Question 1

The annual membership fees of the 185 member countries of the IMF are called:

Accepted Answer

A) annuities. 
B) quotas. 
C) vetos. 
D) conditionalities. 
E) petrodollars. 
A) annuities. 
B) quotas. 
C) vetos. 
D) conditionalities. 
E) petrodollars.

Question 2

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

Accepted Answer

A) True 
 B)False

Question 3

Other things equal,the higher the deviations from purchasing power,the lesser will be the arbitrage opportunities.

Accepted Answer

A) True 
 B)False

Question 4

Suppose you are a U.S.exporter expecting to receive a payment of NZD1,000 (New Zealand dollars) in 12 months.The annual interest rate on NZD deposits is 5 percent,and the annual interest rate on dollar deposits is 9 percent.If the present exchange rate is $0.50 per NZD and interest rate parity holds,how many dollars do you expect to receive at the maturity date of the export contract?

Accepted Answer

A) $2,000 
B) $1,923 
C) $1,000 
D) $580 
E) $520 
A) $2,000 
B) $1,923 
C) $1,000 
D) $580 
E) $520

Question 5

Which of the following can be categorized as a commodity money standard?

Accepted Answer

A) The pegged exchange rate standard 
B) The free float standard 
C) The managed float standard 
D) The reserve currency standard 
E) The gold standard 
A) The pegged exchange rate standard 
B) The free float standard 
C) The managed float standard 
D) The reserve currency standard 
E) The gold standard

Question 6

In 1991,the French mineral water Perrier was temporarily taken off the market in the United States because of suspected impurities.Other things equal,this action brought about:

Accepted Answer

A) an increase in the demand for Perrier. 
B) a decrease in the price of Perrier in terms of French francs. 
C) a depreciation of the French franc relative to the U.S.dollar. 
D) an appreciation of the French franc relative to the U.S.dollar. 
E) an increased supply of dollars in the foreign exchange market. 
A) an increase in the demand for Perrier. 
B) a decrease in the price of Perrier in terms of French francs. 
C) a depreciation of the French franc relative to the U.S.dollar. 
D) an appreciation of the French franc relative to the U.S.dollar. 
E) an increased supply of dollars in the foreign exchange market.

Question 7

Suppose a U.S.importer purchases "Mexican Oaxaca" cheese for $500.If the present exchange rate is Mexican peso (MXP) 10 per U.S.dollar,and the MXP appreciates 10 percent against the U.S.dollar between the date of purchase and the date of payment,then the peso value of the invoice when payment is due is:

Accepted Answer

A) MXP 500. 
B) MXP 550. 
C) MXP 4,500. 
D) MXP 5,500. 
E) MXP 4,450. 
A) MXP 500. 
B) MXP 550. 
C) MXP 4,500. 
D) MXP 5,500. 
E) MXP 4,450.

Question 8

Under the _____ arrangement,the exchange rate is adjusted periodically by small amounts at a fixed,pre-announced rate or in response to certain indicators.

Accepted Answer

A) currency board 
B) crawling peg 
C) reserve currency 
D) conventional fixed peg 
E) independent float 
A) currency board 
B) crawling peg 
C) reserve currency 
D) conventional fixed peg 
E) independent float

Question 9

Which of the following exchange rate systems have a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate?

Accepted Answer

A) Gold standard 
B) Gold exchange standard 
C) Crawling band 
D) Horizontal band 
E) Currency board 
A) Gold standard 
B) Gold exchange standard 
C) Crawling band 
D) Horizontal band 
E) Currency board

Question 10

An appreciation of the Norwegian kroner in relation to the U.S.dollar is most likely to cause:

Accepted Answer

A) an increase in the U.S.demand for Norwegian goods. 
B) an increase in the Norwegian demand for U.S.goods. 
C) an increase in the supply of U.S.goods to Norway. 
D) a decrease in the supply of Norwegian goods to the United States. 
E) no change in the demand or supply of goods for either country. 
A) an increase in the U.S.demand for Norwegian goods. 
B) an increase in the Norwegian demand for U.S.goods. 
C) an increase in the supply of U.S.goods to Norway. 
D) a decrease in the supply of Norwegian goods to the United States. 
E) no change in the demand or supply of goods for either country.

Question 11

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

Accepted Answer

A) dollar exchange standard. 
B) euro exchange standard. 
C) gold exchange standard. 
D) silver exchange standard. 
E) flexible exchange rate standard. 
A) dollar exchange standard. 
B) euro exchange standard. 
C) gold exchange standard. 
D) silver exchange standard. 
E) flexible exchange rate standard.

Question 12

If prices rise within a country,then,other things equal,the value of a unit of domestic currency will:

Accepted Answer

A) rise in both the domestic and the foreign exchange markets. 
B) fall in both the domestic and the foreign exchange markets. 
C) rise in the domestic market and fall in the foreign exchange market. 
D) fall in the domestic market and rise in the foreign exchange market. 
E) fluctuate unpredictably in both domestic and foreign exchange markets. 
A) rise in both the domestic and the foreign exchange markets. 
B) fall in both the domestic and the foreign exchange markets. 
C) rise in the domestic market and fall in the foreign exchange market. 
D) fall in the domestic market and rise in the foreign exchange market. 
E) fluctuate unpredictably in both domestic and foreign exchange markets.

Question 13

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1   In the figure:
DS1U1B11S1U1B0 and DS1U1B12S1U1B0: Demand for Brazilian reals
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Supply of Brazilian reals
-Refer to Figure 22.1.If the initial equilibrium exchange rate is 6 pesos per real,then other things equal,a decrease in the number of Brazilian tourists to Mexico would:

Accepted Answer

A) increase the demand for Brazilian reals from D2 to D1 and increase the exchange rate to 8 pesos per real. 
B) decrease the supply of Brazilian reals from S1 to S2 and increase the exchange rate to 8 pesos per real. 
C) decrease the supply of Brazilian reals from S1 to S2 and increase the exchange rate to 10 pesos per real. 
D) decrease the demand for Brazilian reals from D1 to D2 and increase the exchange rate to 8 pesos per real. 
E) decrease the supply of Brazilian reals from S1 to S2 and increase the demand for Brazilian reals from D2 to D1,thereby changing the exchanging rate to 10 pesos per real. 
A) increase the demand for Brazilian reals from D2 to D1 and increase the exchange rate to 8 pesos per real. 
B) decrease the supply of Brazilian reals from S1 to S2 and increase the exchange rate to 8 pesos per real. 
C) decrease the supply of Brazilian reals from S1 to S2 and increase the exchange rate to 10 pesos per real. 
D) decrease the demand for Brazilian reals from D1 to D2 and increase the exchange rate to 8 pesos per real. 
E) decrease the supply of Brazilian reals from S1 to S2 and increase the demand for Brazilian reals from D2 to D1,thereby changing the exchanging rate to 10 pesos per real.

Question 14

Assume that you have just returned to the United States from a summer vacation in Russia,where you exchanged American dollars for Russian rubles.Your economic actions can be said to have:

Accepted Answer

A) increased the supply of American dollars in Russia. 
B) decreased the supply of Russian rubles in America. 
C) decreased the supply of American dollars in Russia. 
D) increased the demand for American dollars in America. 
E) increased the supply of Russian rubles in Russia. 
A) increased the supply of American dollars in Russia. 
B) decreased the supply of Russian rubles in America. 
C) decreased the supply of American dollars in Russia. 
D) increased the demand for American dollars in America. 
E) increased the supply of Russian rubles in Russia.

Question 15

No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 16

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2  
- Refer to Figure 22.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

Accepted Answer

A) the demand for British pounds has decreased. 
B) the supply of British pounds has decreased. 
C) increased demand for dollars has caused the dollar to depreciate and the pound to appreciate. 
D) increased demand for dollars has caused the dollar to appreciate and the pound to depreciate. 
E) the equilibrium exchange rate is $1.60 per British pound. 
A) the demand for British pounds has decreased. 
B) the supply of British pounds has decreased. 
C) increased demand for dollars has caused the dollar to depreciate and the pound to appreciate. 
D) increased demand for dollars has caused the dollar to appreciate and the pound to depreciate. 
E) the equilibrium exchange rate is $1.60 per British pound.

Question 17

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2  
- Refer to Figure 22.2.Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60.If supply decreases from S1 to S2,the bank must:

Accepted Answer

A) buy 25 pounds to shift the supply curve from S2 to S1. 
B) buy 50 pounds to shift the supply curve from S2 to S1. 
C) sell 75 pounds to shift the supply curve from S2 to S1. 
D) buy 75 pounds to shift the supply curve from S2 to S1. 
E) sell 10 pounds to shift the supply curve from S2 to S1. 
A) buy 25 pounds to shift the supply curve from S2 to S1. 
B) buy 50 pounds to shift the supply curve from S2 to S1. 
C) sell 75 pounds to shift the supply curve from S2 to S1. 
D) buy 75 pounds to shift the supply curve from S2 to S1. 
E) sell 10 pounds to shift the supply curve from S2 to S1.

Question 18

Suppose a U.S.importer agrees to pay a Japanese firm 55,000 yen for a shipment of goods.If the agreement is made when the exchange rate is $1 = ¥100,what is the change in the dollar value of the goods if the exchange rate changes to $1 = ¥110,on the payment-due date?

Accepted Answer

A) -$50 
B) $550,000 
C) -$550,000 
D) $50 
E) -$55,000 
A) -$50 
B) $550,000 
C) -$550,000 
D) $50 
E) -$55,000

Question 19

Suppose a U.S.citizen purchases a one-year Norwegian bond that yields 10 percent interest.Between the purchase date and the maturity date,the exchange rate changes from   to   How much was initially invested in the bond if the dollar value of the proceeds at maturity is $3,500? (roundoff up to the nearest whole number)

Accepted Answer

A) $2,916 
B) $3,150 
C) $3,500 
D) $3,850 
E) $4,200 
A) $2,916 
B) $3,150 
C) $3,500 
D) $3,850 
E) $4,200

Question 20

When the U.S.dollar depreciates in relation to the Swiss franc:

Accepted Answer

A) a U.S.importer will need more dollars to pay for an invoice denominated in Swiss francs. 
B) a Swiss exporter will receive more Swiss francs for an invoice denominated in the exporter's currency. 
C) Swiss imports of U.S.goods will fall. 
D) the Swiss franc is now worth less in terms of the U.S.dollar. 
E) a U.S.exporter will receive fewer dollars for an invoice denominated in Swiss francs. 
A) a U.S.importer will need more dollars to pay for an invoice denominated in Swiss francs. 
B) a Swiss exporter will receive more Swiss francs for an invoice denominated in the exporter's currency. 
C) Swiss imports of U.S.goods will fall. 
D) the Swiss franc is now worth less in terms of the U.S.dollar. 
E) a U.S.exporter will receive fewer dollars for an invoice denominated in Swiss francs.

The annual membership fees of the 185 member countries of the IMF are called:

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

Other things equal,the higher the deviations from purchasing power,the lesser will be the arbitrage opportunities.

Which of the following can be categorized as a commodity money standard?

In 1991,the French mineral water Perrier was temporarily taken off the market in the United States because of suspected impurities.Other things equal,this action brought about:

Under the _____ arrangement,the exchange rate is adjusted periodically by small amounts at a fixed,pre-announced rate or in response to certain indicators.

Which of the following exchange rate systems have a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate?

An appreciation of the Norwegian kroner in relation to the U.S.dollar is most likely to cause:

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

If prices rise within a country,then,other things equal,the value of a unit of domestic currency will:

Assume that you have just returned to the United States from a summer vacation in Russia,where you exchanged American dollars for Russian rubles.Your economic actions can be said to have:

No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed exchange rates.

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 - Refer to Figure 22.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 - Refer to Figure 22.2.Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60.If supply decreases from S₁ to S₂,the bank must:

Suppose a U.S.importer agrees to pay a Japanese firm 55,000 yen for a shipment of goods.If the agreement is made when the exchange rate is $1 = ¥100,what is the change in the dollar value of the goods if the exchange rate changes to $1 = ¥110,on the payment-due date?

When the U.S.dollar depreciates in relation to the Swiss franc:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Filters

Exam 22: Exchange Rates and Financial Links Between Countries

The annual membership fees of the 185 member countries of the IMF are called:

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

Other things equal,the higher the deviations from purchasing power,the lesser will be the arbitrage opportunities.

Which of the following can be categorized as a commodity money standard?

In 1991,the French mineral water Perrier was temporarily taken off the market in the United States because of suspected impurities.Other things equal,this action brought about:

Under the _____ arrangement,the exchange rate is adjusted periodically by small amounts at a fixed,pre-announced rate or in response to certain indicators.

Which of the following exchange rate systems have a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate?

An appreciation of the Norwegian kroner in relation to the U.S.dollar is most likely to cause:

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

If prices rise within a country,then,other things equal,the value of a unit of domestic currency will:

Assume that you have just returned to the United States from a summer vacation in Russia,where you exchanged American dollars for Russian rubles.Your economic actions can be said to have:

No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed exchange rates.

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 - Refer to Figure 22.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 - Refer to Figure 22.2.Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60.If supply decreases from S1 to S2,the bank must:

Suppose a U.S.importer agrees to pay a Japanese firm 55,000 yen for a shipment of goods.If the agreement is made when the exchange rate is $1 = ¥100,what is the change in the dollar value of the goods if the exchange rate changes to $1 = ¥110,on the payment-due date?

When the U.S.dollar depreciates in relation to the Swiss franc:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Filters

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 - Refer to Figure 22.2.Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60.If supply decreases from S₁ to S₂,the bank must: