Question 1

U.S. exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland,

Accepted Answer

A)  gold bullion will flow into Switzerland.
B)  the Swiss franc will depreciate.
C)  the pound will depreciate.
D)  the Swiss franc will appreciate.

Question 4

The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. Item 6 indicates that

Accepted Answer

A)  the United States used $15 billion of its international monetary reserves to balance its international payments.
B)  the United States provided $15 billion of foreign aid to developing nations.
C)  Americans provided a net amount of $15 billion in remittances to the rest of the world.
D)  Americans received a net amount of $15 billion in remittances from the rest of the world.

Question 5

A deficit on the current account

Accepted Answer

A)  normally causes a surplus on the capital and financial account.
B)  normally causes a deficit on the capital and financial account.
C)  has no relationship to the capital and financial account.
D)  means that a nation is making international transfers.

Question 6

The two varieties of exchange-rate systems are

Accepted Answer

A)  supply and demand for foreign exchange.
B)  dollar exchange rate and foreign exchange rate.
C)  flexible- or floating-rate and fixed-rate.
D)  depreciating rate and appreciating rate.

Question 7

What is a managed floating exchange rate? What year did the United States begin using the managed-float system?

Accepted Answer

A managed floating exchange rate is an e...

Question 8

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

Accepted Answer

A)  appreciate 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)  depreciate and the U.S. dollar to depreciate.

Question 9

U.S. exports create a

Accepted Answer

A)  supply of foreign currencies and a demand for dollars in the foreign exchange markets.
B)  demand for foreign currencies and a supply of dollars in the foreign exchange markets.
C)  supply of foreign currencies and a supply of dollars in the foreign exchange markets.
D)  demand for foreign currencies and a demand for dollars in the foreign exchange markets.

Question 10

The accompanying diagram represents a flexible exchange market for foreign currency. Other things equal, a rightward shift of the demand curve would

Accepted Answer

A)  depreciate the dollar.
B)  appreciate the dollar.
C)  reduce the equilibrium quantity of euros.
D)  depreciate the euro.

Question 11

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

Accepted Answer

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.

Question 12

In the balance of payments statement, a current account surplus will be matched by a

Accepted Answer

A)  capital and financial accounts deficit.
B)  capital and financial accounts surplus.
C)  trade deficit.
D)  trade surplus.

Question 13

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

Accepted Answer

A)  travel by citizens of country X in other countries
B)  the desire of foreigners to buy stocks and bonds of firms in country X
C)  the imports of country X
D)  charitable contributions by country X's citizens to citizens of developing nations

Question 14

Which one of the following is not a major factor that contributed to large trade deficits in the United States in the period 2002-2007?

Accepted Answer

A)  a declining saving rate coupled with a rising investment rate in the U.S.
B)  a U.S. economy growing faster than its trading partners
C)  large trade deficits with OPEC economies
D)  flexible exchange rate between the U.S. dollar and the Chinese yuan

Question 15

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.

Question 16

The table contains balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. Econland's balance on the capital and financial accounts is a

Accepted Answer

A)  deficit of $110 billion.
B)  surplus of $92 billion.
C)  surplus of $102 billion.
D)  surplus of $103 billion.

Question 17

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 18

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.

Question 19

Fixed exchange rates are often maintained by using all of the following tools except

Accepted Answer

A)  open speculation by individual traders in foreign currency markets.
B)  international monetary reserves held by central banks.
C)  controls on imports and exports, such as tariffs and quotas.
D)  domestic macroeconomic adjustments using monetary and fiscal policies.

Question 20

Under an international gold standard, a flow of gold from country A into country B would be halted by

Accepted Answer

A)  a rise in the price of B's currency measured in terms of A's currency.
B)  government export controls on gold.
C)  rising prices and incomes in B and falling prices and incomes in A.
D)  rising prices and incomes in A and falling prices and incomes in B.

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

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

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U.S. exports to Japan create a supply of dollars and a demand for yen in the foreign exchange market.

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U.S. exports create a

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A deficit on the current account

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The table contains hypothetical data for the U.S. balance of payments. All figures are in billions of dollars. Item 6 indicates that

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

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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

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

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

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What is a managed floating exchange rate? What year did the United States begin using the managed-float system?

Correct AnswerverifiedA managed floating exchange rate is an e...View AnswerShow Answer

The two varieties of exchange-rate systems are

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Fixed exchange rates are often maintained by using all of the following tools except

Correct AnswerverifiedShow Answer

The table contains balance of payments data for the hypothetical nation of Econland. All figures are in billions of dollars. Econland's balance on the capital and financial accounts is a

Correct AnswerverifiedShow Answer

Which one of the following is not a major factor that contributed to large trade deficits in the United States in the period 2002-2007?

Correct AnswerverifiedShow Answer

The accompanying diagram represents a flexible exchange market for foreign currency. Other things equal, a rightward shift of the demand curve would

Correct AnswerverifiedShow Answer

In the balance of payments statement, a current account surplus will be matched by a

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

Correct AnswerverifiedShow Answer

Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland,

Correct AnswerverifiedShow Answer

Under an international gold standard, a flow of gold from country A into country B would be halted by

Correct AnswerverifiedShow Answer

If Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to

Correct AnswerverifiedShow Answer

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A managed floating exchange rate is an e...
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