Question 1

What happens in the foreign exchange market when there is a Canadian import transaction?

Accepted Answer

A Canadian company that purchases an import must pay for it in foreign currencies.The increased domestic demand for foreign currencies is met by exchanging Canadian dollars for the foreign currencies for a fee from a Canadian bank.This action reduces the supply of foreign currency held by Canadian banks and available for Canadian consumers.

Question 2

In the table below are the supply and demand schedules for Malaysian ringgits.   (a) What will be the rate of exchange for the Malaysian ringgit and for the Canadian dollar? (b) What would happen if the Canadian and Malaysian governments wanted to use currency intervention to fix or "peg" the price of a ringgit at $0.50?

Accepted Answer

(a) A Malaysian ringgit will cost $0.40.A Canadian dollar will cost 2.5 ringgits.(b) The governments would have to buy 400 ringgits for $0.50 to meet the quantity supplied at that price.

Question 3

If a nation's balance of payments is always in balance, why isn't it also always in equilibrium?

Accepted Answer

Official bank reserves are drawn upon to settle net differences in current and capital account balances so that the balance of payments is brought into balance.However, the change in the status of official reserves represents a disequilibrium in the balance of payments.So-called autonomous transactions did not balance, and official reserves were needed to accommodate the difference.

Question 4

The table below contains hypothetical international balance of payments data for Canada.All figures are in billions.Assume that there is no Statistical Discrepancy.Compute with the appropriate sign (+ or -) and enter in the table the eight missing items.What is the condition of the balance of payments in Canada?

Accepted Answer

@#IMG-DLM& Canada has a balanc

Question 5

Explain the relationship between the current account and the capital account in the balance of payments.

Accepted Answer

The current account basically shows the

Question 6

What domestic macroeconomic adjustments would be necessary to maintain fixed exchange rates when there are persistent balance of payments deficits? What are the problems with these adjustments?

Accepted Answer

Domestic macroeconomic adjustments are q

Question 7

What is the "managed float"?

Accepted Answer

The managed float allows for long-term c

Question 8

Explain the problems with exchange rate controls.

Accepted Answer

Exchange rate controls or rationing woul

Question 9

What role does the foreign exchange market play in facilitating the trade of goods?

Accepted Answer

When we trade goods within a country we

Question 10

How are flexible exchange rates used to eliminate a balance of payments deficit or surplus?

Accepted Answer

Flexible exchange rates can be used to e

Question 11

Explain how the dollar price of an imported good may change even though the foreign production cost of that product remains unchanged.

Accepted Answer

The dollar price depends on two things:

Question 12

What is a balance of payments deficit? What is a balance of payments surplus?

Accepted Answer

A nation is said to have a balance of pa

Question 13

The table below contains hypothetical international balance of payments data for Canada.All figures are in billions.Assume that there is no Statistical Discrepancy.Compute with the appropriate sign (+ or -) and enter in the table the eight missing items.What is the condition of the balance of payments in Canada?

Accepted Answer

@#IMG-DLM& Canada has a balanc

Question 14

Is a balance of payments deficit undesirable?

Accepted Answer

A balance of payments deficit is not nec

Question 15

The graph below shows a change in the demand for Swiss francs from D1 to D2.What would happen when D1 shifted to D2 under a flexible exchange rate system compared to a fixed exchange rate system?

Accepted Answer

Under a flexible system the price of a S

Question 16

Answer the next five questions on the basis of the following hypothetical data for a hypothetical nation Economia.All numbers are in billions of dollars.Assume that there is no Statistical Discrepancy.   (a) What is the balance of trade? (b) What is the balance on goods and services? (c) What is the balance on the current account? (d) What is the balance on the capital account? (e) What official reserves will be needed to settle the balance of payment accounts?

Accepted Answer

(a) Goods exports are +$90 billion and g

Question 17

Explain how China used the inflationary peg to move it's economy from a communist system to a capitalist system.

Accepted Answer

China's economy boomed in the1990s and 2

Question 18

List and explain the major determinants of the demand for, and supply of, the money of a foreign nation.

Accepted Answer

(i) Changes in tastes: If consumer prefe

Question 19

Answer the next five questions on the basis of the following hypothetical data for a nation Malthusia.All numbers are in billions of dollars.Assume that there is no Statistical Discrepancy.   (a) What was the balance of trade? (b) What was the balance on goods and services? (c) What was the balance on the current account? (d) What is the balance on the capital account? (e) What official reserves will be needed to settle the balance of payment accounts?

Accepted Answer

(a) Goods exports are +$45 billion and g

Question 20

What are the major components of the current account in the balance of payments? How is the current account balance determined?

Accepted Answer

The current account shows the position o

Exam 18: Part B: The Balance of Payments and Exchange Rates

What happens in the foreign exchange market when there is a Canadian import transaction?

If a nation's balance of payments is always in balance, why isn't it also always in equilibrium?

Explain the relationship between the current account and the capital account in the balance of payments.

What domestic macroeconomic adjustments would be necessary to maintain fixed exchange rates when there are persistent balance of payments deficits? What are the problems with these adjustments?

What is the "managed float"?

Explain the problems with exchange rate controls.

What role does the foreign exchange market play in facilitating the trade of goods?

How are flexible exchange rates used to eliminate a balance of payments deficit or surplus?

Explain how the dollar price of an imported good may change even though the foreign production cost of that product remains unchanged.

What is a balance of payments deficit? What is a balance of payments surplus?

Is a balance of payments deficit undesirable?

The graph below shows a change in the demand for Swiss francs from D1 to D2.What would happen when D1 shifted to D2 under a flexible exchange rate system compared to a fixed exchange rate system?

Explain how China used the inflationary peg to move it's economy from a communist system to a capitalist system.

List and explain the major determinants of the demand for, and supply of, the money of a foreign nation.

What are the major components of the current account in the balance of payments? How is the current account balance determined?

Part A: Limits, Alternatives, and Choices

Part B: Limits, Alternatives, and Choices

Part A: The Market System and the Circular Flow

Part B: The Market System and the Circular Flow

Part A: Demand, Supply, and Market Equilibrium

Part B: Demand, Supply, and Market Equilibrium

Part A: Market Failures: Public Goods and Externalities

Part B: Market Failures: Public Goods and Externalities

Part A: Governments Role and Government Failure

Part B: Governments Role and Government Failure

Part A: An Introduction to Macroeconomics

Part B: An Introduction to Macroeconomics

Part A: Measuring the Economys Output

Part B: Measuring the Economys Output

Part A: Economic Growth

Part B: Economic Growth

Part A: Business Cycles, Unemployment, and Inflation

Part B: Business Cycles, Unemployment, and Inflation

Part A: Basic Macroeconomic Relationships

Part B: Basic Macroeconomic Relationships

Part A: The Aggregate Expenditures Model

Part B: The Aggregate Expenditures Model

Part A: Aggregate Demand and Aggregate Supply

Part B: Aggregate Demand and Aggregate Supply

Part A: Fiscal Policy, Deficits, Surpluses, and Debt

Part B: Fiscal Policy, Deficits, Surpluses, and Debt

Part A: Money, Banking, and Money Creation

Part B: Money, Banking, and Money Creation

Part A: Interest Rates and Monetary Policy

Part B: Interest Rates and Monetary Policy

Part A: Long-Run Macroeconomic Adjustments

Part B: Long-Run Macroeconomic Adjustments

Part A: International Trade

Part B: International Trade

Part C: Financial Economics

Part A: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

The graph below shows a change in the demand for Swiss francs from D₁ to D₂.What would happen when D₁ shifted to D₂ under a flexible exchange rate system compared to a fixed exchange rate system?