Question 1

If on Monday $1 = 146 Japanese yen and on Friday $1 = 147 yen, the dollar appreciated and the yen depreciated.

Accepted Answer

A) True 
 B)False  True

Question 2

Exhibit 19-1
  
-Given the hypothetical data in Exhibit 19-1, what is the balance on current account?

Accepted Answer

A) -$1,500 
B) -$2,000 
C) -$2,400 
D) -$2,420 
E) -$2,500 
A) -$1,500 
B) -$2,000 
C) -$2,400 
D) -$2,420 
E) -$2,500 E

Question 3

An increase in the U.S. demand for foreign exchange will cause a(n)

Accepted Answer

A) increase in the price of foreign exchange, which is a depreciation of the U.S. dollar, making foreign goods cheaper to U.S. residents 
B) increase in the price of foreign exchange, which is a depreciation of the U.S. dollar, making foreign goods more expensive to U.S. residents 
C) decrease in the price of the U.S. dollar, which is an appreciation of the U.S. dollar 
D) increase in the price of foreign exchange, which is an appreciation of the U.S. dollar 
E) decrease in the price of foreign exchange, which is an appreciation of the U.S. dollar 
A) increase in the price of foreign exchange, which is a depreciation of the U.S. dollar, making foreign goods cheaper to U.S. residents 
B) increase in the price of foreign exchange, which is a depreciation of the U.S. dollar, making foreign goods more expensive to U.S. residents 
C) decrease in the price of the U.S. dollar, which is an appreciation of the U.S. dollar 
D) increase in the price of foreign exchange, which is an appreciation of the U.S. dollar 
E) decrease in the price of foreign exchange, which is an appreciation of the U.S. dollar B

Question 4

An exchange rate is the price of one commodity (e.g., corn) measured in terms of another commodity (e.g., wheat).

Accepted Answer

A) True 
 B)False

Question 5

The purchasing power parity theory

Accepted Answer

A) is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate 
B) predicts that exchange rates between two currencies will adjust in the long run to reflect the price level difference between two countries 
C) is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries 
D) is helpful in explaining long-run trends, even though trade barriers and central bank intervention may hinder the usefulness of the theory 
E) tells us that a country's currency generally will appreciate if its inflation rate is lower than that of the rest of the world 
A) is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate 
B) predicts that exchange rates between two currencies will adjust in the long run to reflect the price level difference between two countries 
C) is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries 
D) is helpful in explaining long-run trends, even though trade barriers and central bank intervention may hinder the usefulness of the theory 
E) tells us that a country's currency generally will appreciate if its inflation rate is lower than that of the rest of the world

Question 6

The current account shows international transactions in goods and services, the capital account shows international transactions involving the flow of financial assets, and the official reserve transactions account shows movement of international reserves.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true?

Accepted Answer

A) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
B) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners. 
C) If the Australian dollar depreciates, the Australian trade deficit increases, since Australian products become more expensive to foreigners. 
D) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
E) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners. 
A) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
B) If the Australian dollar depreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners. 
C) If the Australian dollar depreciates, the Australian trade deficit increases, since Australian products become more expensive to foreigners. 
D) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become cheaper to foreigners. 
E) If the Australian dollar appreciates, the Australian trade deficit decreases, since Australian products become more expensive to foreigners.

Question 8

In the early 1970s, in an attempt to solve the problem of the overvalued U.S. dollar, world leaders

Accepted Answer

A) increased the price of gold in terms of other currencies 
B) appreciated the dollar, which made foreign exchange cheaper to U.S. residents 
C) appreciated the dollar, which made foreign exchange more expensive to U.S. residents 
D) devalued the dollar, which made foreign exchange cheaper to U.S. residents 
E) devalued the dollar, which made foreign exchange more expensive to U.S. residents 
A) increased the price of gold in terms of other currencies 
B) appreciated the dollar, which made foreign exchange cheaper to U.S. residents 
C) appreciated the dollar, which made foreign exchange more expensive to U.S. residents 
D) devalued the dollar, which made foreign exchange cheaper to U.S. residents 
E) devalued the dollar, which made foreign exchange more expensive to U.S. residents

Question 9

Under a flexible exchange rate system, which one of the following would not directly affect the exchange rate?

Accepted Answer

A) a change in income 
B) the relative inflation rates in two countries 
C) the salary of the president of the United States 
D) a change in capital flows 
E) a change in the level of exports or imports 
A) a change in income 
B) the relative inflation rates in two countries 
C) the salary of the president of the United States 
D) a change in capital flows 
E) a change in the level of exports or imports

Question 10

If the exchange rate changes from 20 cents per franc to 18 cents per franc, the U.S. dollar has

Accepted Answer

A) appreciated, since its value has increased 
B) appreciated, since its value has declined 
C) depreciated, making French goods more expensive in U.S. dollars 
D) depreciated, since its value has declined 
E) depreciated, since its value has increased 
A) appreciated, since its value has increased 
B) appreciated, since its value has declined 
C) depreciated, making French goods more expensive in U.S. dollars 
D) depreciated, since its value has declined 
E) depreciated, since its value has increased

Question 11

Exhibit 19-4  
-Which of the following is represented by Exhibit 19-4?

Accepted Answer

A) An increase in the Canadian demand for Swiss francs. 
B) An increase in the Swiss demand for Canadian dollars. 
C) Canadian exports to Switzerland decrease. 
D) The Swiss franc is devalued. 
E) The Swiss franc depreciates. 
A) An increase in the Canadian demand for Swiss francs. 
B) An increase in the Swiss demand for Canadian dollars. 
C) Canadian exports to Switzerland decrease. 
D) The Swiss franc is devalued. 
E) The Swiss franc depreciates.

Question 12

The exchange rate is

Accepted Answer

A) the price of foreign exchange determined by the interaction of supply and demand 
B) an interest rate determined by the interaction of supply and demand 
C) fixed by each government separately 
D) always fixed for any two currencies by the two nations involved, regardless of any agreements made with other nations 
E) fixed by GATT 
A) the price of foreign exchange determined by the interaction of supply and demand 
B) an interest rate determined by the interaction of supply and demand 
C) fixed by each government separately 
D) always fixed for any two currencies by the two nations involved, regardless of any agreements made with other nations 
E) fixed by GATT

Question 13

If foreigners increase their ownership of U.S. assets, this would help to offset

Accepted Answer

A) a deficit in the U.S. current account 
B) a deficit in the U.S. capital account 
C) a surplus in the U.S. current account 
D) a surplus in the U.S. capital account 
E) a surplus in the total balance of payments 
A) a deficit in the U.S. current account 
B) a deficit in the U.S. capital account 
C) a surplus in the U.S. current account 
D) a surplus in the U.S. capital account 
E) a surplus in the total balance of payments

Question 14

In 2009, the United States largest balance of trade deficit was with

Accepted Answer

A) the European Union 
B) Canada 
C) China 
D) Mexico 
E) Brazil 
A) the European Union 
B) Canada 
C) China 
D) Mexico 
E) Brazil

Question 15

An arbitrageur in foreign exchange is a person who

Accepted Answer

A) buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date 
B) earns illegal profit by manipulating foreign exchange 
C) causes differences in exchange rates in different geographic markets 
D) simultaneously buys large amounts of a currency in one market and sells it in another market 
E) mediates disputes when there is no agreement on exchange rates in international currency markets 
A) buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date 
B) earns illegal profit by manipulating foreign exchange 
C) causes differences in exchange rates in different geographic markets 
D) simultaneously buys large amounts of a currency in one market and sells it in another market 
E) mediates disputes when there is no agreement on exchange rates in international currency markets

Question 16

Which of the following is not a criticism of flexible exchange rates?

Accepted Answer

A) All of the following. 
B) They are volatile, which increases risks for importers and exporters. 
C) They could affect employment and increase demand for trade restrictions. 
D) They do not allow for discretionary monetary policy. 
E) They allow central banks to follow expansionary monetary policies. 
A) All of the following. 
B) They are volatile, which increases risks for importers and exporters. 
C) They could affect employment and increase demand for trade restrictions. 
D) They do not allow for discretionary monetary policy. 
E) They allow central banks to follow expansionary monetary policies.

Question 17

Which of the following is not classified as a service in the current account?

Accepted Answer

A) transportation 
B) insurance 
C) tourist expenditures 
D) income earned from foreign investments 
E) unilateral transfers 
A) transportation 
B) insurance 
C) tourist expenditures 
D) income earned from foreign investments 
E) unilateral transfers

Question 18

In determining the exchange rate between the Canadian dollar and British pound, if Canadian income increases, then

Accepted Answer

A) the Canadian demand for pounds increases 
B) the price of pounds decreases 
C) the Canadian demand for pounds decreases 
D) the Canadian supply of pounds increases 
E) the supply of Canadian dollars decreases 
A) the Canadian demand for pounds increases 
B) the price of pounds decreases 
C) the Canadian demand for pounds decreases 
D) the Canadian supply of pounds increases 
E) the supply of Canadian dollars decreases

Question 19

International reserves are

Accepted Answer

A) foreign exchange held by governments only 
B) foreign exchange held by central banks only 
C) foreign exchange held by governments or central banks 
D) gold only 
E) various internationally acceptable assets 
A) foreign exchange held by governments only 
B) foreign exchange held by central banks only 
C) foreign exchange held by governments or central banks 
D) gold only 
E) various internationally acceptable assets

Question 20

The demand for foreign currency in the United States

Accepted Answer

A) increases as the level of imports increases 
B) increases as the level of exports increases 
C) decreases with the lowering of the inflation rate abroad 
D) decreases as foreign interest rates rise 
E) is unaffected by U.S. demand for goods and services abroad 
A) increases as the level of imports increases 
B) increases as the level of exports increases 
C) decreases with the lowering of the inflation rate abroad 
D) decreases as foreign interest rates rise 
E) is unaffected by U.S. demand for goods and services abroad

Exam 19: International Finance

If on Monday $1 = 146 Japanese yen and on Friday $1 = 147 yen, the dollar appreciated and the yen depreciated.

Exhibit 19-1 -Given the hypothetical data in Exhibit 19-1, what is the balance on current account?

An increase in the U.S. demand for foreign exchange will cause a(n)

An exchange rate is the price of one commodity (e.g., corn) measured in terms of another commodity (e.g., wheat).

The purchasing power parity theory

The current account shows international transactions in goods and services, the capital account shows international transactions involving the flow of financial assets, and the official reserve transactions account shows movement of international reserves.

Which of the following is true?

In the early 1970s, in an attempt to solve the problem of the overvalued U.S. dollar, world leaders

Under a flexible exchange rate system, which one of the following would not directly affect the exchange rate?

If the exchange rate changes from 20 cents per franc to 18 cents per franc, the U.S. dollar has

Exhibit 19-4 -Which of the following is represented by Exhibit 19-4?

The exchange rate is

If foreigners increase their ownership of U.S. assets, this would help to offset

In 2009, the United States largest balance of trade deficit was with

An arbitrageur in foreign exchange is a person who

Which of the following is not a criticism of flexible exchange rates?

Which of the following is not classified as a service in the current account?

In determining the exchange rate between the Canadian dollar and British pound, if Canadian income increases, then

International reserves are

The demand for foreign currency in the United States

The Art and Science of Economic Analysis

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Economic Decision Makers

Demand Supply and Markets

Introduction to Macroeconomics

Tracking the Us Economy

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Understanding Graphs

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