Exam 34: Exchange Rates and the Balance of Payments

Consider a country that is operating under a fixed exchange-rate system.The country's balance of payments will always show total debits equal to total credits because

A rise in the Canadian-dollar price of foreign currency is

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.How will this policy action affect Canada's imports and exports?

A credit entry in Canada's balance-of-payments accounts

We can expect that an increase in Canadian interest rates caused by a monetary contraction would

The table below shows indexes for the price levels for Canada and the United States and the nominal exchange rate between their currencies (the Canadian-dollar price of 1 U.S.dollar). TABLE 34-2 -Refer to Table 34-2.According to the theory of purchasing power parity (PPP),the Canada-US exchange rate in 2008 should have been

Suppose we hear on the news that the Canadian dollar is valued at U.S.$1.08.In this case,the Canada-U.S.exchange rate is

FIGURE 34-2 -Refer to Figure 34-2.If the exchange rate is e₁,there is

FIGURE 34-2 -Refer to Figure 34-2.If the exchange rate is e₁,there is

A debit entry in the Canadian balance-of-payments accounts 1)is a credit in the balance-of-payments accounts for foreign countries; 2)arises when Canadian assets are sold to foreigners; 3)typically results in more foreign exchange being held by foreigners.

Consider the market in which Canadian dollars are exchanged for British pounds.An increased preference of British consumers for Canadian goods would

The capital-service account in Canada's balance-of-payments is the section of the

Suppose the Bank of Canada raises its target for the overnight interest rate from 3% to 3.25%,while interest rates in other countries do not change.The result will be

A depreciation of the Canadian dollar implies

Consider Canada's balance of payments.Suppose Canada's current account has a surplus of $18 billion in 2013.It follows that Canada must have a capital account ________ of ________,meaning that there is a capital flow of this amount ________ Canada.

The problem of the "twin deficits" refers to

The diagram below shows the market for foreign exchange from the perspective of Canada.The demand for foreign exchange is and the supply of foreign exchange varies between and ,with an average of . FIGURE 34-4 -Refer to Figure 34-4.Suppose the Bank of Canada pegs the exchange rate at and the supply curve is .The Bank would have to ________ foreign exchange in the amount of ________ per month.

If Canadian inflation is 4% while Japanese inflation is 7%,purchasing power parity (PPP)theory predicts that the Japanese yen will ________ relative to the Canadian dollar.

Canada's balance of payments is sometimes incorrectly said to be "in deficit." The reason this must be incorrect is that

A Canadian traveling to the United States converts $100 Canadian into 85 U.S.dollars.One month later he does the same thing and receives only 80 U.S.dollars.There are no transactions costs.The Canadian-U.S.exchange rate has ________ and the Canadian dollar has ________ relative to the U.S.dollar.