Question 1

In saying that the present system of ﬂoating exchange rates is managed, we mean that

Accepted Answer

A)   countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF.
B)   the value of any IMF member's currency can only vary 2 percent from its par value.
C)   IMF oﬃcials determine exchange rates on a day-to-day basis.
D)   the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.E) C) and D)
F) B) and D)

Question 2

Which of the following is not a major disadvantages of a ﬂexible exchange-rate system?

Accepted Answer

A)   It is susceptible to wild swings in rates, causing high uncertainty and reduced trade.
B)   It could drain the foreign-exchange reserves of a nation.
C)   A depreciation of a nation's currency would worsen its terms of trade.
D)   Wild swings in exchange rates may destabilize the domestic economy through the effects on the traded-goods sectors.E) A) and D)
F) A) and B)

Question 3

U.S. goods exports +$390 U.S. goods imports −498 U.S. service exports +133 U.S. service imports −107 Net investment income +12 Net transfers −22 Capital account −5 Foreign purchases of U.S. assets +156 U.S. purchases of foreign assets −59\begin{array} { | l | r | } \hline 	ext { U.S. goods exports } & + \$ 390 \\hline 	ext { U.S. goods imports } & - 498 \\hline 	ext { U.S. service exports } & + 133 \\hline 	ext { U.S. service imports } & - 107 \\hline 	ext { Net investment income } & + 12 \\hline 	ext { Net transfers } & - 22 \\hline 	ext { Capital account } & - 5 \\hline 	ext { Foreign purchases of U.S. assets } & + 156 \\hline 	ext { U.S. purchases of foreign assets } & - 59 \\hline\end{array} U.S. goods exports  U.S. goods imports  U.S. service exports  U.S. service imports  Net investment income  Net transfers  Capital account  Foreign purchases of U.S. assets  U.S. purchases of foreign assets ​+$390−498+133−107+12−22−5+156−59​​  The accompanying table contains hypothetical data for the U.S. balance of payments in a year. All ?gures are in billions of dollars. The ?gure for net transfers indicates that the United States

Accepted Answer

A)   received a net public and private transfer of $22 billion from the rest of the world.
B)   sent a net public and private transfer of $22 billion in remittances to the rest of the world.
C)   sent a net private transfer of $22 billion to the rest of the world.
D)   received a net private transfer of $22 billion from the rest of the world. E) None of the above
F) A) and B)

Question 4

Deﬁne international trade, and then give an example.

Accepted Answer

International trade is the exchange (tra...

Question 5

Relatively high rates of U.S. inﬂation compared to other countries will increase the supply of, and
decrease the demand for, dollars in foreign exchange markets.

Accepted Answer

A) True 
 B)False

Question 6

A nation's current account balance is equal to its exports less its imports of

Accepted Answer

A)   goods and services.
B)   goods and services, minus U.S. purchases of assets abroad.
C)   goods and services, plus net investment income and net transfers.
D)   goods and services, plus foreign purchases of assets in the United States.E) C) and D)
F) B) and D)

Question 7

How does speculation in currencies affect the value of a nation's currency?

Accepted Answer

Currency speculators buy and sell curren...

Question 8

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Accepted Answer

A)   8.19 yen.
B)   122 yen.
C)   820 yen.
D)   1,220 yen.E) B) and C)
F) C) and D)

Question 9

In the balance of payments statement, a current account deﬁcit is always matched by a capital and
ﬁnancial accounts surplus.

Accepted Answer

A) True 
 B)False

Question 10

When a U.S. importer buys 100,000 pairs of pants from a Hong Kong company, this transaction will represent a(n)

Accepted Answer

A)   inﬂow of money on the current account of the U.S. balance of payments.
B)   outﬂow of money on the current account of the U.S. balance of payments.
C)   credit on the ﬁnancial account of the U.S. balance of payments.
D)   debit on the ﬁnancial account of the U.S. balance of payments.E) B) and D)
F) None of the above

Question 11

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments in the section on

Accepted Answer

A)   trade in services.
B)   net transfers.
C)   ﬁnancial accounts.
D)   capital accounts.E) A) and D)
F) A) and C)

Question 12

In international ﬁnancial transactions, what are the only two things that individuals and ﬁrms can exchange?

Accepted Answer

A)   currency and real assets
B)   services and manufactured goods
C)   assets and currently produced goods and services
D)   currency and currently produced goods and servicesE) B) and C)
F) None of the above

Question 13

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value)  relative to the yen. These nations might

Accepted Answer

A)   use foreign exchange reserves of yen to buy dollars.
B)   use foreign exchange reserves of dollars to buy yen.
C)   encourage Japan to print more yen.
D)   encourage the United States to increase interest rates.E) All of the above
F) A) and D)

Question 14

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is

Accepted Answer

A)   $0.44.
B)   $0.23.
C)   $2.25.
D)   $2.00.E) A) and B)
F) B) and C)

Question 15

Suppose that the United States decides to ﬁx the dollar-euro exchange rate. If the U.S. central bank observes that the quantity supplied of euros exceeds the quantity demanded of euros at the ﬁxed
Exchange rate, to maintain the exchange rate, the U.S. central bank will

Accepted Answer

A)   need to reduce the domestic supply of dollars.
B)   need to appreciate the dollar.
C)   realize an increase in its reserves of euros.
D)   realize a decrease in its reserves of euros.E) A) and B)
F) A) and C)

Question 16

In considering euros and dollars, the exchange rates for the euro and the dollar

Accepted Answer

A)   are directly related.
B)   are inversely related.
C)   are unrelated.
D)   move in the same direction.E) All of the above
F) B) and C)

Question 17

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 D)
F) None of the above

Question 18

In considering the market for yen and dollars, when the dollar depreciates,

Accepted Answer

A)   the yen appreciates.
B)   the yen will also depreciate.
C)   the yen may either appreciate or depreciate.
D)   U.S. net exports to Japan will fall.E) None of the above
F) B) and D)

Question 19

If nations adopt a gold standard where various countries' money supply is tied to gold, then there
will in effect be a ﬁxed exchange-rate system.

Accepted Answer

A) True 
 B)False

Question 20

Under the international gold standard, exchange rates ﬂuctuate without restraint to correct any
international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Accepted Answer

A) True 
 B)False

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

Deﬁne international trade, and then give an example.

Correct Answer
verified
International trade is the exchange (tra...
View Answer

Correct Answer
verified

In considering euros and dollars, the exchange rates for the euro and the dollar

Correct Answer
verified

A nation's current account balance is equal to its exports less its imports of

Correct Answer
verified

In the balance of payments statement, a current account deﬁcit is always matched by a capital and ﬁnancial accounts surplus.

Correct Answer
verified

In considering the market for yen and dollars, when the dollar depreciates,

Correct Answer
verified

When a U.S. importer buys 100,000 pairs of pants from a Hong Kong company, this transaction will represent a(n)

Correct Answer
verified

Which of the following is not a major disadvantages of a ﬂexible exchange-rate system?

Correct Answer
verified

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Correct Answer
verified

Suppose that the United States decides to ﬁx the dollar-euro exchange rate. If the U.S. central bank observes that the quantity supplied of euros exceeds the quantity demanded of euros at the ﬁxed Exchange rate, to maintain the exchange rate, the U.S. central bank will

Correct Answer
verified

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

Correct Answer
verified

In saying that the present system of ﬂoating exchange rates is managed, we mean that

Correct Answer
verified

How does speculation in currencies affect the value of a nation's currency?

Correct Answer
verified
Currency speculators buy and sell curren...
View Answer

In international ﬁnancial transactions, what are the only two things that individuals and ﬁrms can exchange?

Correct Answer
verified

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments in the section on

Correct Answer
verified

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a ﬁxed exchange-rate system.

Correct Answer
verified

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value) relative to the yen. These nations might

Correct Answer
verified

Relatively high rates of U.S. inﬂation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.

Correct Answer
verified

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is

Correct Answer
verified

Under the international gold standard, exchange rates ﬂuctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Correct Answer
verified

Exam 21: The Balance of Payments, Exchange Rates, and Trade Deficits

Deﬁne international trade, and then give an example.

Correct AnswerverifiedInternational trade is the exchange (tra...View AnswerShow Answer

Correct AnswerverifiedShow Answer

In considering euros and dollars, the exchange rates for the euro and the dollar

Correct AnswerverifiedShow Answer

A nation's current account balance is equal to its exports less its imports of

Correct AnswerverifiedShow Answer

In the balance of payments statement, a current account deﬁcit is always matched by a capital and ﬁnancial accounts surplus.

Correct AnswerverifiedShow Answer

In considering the market for yen and dollars, when the dollar depreciates,

Correct AnswerverifiedShow Answer

When a U.S. importer buys 100,000 pairs of pants from a Hong Kong company, this transaction will represent a(n)

Correct AnswerverifiedShow Answer

Which of the following is not a major disadvantages of a ﬂexible exchange-rate system?

Correct AnswerverifiedShow Answer

If a Japanese importer could buy $1,000 U.S. for 122,000 yen, the rate of exchange for one dollar would be

Correct AnswerverifiedShow Answer

Suppose that the United States decides to ﬁx the dollar-euro exchange rate. If the U.S. central bank observes that the quantity supplied of euros exceeds the quantity demanded of euros at the ﬁxed Exchange rate, to maintain the exchange rate, the U.S. central bank will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In saying that the present system of ﬂoating exchange rates is managed, we mean that

Correct AnswerverifiedShow Answer

How does speculation in currencies affect the value of a nation's currency?

Correct AnswerverifiedCurrency speculators buy and sell curren...View AnswerShow Answer

In international ﬁnancial transactions, what are the only two things that individuals and ﬁrms can exchange?

Correct AnswerverifiedShow Answer

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments in the section on

Correct AnswerverifiedShow Answer

If nations adopt a gold standard where various countries' money supply is tied to gold, then there will in effect be a ﬁxed exchange-rate system.

Correct AnswerverifiedShow Answer

Suppose that the economically largest nations collectively decided that the dollar is too strong (high in value) relative to the yen. These nations might

Correct AnswerverifiedShow Answer

Relatively high rates of U.S. inﬂation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.

Correct AnswerverifiedShow Answer

If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is

Correct AnswerverifiedShow Answer

Under the international gold standard, exchange rates ﬂuctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Correct AnswerverifiedShow Answer

Correct Answer
verified
International trade is the exchange (tra...
View Answer

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Currency speculators buy and sell curren...
View Answer

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