates. 
D) ​No, the citizens of the countries would not agree to it.

Exam 21: Financial Markets, Saving, and Investment

If the rate of inflation overseas rises relative to the rate of inflation in the United States, U.S. net exports will tend to , causing the exchange value of the U.S. dollar to .

If interest rates rise in the United States relative to those in the rest of the world, the exchange value of the dollar will tend to appreciate.

If real incomes in foreign nations were growing less rapidly than U.S. real incomes, one would expect that as a result,

Suppose that the exchange rate between Japanese yen and U.S. dollars is originally 130 yen to the dollar. If it then changes to 150 yen to the dollar, imports of Japanese goods into the United States will tend to:

The exchange rate of a currency will increase if the quantity demanded exceeds quantity supplied at the current exchange rate.

The recent flexible exchange rate system developed because of:

The record of all international financial transactions in which a nation has engaged over a year is known as the:

Which of the following would be a debit in the U.S. balance of payments?

If a British student pays her way to attend Harvard University, her actions will:

Whenever there is a surplus in the current account, the capital account:

One of the disadvantages of a fixed exchange rate system is:

Stock in a German corporation can be purchased directly with currency from any other country.

The demand for foreign currency is derived from the demand for that country's goods and services.

If the interest rate in two countries were the same, you would prefer to invest in assets of the country:

Differences among nations in real economic growth rates, real interest rates, and inflation rates will each affect the exchange rates among their currencies.

Fixed exchange rates give countries too much freedom over their monetary policies, thereby threatening higher rates of inflation.

If real interest rates in the United States fell and real interest rates in England rose, we would expect people to:

Critics of flexible exchange rates argue that flexible rates:

Can the U.S. dollar and the euro both appreciate relative to each other?