Question 1

To Americans buyers, there is a decrease in the relative prices of Japanese goods when the

Accepted Answer

A)   yen appreciates.
B)   dollar appreciates.
C)   inflation rate in the United States is higher than the inflation rate in Japan, and there are flexible exchange rates.
D)   inflation rate in Japan is higher than the inflation rate in the United States and there are fixed exchange rates.E) None of the above
F) B) and C)

Question 2

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars, the demand-for-pounds curve is downsloping because

Accepted Answer

A)   fewer British pounds can be purchased if pounds become less expensive.
B)   fewer U.S. dollars can be purchased if British pounds become less expensive.
C)   more U.S. dollars can be purchased if British pounds become more expensive.
D)   more British pounds can be purchased if pounds become less expensive.E) A) and B)
F) B) and C)

Question 3

If the U.S. dollar appreciates relative to the British pound, then

Accepted Answer

A)   the pound will appreciate relative to the U.S. dollar.
B)   the pound will depreciate relative to the U.S. dollar.
C)   British goods will be more expensive for Americans.
D)   American goods will be less expensive for the British.E) B) and C)
F) A) and B)

Question 4

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Accepted Answer

A)   monetary policy.
B)   an inflationary peg.
C)   sterilization.
D)   a currency intervention.E) A) and B)
F) B) and C)

Question 5

An inflow of investment funds into the United States from overseas is likely to result from a(n)

Accepted Answer

A)   decline in expectations for economic growth in the United States.
B)   growing belief among investors that the U.S. dollar ($)  is overvalued.
C)   rise in U.S. interest rates relative to world interest rates.
D)   increase in the U.S. inflation rate.E) B) and D)
F) A) and B)

Question 6

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

Accepted Answer

A)   encourage foreign investment inflows, and restrict foreign investment outflows.
B)   encourage imports, and discourage exports.
C)   impose exchange controls or capital controls.
D)   use monetary or fiscal policies to reduce domestic spending.E) A) and C)
F) A) and B)

Question 7

The U.S. supply of Japanese yen is

Accepted Answer

A)   downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese.
B)   upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.
C)   upsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese.
D)   downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.E) A) and B)
F) A) and C)

Question 8

If a financial portfolio manager in the U.S. buys British company stocks in the London Stock Exchange, this would involve

Accepted Answer

A)   a demand for British pounds in the foreign exchange market.
B)   a supply of British pounds in the foreign exchange market.
C)   no effect on the demand for British pounds in the foreign exchange market.
D)   a demand for U.S. dollars in the foreign exchange market.E) C) and D)
F) A) and B)

Question 9

Which of the following statements about the financing of international trade is correct?

Accepted Answer

A)   International trade means the trading of financial assets for foreign exchange.
B)   Most international transactions are made with gold.
C)   Imports are more important than exports to the economy of a nation.
D)   Exports provide the foreign currencies needed to pay for imports.E) A) and B)
F) B) and D)

Question 10

Which of the following problems will most likely occur with a system of flexible exchange rates?

Accepted Answer

A)   macroeconomic instability as exports and imports fluctuate with the exchange rates
B)   government favoritism toward selected importers of goods and services
C)   the emergence of black markets for foreign currency
D)   distortions in trade patterns away from the pattern suggested by comparative advantageE) B) and D)
F) All of the above

Question 11

The purchase of a foreign hotel by a U.S. company is recorded as a credit in the financial account of the U.S. balance-of-payments statement.

Accepted Answer

A) True 
 B)False

Question 12

Which statement is true of a world with a system of fixed exchange rates as opposed to one with floating rates?

Accepted Answer

A)   It requires less world liquidity or reserves.
B)   It creates less confidence about future values of currencies.
C)   It facilitates the transmission of shifts in economic conditions between countries.
D)   It increases the role of the central banks in foreign exchange markets.E) B) and D)
F) B) and C)

Question 13

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Accepted Answer

A) True 
 B)False

Question 14

In one year the United States had a current account deficit of $461 billion. The balance on the capital account was −$8 billion. What was the balance on the financial account?

Accepted Answer

A)   −$461 billion
B)   +$469 billion
C)   −$469 billion
D)   +$453 billionE) None of the above
F) All of the above

Question 15

To maintain a fixed exchange rate, the government can use the following tools, except

Accepted Answer

A)   currency market intervention.
B)   controlling the flow of trade through various barriers.
C)   rationing of foreign exchange.
D)   keeping its level of international reserves strictly fixed.E) B) and C)
F) A) and C)

Question 16

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

Accepted Answer

A)   quantity of U.S. exports.
B)   quantity of U.S. imports.
C)   demand for U.S. dollars.
D)   international value of the U.S. dollar.E) A) and B)
F) A) and C)

Question 17

Suppose that a U.S. firm converts dollars into pounds in order to invest in a British enterprise in the U.K. A year later, the return on the investment is 12 percent in terms of pounds. If, during that period, the dollar appreciated against the pound, then the return on the investment in dollar terms would be

Accepted Answer

A)   greater than 12 percent.
B)   less than 12 percent.
C)   also 12 percent.
D)   dependent on the inflation rate, not the exchange rate.E) C) and D)
F) B) and C)

Question 18

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Accepted Answer

A)   a rise in U.S. interest rates
B)   an easy monetary policy in the United States
C)   a contractionary fiscal policy in the United States
D)   an increase in the U.S. demand for foreign oilE) A) and D)
F) All of the above

Question 19

The trade deficit has had the effect of

Accepted Answer

A)   decreasing the Federal budget deficit.
B)   increasing economic growth in less-developed nations.
C)   increasing direct foreign investment in the United States.
D)   decreasing protectionist pressure among U.S. businesses.E) A) and B)
F) A) and C)

Question 20

In a system of fixed exchange rates, if the dollar price of euros is above the market equilibrium level,

Accepted Answer

A)   gold will flow from the United States to Europe.
B)   there will be a surplus of euros.
C)   the U.S. government will have to ration euros to U.S. importers.
D)   there will be a shortage of euros.E) B) and C)
F) A) and D)

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

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

Correct Answer
verified

Which of the following problems will most likely occur with a system of flexible exchange rates?

Correct Answer
verified

The purchase of a foreign hotel by a U.S. company is recorded as a credit in the financial account of the U.S. balance-of-payments statement.

Correct Answer
verified

Which of the following statements about the financing of international trade is correct?

Correct Answer
verified

To maintain a fixed exchange rate, the government can use the following tools, except

Correct Answer
verified

Correct Answer
verified

The U.S. supply of Japanese yen is

Correct Answer
verified

Which statement is true of a world with a system of fixed exchange rates as opposed to one with floating rates?

Correct Answer
verified

In one year the United States had a current account deficit of $461 billion. The balance on the capital account was −$8 billion. What was the balance on the financial account?

Correct Answer
verified

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars, the demand-for-pounds curve is downsloping because

Correct Answer
verified

If the U.S. dollar appreciates relative to the British pound, then

Correct Answer
verified

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

Correct Answer
verified

An inflow of investment funds into the United States from overseas is likely to result from a(n)

Correct Answer
verified

If a financial portfolio manager in the U.S. buys British company stocks in the London Stock Exchange, this would involve

Correct Answer
verified

The trade deficit has had the effect of

Correct Answer
verified

To Americans buyers, there is a decrease in the relative prices of Japanese goods when the

Correct Answer
verified

In a system of fixed exchange rates, if the dollar price of euros is above the market equilibrium level,

Correct Answer
verified

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Correct Answer
verified

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Correct Answer
verified

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Correct Answer
verified

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

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

Correct AnswerverifiedShow Answer

Which of the following problems will most likely occur with a system of flexible exchange rates?

Correct AnswerverifiedShow Answer

The purchase of a foreign hotel by a U.S. company is recorded as a credit in the financial account of the U.S. balance-of-payments statement.

Correct AnswerverifiedShow Answer

Which of the following statements about the financing of international trade is correct?

Correct AnswerverifiedShow Answer

To maintain a fixed exchange rate, the government can use the following tools, except

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The U.S. supply of Japanese yen is

Correct AnswerverifiedShow Answer

Which statement is true of a world with a system of fixed exchange rates as opposed to one with floating rates?

Correct AnswerverifiedShow Answer

In one year the United States had a current account deficit of $461 billion. The balance on the capital account was −$8 billion. What was the balance on the financial account?

Correct AnswerverifiedShow Answer

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars, the demand-for-pounds curve is downsloping because

Correct AnswerverifiedShow Answer

If the U.S. dollar appreciates relative to the British pound, then

Correct AnswerverifiedShow Answer

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

Correct AnswerverifiedShow Answer

An inflow of investment funds into the United States from overseas is likely to result from a(n)

Correct AnswerverifiedShow Answer

If a financial portfolio manager in the U.S. buys British company stocks in the London Stock Exchange, this would involve

Correct AnswerverifiedShow Answer

The trade deficit has had the effect of

Correct AnswerverifiedShow Answer

To Americans buyers, there is a decrease in the relative prices of Japanese goods when the

Correct AnswerverifiedShow Answer

In a system of fixed exchange rates, if the dollar price of euros is above the market equilibrium level,

Correct AnswerverifiedShow Answer

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Correct AnswerverifiedShow Answer

Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets?

Correct AnswerverifiedShow Answer

One of the causes of the rising trade deficits of the past decade has been a declining saving rate in the United States.

Correct AnswerverifiedShow Answer

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