Question 1

People will have to exchange their currency for another only when they do exporting or importing.

Accepted Answer

A) True 
 B)False

Question 2

If a nation's goods exports are $55 billion, while its goods imports are $50 billion, we can conclude with certainty that this nation has a
A) balance of trade (goods) surplus.
B) balance of payments surplus.
C) positive balance on its current account.
D) positive balance on goods and services.

Accepted Answer

The answer of If a nation's goods exports are $55...

Question 3

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to

Accepted Answer

A)   depreciate and the U.S. dollar to depreciate.
B)   depreciate and the U.S. dollar to appreciate.
C)   appreciate and the U.S. dollar to appreciate.
D)   appreciate and the U.S. dollar to depreciate.E) A) and D)
F) B) and C)

Question 4

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) A) and B)
F) B) and D)

Question 5

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is not true in the current exchange-rate system?

Accepted Answer

A)   Major currencies like the U.S. dollar, euro, pound, and yen operate mostly in a flexible system responding to supply and demand forces.
B)   Some developing nations peg their currencies to the dollar and allow their currencies to fluctuate with it relative to other currencies.
C)   Each country uses its own unique currency; for example, only the U.S. uses the U.S. dollar as its currency.
D)   Many nations peg their currencies to a "basket," or group, of other currencies, rather than to a single other currency.E) A) and D)
F) B) and C)

Question 7

Under a system of freely flexible (floating)  exchange rates, a U.S. trade deficit with Mexico will tend to cause

Accepted Answer

A)   the U.S. government to ration pesos to U.S. importers.
B)   a flow of gold from the United States to Mexico.
C)   an increase in the peso price of dollars.
D)   an increase in the dollar price of pesos.E) B) and D)
F) B) and C)

Question 8

U.S. businesses are demanders of foreign currencies because they need them to

Accepted Answer

A)   sell goods and services exported to foreign countries.
B)   pay for goods and services imported from foreign countries.
C)   receive interest payments from foreign governments.
D)   receive interest payments from foreign businesses.E) None of the above
F) C) and D)

Question 9

Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange $60 million for pesos, to enforce the peg the Mexican government will need to come up with

Accepted Answer

A)   P1,200 million.
B)   P0.33 million.
C)   P3 million.
D)   P80 million.E) A) and B)
F) A) and C)

Question 10

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

Accepted Answer

A)   the yen will appreciate and the U.S. dollar will depreciate.
B)   the yen will depreciate and the U.S. dollar will appreciate.
C)   the yen and the U.S. dollar will appreciate.
D)   the yen and the U.S. dollar will depreciate.E) All of the above
F) C) and D)

Question 11

The current account section in a nation's balance of payments includes

Accepted Answer

A)   its goods exports and imports and its services exports and imports.
B)   foreign purchases of domestic assets.
C)   purchases of foreign assets.
D)   all of these.E) A) and B)
F) A) and C)

Question 12

If the United States decided to fix its exchange rate with Japan, this would

Accepted Answer

A)   require the U.S. to fix its exchange rate with all other currencies.
B)   ensure that the U.S. dollar would always appreciate against the yen.
C)   prevent the U.S. from having a trade deficit with Japan.
D)   cause the U.S. government to become the dollar-yen foreign exchange market.E) A) and D)
F) B) and D)

Question 13

Which of the following statements is correct?

Accepted Answer

A)   Under the gold standard, exchange rates fluctuate without restraint and thereby correct any international balance of payment disequilibrium.
B)   If nations X and Y are on the international gold standard, and X's exports to Y exceed X's imports from Y, then gold will flow from X to Y.
C)   If the dollar price of pounds rises, then the pound price of dollars will also rise.
D)   American exports tend to increase, while American imports tend to decrease, the supplies of foreign monies deposited in American banks.E) B) and D)
F) None of the above

Question 14

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that

Accepted Answer

A)   the fixed dollar-pound exchange rate is consistently below the equilibrium exchange rate that would be produced by a private foreign exchange market.
B)   the fixed dollar-pound exchange rate consistently exceeds the equilibrium exchange rate that would be produced by a private foreign exchange market.
C)   the fixed dollar-pound exchange rate is a good approximation of the exchange rate that would be produced by a private foreign exchange market.
D)   the U.S. central bank is regularly having to reduce the domestic money supply.E) B) and C)
F) A) and D)

Question 15

Mainly because of large current account deficits, the United States

Accepted Answer

A)   is the leading exporting nation in the world.
B)   has the world's largest external debt.
C)   has the world's highest saving rate.
D)   is experiencing an increase in its net inflow of investment income.E) A) and D)
F) A) and C)

Question 16

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) A) and B)
F) A) and C)

Question 17

Under a fixed exchange-rate system, which of the following statements is true?

Accepted Answer

A)   An overvalued currency at the pegged rate will tend to be inflationary.
B)   A peg that overvalues the local currency is harder to maintain than one that undervalues it.
C)   A fixed rate that undervalues the local currency (relative to equilibrium)  will drain the nation's FX reserves.
D)   A nation's central bank has exactly the same capacity to increase the value of its currency as it does to decrease it.E) A) and B)
F) B) and D)

Question 18

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move toward

Accepted Answer

A)   $0.67 per British pound.
B)   $1.50 per British pound.
C)   $0.57 per British pound.
D)   $1.75 per British pound.E) A) and C)
F) A) and B)

Question 19

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)   bond market.
C)   stock market.
D)   foreign exchange market.E) B) and C)
F) None of the above

Question 20

Under a fixed exchange-rate system, if the equilibrium exchange rate is continually and substantially below the fixed rate, that means that the local currency is overvalued relative to equilibrium. In this case, which of the following will not be a result of the central bank's actions to maintain the peg?

Accepted Answer

A)   The nation's FX reserves will increase.
B)   Domestic money supply will increase.
C)   Inflationary pressure will increase.
D)   The value of the local currency is artificially forced down.E) C) and D)
F) All of the above

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Correct Answer
verified

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

If a nation's goods exports are $55 billion, while its goods imports are $50 billion, we can conclude with certainty that this nation has a A) balance of trade (goods) surplus. B) balance of payments surplus. C) positive balance on its current account. D) positive balance on goods and services.

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

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

Correct Answer
verified

Under a fixed exchange-rate system, which of the following statements is true?

Correct Answer
verified

Correct Answer
verified

Under a system of freely flexible (floating) exchange rates, a U.S. trade deficit with Mexico will tend to cause

Correct Answer
verified

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

Correct Answer
verified

If the United States decided to fix its exchange rate with Japan, this would

Correct Answer
verified

People will have to exchange their currency for another only when they do exporting or importing.

Correct Answer
verified

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to

Correct Answer
verified

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move toward

Correct Answer
verified

U.S. businesses are demanders of foreign currencies because they need them to

Correct Answer
verified

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

Correct Answer
verified

Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange $60 million for pesos, to enforce the peg the Mexican government will need to come up with

Correct Answer
verified

Which of the following statements is not true in the current exchange-rate system?

Correct Answer
verified

Mainly because of large current account deficits, the United States

Correct Answer
verified

The current account section in a nation's balance of payments includes

Correct Answer
verified

Exam 27: The Balance of Payments, Exchange Rates, and Trade Deficits

The U.S. often has a significant surplus in services trade, even though it has a deficit in goods trade.

Correct AnswerverifiedShow Answer

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If a nation's goods exports are $55 billion, while its goods imports are $50 billion, we can conclude with certainty that this nation has a A) balance of trade (goods) surplus. B) balance of payments surplus. C) positive balance on its current account. D) positive balance on goods and services.

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

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

Correct AnswerverifiedShow Answer

Under a fixed exchange-rate system, which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Under a system of freely flexible (floating) exchange rates, a U.S. trade deficit with Mexico will tend to cause

Correct AnswerverifiedShow Answer

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more Japanese tourists decide to visit the United States for their vacations,

Correct AnswerverifiedShow Answer

If the United States decided to fix its exchange rate with Japan, this would

Correct AnswerverifiedShow Answer

People will have to exchange their currency for another only when they do exporting or importing.

Correct AnswerverifiedShow Answer

If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won to

Correct AnswerverifiedShow Answer

A market basket of goods costs $350 in the United States and 200 pounds in the United Kingdom. According to the purchasing power parity theory, the exchange rate should move toward

Correct AnswerverifiedShow Answer

U.S. businesses are demanders of foreign currencies because they need them to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange $60 million for pesos, to enforce the peg the Mexican government will need to come up with

Correct AnswerverifiedShow Answer

Which of the following statements is not true in the current exchange-rate system?

Correct AnswerverifiedShow Answer

Mainly because of large current account deficits, the United States

Correct AnswerverifiedShow Answer

The current account section in a nation's balance of payments includes

Correct AnswerverifiedShow Answer

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