Question 1

If the dollar depreciates,Canadian exports will eventually rise and Canadian imports will eventually fall.

Accepted Answer

A) True 
 B)False

Question 2

If a nation has a balance of payments deficit and exchange rates are flexible,the price of that nation's currency in the foreign exchange markets will rise.

Accepted Answer

A) True 
 B)False

Question 3

A market in which the money of one nation is exchanged for the money of another nation is a:

Accepted Answer

A)   resource market.
B)   financial market.
C)   futures market.
D)   foreign exchange market.E) A) and D)
F) A) and B)

Question 4

If the exchange rate between the Canadian dollar and the Japanese yen is $1 = 200 yen,then the dollar price of yen is:

Accepted Answer

A)   $.005
B)   $.05.
C)   $.50.
D)   5.E) All of the above
F) None of the above

Question 5

International financial transactions mostly fall into two broad categories:

Accepted Answer

A)   international asset transactions and international gold transactions.
B)   international asset transactions and transactions in the stock market.
C)   international trade and international development.
D)   international trade and international asset transactions.E) B) and D)
F) B) and C)

Question 6

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Accepted Answer

A)   travel by foreigners in country X
B)   the desire of foreigners to buy stocks and bonds of firms in country X
C)   the exports of country X
D)   all of the aboveE) All of the above
F) C) and D)

Question 7

The items in a hypothetical country's balance of payments account were: current account deficit -$100;capital account surplus +$85.The value of official reserves was:

Accepted Answer

A)   +$15.
B)   -$15.
C)   +$185.
D)   -$185.E) All of the above
F) A) and B)

Question 8

When the people involved in an exchange are from countries that use different currencies,an intermediate asset transaction has to take place:

Accepted Answer

A)   the seller must convert her currency into the currency that the buyer uses and accepts.
B)   the buyer must convert her currency into the currency that the seller uses and accepts.
C)   the buyer and seller should engage in barter trade.
D)   both buyer and seller should exchange their currencies to gold.E) A) and D)
F) None of the above

Question 9

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars.
 
-Which of the following is not included in the current account of a nation's balance of payments?

Accepted Answer

A)   its merchandise exports
B)   its merchandise imports
C)   its net investment income
D)   its capital inflowsE) A) and B)
F) B) and C)

Question 10

The following are hypothetical exchange rates: 2 Swiss francs = 1 British pound and $1 = 2 British pound.We can conclude that:

Accepted Answer

A)   $1 = 4 Swiss francs.
B)   $1 = .5 Swiss francs.
C)   1 Swiss franc = $.50.
D)   1 Swiss franc = $2.E) C) and D)
F) A) and C)

Question 11

In equilibrium,if $1 = .5 pounds sterling and 1 pound sterling = 40 Swiss francs,the exchange rate between dollars and Swiss francs will be:

Accepted Answer

A)   1 Swiss franc = $.10.
B)   1 Swiss franc = $.20.
C)   $1 = 80 Swiss francs.
D)   $1 = 20 Swiss francs.E) None of the above
F) All of the above

Question 12

The balance of payments must always balance,because:

Accepted Answer

A)   capital account surplus means the outflow of capital.
B)   current account surpluses automatically generate transfer of assets to foreigners.
C)   current account deficits automatically generate transfer of assets from foreigners.
D)   current account deficits automatically generate transfer of assets to foreigners while current account surpluses automatically generate transfer of assets from foreigners.E) C) and D)
F) All of the above

Question 13

The exchange rate system currently used by the industrially advanced nations is:

Accepted Answer

A)   the gold standard.
B)   the Bretton Woods system.
C)   the managed float.
D)   a fixed rate system.E) A) and B)
F) A) and C)

Question 14

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) None of the above

Question 15

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 C)

Question 16

-Refer to the above diagram 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.Under a system of fixed exchange rates,the shift in demand from D to D' will cause:

Accepted Answer

A)   Canada to increase its stocks of international monetary reserves.
B)   a Swiss balance of payments deficit.
C)   a Canadian balance of payments deficit.
D)   a Canadian balance of payments surplus.E) B) and D)
F) B) and C)

Question 17

The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars.
 
-Refer to the above data.If Transylvania was on a system of flexible exchange rates,its balance of payments position would cause the international value of its currency to depreciate.

Accepted Answer

A) True 
 B)False

Question 18

If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound,the rate of exchange between the two currencies:

Accepted Answer

A)   is $.5 = 1 pound.
B)   is $2 = 1 pound.
C)   is $1 = 2 pounds.
D)   is $1.5 = 1 Pound.E) A) and B)
F) C) and D)

Question 19

If the Canadian dollar price of United States dollars increases from $.80 to $1.00,it can be concluded that:

Accepted Answer

A)   the Canadian dollar has appreciated in value to the United States dollar.
B)   both countries are on the international gold standard.
C)   the American dollar has depreciated in value relative to the Canadian dollar.
D)   the Canadian dollar has depreciated in value relative to the United States dollar.E) All of the above
F) None of the above

Question 20

Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

Accepted Answer

A)   exchange rate appreciation and a decrease in the domestic supply of money
B)   exchange rate appreciation and domestic deflation
C)   exchange rate depreciation and domestic deflation
D)   exchange rate depreciation and domestic inflationE) None of the above
F) C) and D)

Exam 18: Exchange Rates and the Balance of Payments

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

Correct Answer
verified

The items in a hypothetical country's balance of payments account were: current account deficit -$100;capital account surplus +$85.The value of official reserves was:

Correct Answer
verified

If the dollar depreciates,Canadian exports will eventually rise and Canadian imports will eventually fall.

Correct Answer
verified

The balance of payments must always balance,because:

Correct Answer
verified

If a nation has a balance of payments deficit and exchange rates are flexible,the price of that nation's currency in the foreign exchange markets will rise.

Correct Answer
verified

When the people involved in an exchange are from countries that use different currencies,an intermediate asset transaction has to take place:

Correct Answer
verified

Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

Correct Answer
verified

If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound,the rate of exchange between the two currencies:

Correct Answer
verified

The exchange rate system currently used by the industrially advanced nations is:

Correct Answer
verified

Correct Answer
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International financial transactions mostly fall into two broad categories:

Correct Answer
verified

-Refer to the above diagram 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.Under a system of fixed exchange rates,the shift in demand from D to D' will cause:

Correct Answer
verified

If the exchange rate between the Canadian dollar and the Japanese yen is $1 = 200 yen,then the dollar price of yen is:

Correct Answer
verified

A market in which the money of one nation is exchanged for the money of another nation is a:

Correct Answer
verified

In equilibrium,if $1 = .5 pounds sterling and 1 pound sterling = 40 Swiss francs,the exchange rate between dollars and Swiss francs will be:

Correct Answer
verified

If the Canadian dollar price of United States dollars increases from $.80 to $1.00,it can be concluded that:

Correct Answer
verified

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

Correct Answer
verified

The following are hypothetical exchange rates: 2 Swiss francs = 1 British pound and $1 = 2 British pound.We can conclude that:

Correct Answer
verified

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars. -Which of the following is not included in the current account of a nation's balance of payments?

Correct Answer
verified

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Correct Answer
verified

Exam 18: Exchange Rates and the Balance of Payments

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

Correct AnswerverifiedShow Answer

The items in a hypothetical country's balance of payments account were: current account deficit -$100;capital account surplus +$85.The value of official reserves was:

Correct AnswerverifiedShow Answer

If the dollar depreciates,Canadian exports will eventually rise and Canadian imports will eventually fall.

Correct AnswerverifiedShow Answer

The balance of payments must always balance,because:

Correct AnswerverifiedShow Answer

If a nation has a balance of payments deficit and exchange rates are flexible,the price of that nation's currency in the foreign exchange markets will rise.

Correct AnswerverifiedShow Answer

When the people involved in an exchange are from countries that use different currencies,an intermediate asset transaction has to take place:

Correct AnswerverifiedShow Answer

Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

Correct AnswerverifiedShow Answer

If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound,the rate of exchange between the two currencies:

Correct AnswerverifiedShow Answer

The exchange rate system currently used by the industrially advanced nations is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

International financial transactions mostly fall into two broad categories:

Correct AnswerverifiedShow Answer

-Refer to the above diagram 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.Under a system of fixed exchange rates,the shift in demand from D to D' will cause:

Correct AnswerverifiedShow Answer

If the exchange rate between the Canadian dollar and the Japanese yen is $1 = 200 yen,then the dollar price of yen is:

Correct AnswerverifiedShow Answer

A market in which the money of one nation is exchanged for the money of another nation is a:

Correct AnswerverifiedShow Answer

In equilibrium,if $1 = .5 pounds sterling and 1 pound sterling = 40 Swiss francs,the exchange rate between dollars and Swiss francs will be:

Correct AnswerverifiedShow Answer

If the Canadian dollar price of United States dollars increases from $.80 to $1.00,it can be concluded that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The following are hypothetical exchange rates: 2 Swiss francs = 1 British pound and $1 = 2 British pound.We can conclude that:

Correct AnswerverifiedShow Answer

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars. -Which of the following is not included in the current account of a nation's balance of payments?

Correct AnswerverifiedShow Answer

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Correct AnswerverifiedShow Answer

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