Question 1

If the dollar price of yen rises, then:

Accepted Answer

A)  the yen price of dollars also rises.
B)  the dollar depreciates relative to the yen.
C)  the yen depreciates relative to the dollar.
D)  all of the above will occur.E) All of the above
F) B) and D)

Question 2

There must always be a balance of a nation's:

Accepted Answer

A)  merchandise exports and gold imports.
B)  total international payments.
C)  imports and exports of goods and services.
D)  merchandise imports and exports.E) None of the above
F) A) and C)

Question 3

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Accepted Answer

A)  merchandise imports
B)  changes in foreign currency reserves
C)  capital outflows
D)  exports of servicesE) None of the above
F) B) and C)

Question 4

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.,In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate in 2014?

Accepted Answer

A)  During the period, Japan exported more to Canada than it imported from Canada.
B)  Japan increased its purchases from Canada during the period.
C)  Japan's growth of national income was more rapid than that of the Canadian economy during the period.
D)  Japan's government devalued the yen during the period.E) B) and C)
F) A) and D)

Question 5

If the rate of exchange for a British pound is $4, the rate of exchange for the dollar:

Accepted Answer

A)  is ¼ of a British pound.
B)  is 4 British pounds.
C)  is $.25.
D)  cannot be determined from the information given.E) None of the above
F) A) and B)

Question 6

Which of the following is not a serious disadvantage associated with flexible exchange rates?

Accepted Answer

A)  uncertainty which tends to diminish trade
B)  worsening terms of trade if there is a sizeable depreciation of a country's currency
C)  longer lags in eliminating balance of payments surpluses or deficits
D)  greater challenges in managing and designing domestic macroeconomic policies.E) B) and D)
F) C) and D)

Question 7

Proponents of the managed floating exchange rate system argue that it has:

Accepted Answer

A)  added the volatility needed by the exchange rate market.
B)  been effective because it is a "non-system" without fixed rules.
C)  been sufficiently flexible to weather major economic turbulence.
D)  resolved major problems in balance of payments surpluses and deficits.E) All of the above
F) None of the above

Question 8

Under flexible exchange rates a Canadian trade deficit with Britain will cause the dollar price of pounds to rise.

Accepted Answer

A) True 
 B)False

Question 9

In the foreign exchange markets:

Accepted Answer

A)  those who wish to sell one currency to buy another interact with others who would like to do exactly the opposite.
B)  the buyers and sellers of a product engage in barter trade.
C)  both buyers and sellers of a product can exchange their currencies with gold.
D)  only the buyers of a product can exchange their currencies with a financial asset.E) All of the above
F) C) and D)

Question 10

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Accepted Answer

A)  100 British pounds.
B)  3.88 British pounds.
C)  0.60 British pounds.
D)  1.25 British pounds.E) A) and B)
F) B) and D)

Question 11

The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

Accepted Answer

A) True 
 B)False

Question 12

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars.  Refer to the above data.In 2014, Zabella's balance on the capital account shows a:

Accepted Answer

A)  deficit of $10 billion.
B)  surplus of $5 billion.
C)  deficit of $28 billion.
D)  surplus of $13 billion.E) A) and B)
F) A) and C)

Question 13

According to the purchasing power parity theory of exchange rates:

Accepted Answer

A)  a dollar, when converted to other currencies at the prevailing flexible exchange rate, has the same purchasing power in various countries.
B)  in equilibrium, national currencies have equal value in terms of gold.
C)  the higher a nation's price level in terms of its own currency, the greater is the amount of foreign exchange it can obtain for a unit of its currency.
D)  all of the above are true.E) B) and C)
F) None of the above

Question 14

If country A experiences rapid inflation while country B has a stable price level, this will:

Accepted Answer

A)  shift the demand curve for country A's currency in the foreign exchange market to the right.
B)  discourage imports to the country whose currency has depreciated.
C)  discourage exports to the country whose currency has depreciated.
D)  encourage foreign travel by the citizens of the country whose currency has depreciated.E) A) and B)
F) B) and D)

Question 15

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place.  Refer to the above table.The equilibrium dollar price of libras is:

Accepted Answer

A)  $5
B)  $4
C)  $3
D)  indeterminate.E) A) and B)
F) A) and C)

Question 16

The following table shows the balance of payments statement of Transylvania in 2013.All the figures are in billions of dollars.  Refer to the above data.In 2013, Transylvania imported more products than it exported.

Accepted Answer

A) True 
 B)False

Question 17

The foreign demand curve for a nation's currency is considered to be a derived demand because:

Accepted Answer

A)  it stems from the willingness of consumers in one country to buy goods and services from another country.
B)  it stems from the willingness of consumers within their country to buy goods and services that are produced within their country.
C)  it is derived from the demand of governments.
D)  it is derived by a nation's central bank.E) A) and B)
F) A) and D)

Question 18

If the dollar depreciates relative to the pound, then the pound:

Accepted Answer

A)  will be less expensive to Canadians.
B)  may either appreciate or depreciate relative to the dollar.
C)  will appreciate relative to the dollar.
D)  will depreciate relative to the dollar.E) A) and D)
F) A) and C)

Question 19

Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D1 to D2 will: 1 to D2 will:   A) ultimately cause Canadian exports to decline and its imports to rise. B) cause the dollar price of pesos to increase. C) cause the peso to depreciate. D) cause the dollar to depreciate." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  ultimately cause Canadian exports to decline and its imports to rise.
B)  cause the dollar price of pesos to increase.
C)  cause the peso to depreciate.
D)  cause the dollar to depreciate.E) A) and C)
F) None of the above

Question 20

Refer to the diagram below where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.A shift of the demand curve to D' might be the result of:

Accepted Answer

A)  a relative decline in interest rates in Switzerland.
B)  a reduction in Canada's relative price level.
C)  a recession in Canada, which slows its rate of growth.
D)  a relative decline in interest rates in Canada.E) All of the above
F) A) and B)

Exam 18: Part A: The Balance of Payments and Exchange Rates

According to the purchasing power parity theory of exchange rates:

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Under flexible exchange rates a Canadian trade deficit with Britain will cause the dollar price of pounds to rise.

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Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D1 to D2 will:

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If the dollar depreciates relative to the pound, then the pound:

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The following table shows the balance of payments statement of Transylvania in 2013.All the figures are in billions of dollars. Refer to the above data.In 2013, Transylvania imported more products than it exported.

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The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars. Refer to the above data.In 2014, Zabella's balance on the capital account shows a:

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If country A experiences rapid inflation while country B has a stable price level, this will:

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Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

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If the dollar price of yen rises, then:

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Which of the following is not a serious disadvantage associated with flexible exchange rates?

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In the foreign exchange markets:

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Proponents of the managed floating exchange rate system argue that it has:

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Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.,In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate in 2014?

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The foreign demand curve for a nation's currency is considered to be a derived demand because:

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In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

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If the rate of exchange for a British pound is $4, the rate of exchange for the dollar:

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The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. Refer to the above table.The equilibrium dollar price of libras is:

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The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

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Refer to the diagram below where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.A shift of the demand curve to D' might be the result of:

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There must always be a balance of a nation's:

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Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will:

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