Question 1

The balance of goods and services plus net unilateral transfers is called the

Accepted Answer

A) trade balance. 
B) balance on capital account. 
C) balance on current account. 
D) balance of payments. 
A) trade balance. 
B) balance on capital account. 
C) balance on current account. 
D) balance of payments. C

Question 2

Under a flexible exchange rate system, __________ is when a currency has decreased in value relative to another currency.

Accepted Answer

A) depreciation 
B) appreciation 
C) capital inflow 
D) revaluation 
A) depreciation 
B) appreciation 
C) capital inflow 
D) revaluation A

Question 3

If the dollar appreciates relative to the yen, which of the following is true?

Accepted Answer

A) the dollar's purchasing power in terms of yen has increased 
B) the dollar's purchasing power in terms of yen has decreased 
C) a dollar previously worth 100 yen, would now be worth less than 100 yen 
D) Both b and c are correct. 
A) the dollar's purchasing power in terms of yen has increased 
B) the dollar's purchasing power in terms of yen has decreased 
C) a dollar previously worth 100 yen, would now be worth less than 100 yen 
D) Both b and c are correct. A

Question 4

An increase in foreign real incomes may be graphically represented as a

Accepted Answer

A) slide upward on the demand curve for dollars in the foreign exchange market. 
B) slide upward or downward on the demand curve for dollars in the foreign exchange market. 
C) shift upward of the demand curve for dollars in the foreign exchange market. 
D) rightward shift of the demand curve for dollars in the foreign exchange market. 
A) slide upward on the demand curve for dollars in the foreign exchange market. 
B) slide upward or downward on the demand curve for dollars in the foreign exchange market. 
C) shift upward of the demand curve for dollars in the foreign exchange market. 
D) rightward shift of the demand curve for dollars in the foreign exchange market.

Question 5

A decrease in the U.S. inflation rate relative to Sweden's will

Accepted Answer

A) increase the quantity supplied of money in the foreign exchange market. 
B) decrease the quantity supplied of money in the foreign exchange market. 
C) shift the supply curve of dollars in the foreign exchange market to the right. 
D) shift the supply curve of dollars in the foreign exchange market to the left. 
A) increase the quantity supplied of money in the foreign exchange market. 
B) decrease the quantity supplied of money in the foreign exchange market. 
C) shift the supply curve of dollars in the foreign exchange market to the right. 
D) shift the supply curve of dollars in the foreign exchange market to the left.

Question 6

If the dollar depreciates relative to the Swiss franc, what will tend to occur?

Accepted Answer

A) U.S. residents will increase their quantity demanded of Swiss goods. 
B) Swiss residents will decrease their quantity demanded of American goods. 
C) U.S. residents will decrease their demand for Swiss goods. 
D) U.S. residents will decrease their quantity demanded of Swiss goods. 
A) U.S. residents will increase their quantity demanded of Swiss goods. 
B) Swiss residents will decrease their quantity demanded of American goods. 
C) U.S. residents will decrease their demand for Swiss goods. 
D) U.S. residents will decrease their quantity demanded of Swiss goods.

Question 7

An increase in real income in the United States will do which of following?

Accepted Answer

A) decrease the supply of dollars 
B) increase the supply of dollars 
C) decrease the quantity supplied of dollars 
D) increase the quantity supplied of dollars 
A) decrease the supply of dollars 
B) increase the supply of dollars 
C) decrease the quantity supplied of dollars 
D) increase the quantity supplied of dollars

Question 8

A depreciation of the dollar will

Accepted Answer

A) lower the foreign currency price of U.S. goods in foreign markets. 
B) increase the foreign currency price of U.S. goods in foreign markets. 
C) lower the dollar price of foreign goods in the United States 
D) Both b and c are correct. 
A) lower the foreign currency price of U.S. goods in foreign markets. 
B) increase the foreign currency price of U.S. goods in foreign markets. 
C) lower the dollar price of foreign goods in the United States 
D) Both b and c are correct.

Question 9

-Refer to Figures A, B, C, and D . Which of the figures best illustrates a situation where U.S. income rises, ceteris paribus?

Accepted Answer

A) Figure A 
B) Figure B 
C) Figure C 
D) Figure D 
A) Figure A 
B) Figure B 
C) Figure C 
D) Figure D

Question 10

When U.S. merchandise imports are greater than exports, the United States is running a

Accepted Answer

A) trade deficit. 
B) trade surplus. 
C) trade balance. 
D) capital account surplus. 
A) trade deficit. 
B) trade surplus. 
C) trade balance. 
D) capital account surplus.

Question 11

If the yen appreciates and the dollar depreciates, the U.S. dollar price of Japanese imports will tend to

Accepted Answer

A) fall. 
B) remain the same. 
C) rise. 
D) None of the above 
A) fall. 
B) remain the same. 
C) rise. 
D) None of the above

Question 12

Ceteris paribus, the relationship between quantity demanded of dollars/month and the exchange rate is

Accepted Answer

A) direct. 
B) inverse. 
C) positive. 
D) None of the above is correct. 
A) direct. 
B) inverse. 
C) positive. 
D) None of the above is correct.

Question 13

Which of the following, ceteris paribus, will cause the dollar to depreciate?

Accepted Answer

A) an increase in U.S. interest rates 
B) an increase in foreign interest rates 
C) a rise in the exchange rate 
D) All of the above are correct. 
A) an increase in U.S. interest rates 
B) an increase in foreign interest rates 
C) a rise in the exchange rate 
D) All of the above are correct.

Question 14

If a pair of jeans cost $40.00 in the United States and the krone/dollar exchange is 6.40, the jeans will cost how many krone in Norway?

Accepted Answer

A) 6.25 
B) .16 
C) 256.00 
D) 332.04 
A) 6.25 
B) .16 
C) 256.00 
D) 332.04

Question 15

In international financial markets, the supply of dollars is determined by which of the following?

Accepted Answer

A) Foreign purchases of domestic goods, services, and securities 
B) Domestic purchases of domestic goods, services, and securities 
C) Foreign purchases of foreign goods, services, and securities 
D) Domestic purchases of foreign goods, services, and securities 
A) Foreign purchases of domestic goods, services, and securities 
B) Domestic purchases of domestic goods, services, and securities 
C) Foreign purchases of foreign goods, services, and securities 
D) Domestic purchases of foreign goods, services, and securities

Question 16

-Which of the following would best explain the decrease in demand for dollars illustrated in the Figure ?

Accepted Answer

A) A decrease in U.S. prices, ceteris paribus 
B) A decrease in U.S. interest rates, ceteris paribus 
C) An increase in foreign incomes, ceteris paribus 
D) A decrease in foreign interest rates, ceteris paribus 
A) A decrease in U.S. prices, ceteris paribus 
B) A decrease in U.S. interest rates, ceteris paribus 
C) An increase in foreign incomes, ceteris paribus 
D) A decrease in foreign interest rates, ceteris paribus

Question 17

The demand for dollar-denominated funds comes from the

Accepted Answer

A) foreign demand for American-made goods, services, and securities. 
B) U.S. demand for U.S. goods, services, and securities. 
C) U.S. demand for foreign-made goods, services, and securities. 
D) foreign demand for foreign-made goods, services, and securities. 
A) foreign demand for American-made goods, services, and securities. 
B) U.S. demand for U.S. goods, services, and securities. 
C) U.S. demand for foreign-made goods, services, and securities. 
D) foreign demand for foreign-made goods, services, and securities.

Question 18

Research indicates which of the following factors play a major role in the determination of U.S. exchange rates?

Accepted Answer

A) changes in U.S. real income 
B) changes in the dollar price of U.S. goods relative to the dollar price of foreign goods 
C) changes in foreign interest rates relative to U.S. interest rates 
D) All of the above are correct. 
A) changes in U.S. real income 
B) changes in the dollar price of U.S. goods relative to the dollar price of foreign goods 
C) changes in foreign interest rates relative to U.S. interest rates 
D) All of the above are correct.

Question 19

A change in foreign interest rates relative to U.S. interest rates will

Accepted Answer

A) increase the quantity supplied of dollars in the foreign exchange market. 
B) increase or decrease the quantity supplied of dollars in the foreign exchange market. 
C) increase total revenue in the foreign exchange market. 
D) increase or decrease the demand or supply of dollars in the foreign exchange market. 
A) increase the quantity supplied of dollars in the foreign exchange market. 
B) increase or decrease the quantity supplied of dollars in the foreign exchange market. 
C) increase total revenue in the foreign exchange market. 
D) increase or decrease the demand or supply of dollars in the foreign exchange market.

Question 20

In order to participate in the Financial Stability Forum (FSF), a country

Accepted Answer

A) must have sound economic policies 
B) must establish banking systems that encourage appropriate risk taking 
C) must standardize the reporting of qualitative and quantitative information 
D) All of the above 
A) must have sound economic policies 
B) must establish banking systems that encourage appropriate risk taking 
C) must standardize the reporting of qualitative and quantitative information 
D) All of the above

Exam 16: How Exchange Rates Are Determined

The balance of goods and services plus net unilateral transfers is called the

Under a flexible exchange rate system, __________ is when a currency has decreased in value relative to another currency.

If the dollar appreciates relative to the yen, which of the following is true?

An increase in foreign real incomes may be graphically represented as a

A decrease in the U.S. inflation rate relative to Sweden's will

If the dollar depreciates relative to the Swiss franc, what will tend to occur?

An increase in real income in the United States will do which of following?

A depreciation of the dollar will

-Refer to Figures A, B, C, and D . Which of the figures best illustrates a situation where U.S. income rises, ceteris paribus?

When U.S. merchandise imports are greater than exports, the United States is running a

If the yen appreciates and the dollar depreciates, the U.S. dollar price of Japanese imports will tend to

Ceteris paribus, the relationship between quantity demanded of dollars/month and the exchange rate is

Which of the following, ceteris paribus, will cause the dollar to depreciate?

If a pair of jeans cost $40.00 in the United States and the krone/dollar exchange is 6.40, the jeans will cost how many krone in Norway?

In international financial markets, the supply of dollars is determined by which of the following?

-Which of the following would best explain the decrease in demand for dollars illustrated in the Figure ?

The demand for dollar-denominated funds comes from the

Research indicates which of the following factors play a major role in the determination of U.S. exchange rates?

A change in foreign interest rates relative to U.S. interest rates will

In order to participate in the Financial Stability Forum (FSF), a country

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

Aggregate Demand and Aggregate Supply

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

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