Question 1

A nation has an unfavorable balance of trade when

Accepted Answer

A) it has a surplus in its balance of payments 
B) it has a deficit in its balance of payments 
C) the value of its imports of goods is greater than the value of its exports of goods 
D) its current account is in surplus and its capital account is in deficit 
E) it has high tariffs 
A) it has a surplus in its balance of payments 
B) it has a deficit in its balance of payments 
C) the value of its imports of goods is greater than the value of its exports of goods 
D) its current account is in surplus and its capital account is in deficit 
E) it has high tariffs C

Question 2

The United States is a net importer of capital.This means

Accepted Answer

A) that U.S.citizens own more foreign assets than foreigners own U.S.assets 
B) that citizens of other countries are buying more U.S.assets than U.S.citizens are buying foreign assets 
C) only that U.S.citizens own foreign assets 
D) only that foreign citizens own U.S.assets 
E) either that U.S.citizens own foreign assets or that foreign citizens own U.S.assets 
A) that U.S.citizens own more foreign assets than foreigners own U.S.assets 
B) that citizens of other countries are buying more U.S.assets than U.S.citizens are buying foreign assets 
C) only that U.S.citizens own foreign assets 
D) only that foreign citizens own U.S.assets 
E) either that U.S.citizens own foreign assets or that foreign citizens own U.S.assets B

Question 3

The capital account keeps track of the amount of

Accepted Answer

A) foreign-owned machinery in a country 
B) domestically owned machinery in foreign countries 
C) exports and imports of goods only 
D) exports and imports of goods and services 
E) assets in one country owned by citizens of another 
A) foreign-owned machinery in a country 
B) domestically owned machinery in foreign countries 
C) exports and imports of goods only 
D) exports and imports of goods and services 
E) assets in one country owned by citizens of another E

Question 4

Exhibit 20-4   If Switzerland were trying to peg its exchange rate at A, in response to the shift in demand from D to D' shown in Exhibit 20-4, it would try to

Accepted Answer

A) shift the demand curve to the right to establish equilibrium at point x 
B) shift the supply curve to the left to establish equilibrium at point x 
C) shift the supply curve to the right to establish equilibrium at point z 
D) support the new equilibrium at point y 
E) move down along its supply curve to intersect the old demand curve at point x 
A) shift the demand curve to the right to establish equilibrium at point x 
B) shift the supply curve to the left to establish equilibrium at point x 
C) shift the supply curve to the right to establish equilibrium at point z 
D) support the new equilibrium at point y 
E) move down along its supply curve to intersect the old demand curve at point x

Question 5

In determining the exchange rate between U.S.dollars and Swiss francs, all of the following are assumed constant along the supply curve for francs except one.Which is not assumed constant?

Accepted Answer

A) U.S.interest rates 
B) Swiss income 
C) expected rates of inflation in the United States 
D) expected rates of inflation in Switzerland 
E) the price of the Swiss franc 
A) U.S.interest rates 
B) Swiss income 
C) expected rates of inflation in the United States 
D) expected rates of inflation in Switzerland 
E) the price of the Swiss franc

Question 6

Because of the accounting techniques used, the balance of payments shows that debits equal credits only if exports equal imports.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a credit item (+)in the U.S.balance of payments?

Accepted Answer

A) imports of cars from Japan 
B) any transaction that results in an inflow of dollars 
C) a capital outflow 
D) a U.S.firm's purchase of steel from a European steel mill 
E) an increase in American vacations abroad 
A) imports of cars from Japan 
B) any transaction that results in an inflow of dollars 
C) a capital outflow 
D) a U.S.firm's purchase of steel from a European steel mill 
E) an increase in American vacations abroad

Question 8

The merchandise trade balance does not include

Accepted Answer

A) exports of refrigerators 
B) imports of automobiles 
C) exports of agricultural products 
D) shipping and insurance costs 
E) imports of food items with heavy tariffs 
A) exports of refrigerators 
B) imports of automobiles 
C) exports of agricultural products 
D) shipping and insurance costs 
E) imports of food items with heavy tariffs

Question 9

Which of the following is not considered a resident when calculating the balance of payments?

Accepted Answer

A) governments 
B) capital equipment 
C) organizations 
D) firms 
E) people 
A) governments 
B) capital equipment 
C) organizations 
D) firms 
E) people

Question 10

In the United States, imports have exceeded exports in every year since 1979.

Accepted Answer

A) True 
 B)False

Question 11

The current account reflects

Accepted Answer

A) trade in tangible products 
B) trade in goods as well as services 
C) trade in services only 
D) the purchase of securities from foreigners 
E) the sale of securities to foreigners 
A) trade in tangible products 
B) trade in goods as well as services 
C) trade in services only 
D) the purchase of securities from foreigners 
E) the sale of securities to foreigners

Question 12

The current international monetary system is

Accepted Answer

A) a flexible exchange rate system 
B) a fixed exchange rate system 
C) a system combining fixed and flexible exchange rates 
D) a gold standard 
E) a gold exchange rate system 
A) a flexible exchange rate system 
B) a fixed exchange rate system 
C) a system combining fixed and flexible exchange rates 
D) a gold standard 
E) a gold exchange rate system

Question 13

In the United States, imports have exceeded exports in every year since 1960.

Accepted Answer

A) True 
 B)False

Question 14

When supply and demand analysis is used to study the exchange rate, foreign exchange is treated just like

Accepted Answer

A) a good or a service 
B) debt 
C) fiat money 
D) commodity money 
E) investment 
A) a good or a service 
B) debt 
C) fiat money 
D) commodity money 
E) investment

Question 15

When the international financial system operated under the gold standard,

Accepted Answer

A) the currencies of most countries were convertible into gold 
B) all international transactions were financed with gold 
C) the price of gold was determined by the supply and demand for foreign exchange 
D) the quantity of money demanded was always the same 
E) there was very little inflation 
A) the currencies of most countries were convertible into gold 
B) all international transactions were financed with gold 
C) the price of gold was determined by the supply and demand for foreign exchange 
D) the quantity of money demanded was always the same 
E) there was very little inflation

Question 16

Exhibit 20-6   In Exhibit 20-6 the free market exchange rate would be

Accepted Answer

A) equal to $.50 
B) equal to $.53 
C) less than $.50 
D) greater than $.53 
E) indeterminate 
A) equal to $.50 
B) equal to $.53 
C) less than $.50 
D) greater than $.53 
E) indeterminate

Question 17

Which of the following would increase the U.S.demand for foreign currency?

Accepted Answer

A) an increase in the U.S.demand for foreign goods 
B) an increase in incomes abroad 
C) a decrease in U.S.incomes 
D) a decrease in the U.S.demand for foreign goods 
E) an increase in U.S.real interest rates 
A) an increase in the U.S.demand for foreign goods 
B) an increase in incomes abroad 
C) a decrease in U.S.incomes 
D) a decrease in the U.S.demand for foreign goods 
E) an increase in U.S.real interest rates

Question 18

The purchasing power parity theory is a good predictor of

Accepted Answer

A) all of the following 
B) the long-run tendencies between changes in the price level and the exchange rate of two countries 
C) interest rate differentials between two countries when there are strong barriers preventing trade between the two countries 
D) how intervention in exchange markets by central banks influences prices in various countries 
E) the day-to-day relationship between changes in the price level and the exchange rate of two countries 
A) all of the following 
B) the long-run tendencies between changes in the price level and the exchange rate of two countries 
C) interest rate differentials between two countries when there are strong barriers preventing trade between the two countries 
D) how intervention in exchange markets by central banks influences prices in various countries 
E) the day-to-day relationship between changes in the price level and the exchange rate of two countries

Question 19

From the U.S.perspective, a drop in the price of foreign exchange means that

Accepted Answer

A) fewer U.S.dollars are needed to purchase foreign currency 
B) more U.S.dollars are needed to purchase foreign currency 
C) worldwide, imports will become more expensive 
D) worldwide, exports will become cheaper 
E) transaction costs on international markets will decrease 
A) fewer U.S.dollars are needed to purchase foreign currency 
B) more U.S.dollars are needed to purchase foreign currency 
C) worldwide, imports will become more expensive 
D) worldwide, exports will become cheaper 
E) transaction costs on international markets will decrease

Question 20

Managed float means

Accepted Answer

A) a fixed exchange rate system with regularly scheduled periodic devaluations 
B) a freely floating exchange rate system 
C) a hybrid of freely floating exchange rates with occasional intervention by central banks 
D) a fixed exchange rate system managed by the European Community 
E) a flexible exchange rate system managed entirely by the IMF 
A) a fixed exchange rate system with regularly scheduled periodic devaluations 
B) a freely floating exchange rate system 
C) a hybrid of freely floating exchange rates with occasional intervention by central banks 
D) a fixed exchange rate system managed by the European Community 
E) a flexible exchange rate system managed entirely by the IMF

Exam 20: International Finance

A nation has an unfavorable balance of trade when

The United States is a net importer of capital.This means

The capital account keeps track of the amount of

Exhibit 20-4 If Switzerland were trying to peg its exchange rate at A, in response to the shift in demand from D to D' shown in Exhibit 20-4, it would try to

In determining the exchange rate between U.S.dollars and Swiss francs, all of the following are assumed constant along the supply curve for francs except one.Which is not assumed constant?

Because of the accounting techniques used, the balance of payments shows that debits equal credits only if exports equal imports.

Which of the following is not a credit item (+)in the U.S.balance of payments?

The merchandise trade balance does not include

Which of the following is not considered a resident when calculating the balance of payments?

In the United States, imports have exceeded exports in every year since 1979.

The current account reflects

The current international monetary system is

In the United States, imports have exceeded exports in every year since 1960.

When supply and demand analysis is used to study the exchange rate, foreign exchange is treated just like

When the international financial system operated under the gold standard,

Exhibit 20-6 In Exhibit 20-6 the free market exchange rate would be

Which of the following would increase the U.S.demand for foreign currency?

The purchasing power parity theory is a good predictor of

From the U.S.perspective, a drop in the price of foreign exchange means that

Managed float means

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

Economic Development

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