Question 1

The U.S. demand curve for foreign currency is drawn holding constant all except one of the following factors. Which is the exception?

Accepted Answer

A) income in the United States 
B) the inflation rate in the United States 
C) incomes in the rest of the world 
D) the interest rate in the United States relative to the rest of the world 
E) tastes and preferences of Americans for foreign goods 
A) income in the United States 
B) the inflation rate in the United States 
C) incomes in the rest of the world 
D) the interest rate in the United States relative to the rest of the world 
E) tastes and preferences of Americans for foreign goods C

Question 2

The merchandise trade balance measures

Accepted Answer

A) the value of goods and services exported 
B) the value of all goods and services exported minus the value of all goods and services imported 
C) the value of all goods and services exported minus the value of all goods and services imported, and transactions to finance the difference 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference 
A) the value of goods and services exported 
B) the value of all goods and services exported minus the value of all goods and services imported 
C) the value of all goods and services exported minus the value of all goods and services imported, and transactions to finance the difference 
D) the value of all tangible products exported minus the value of all tangible products imported 
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference D

Question 3

Exhibit 20-6
  
-In Exhibit 20-6 the free market exchange rate would be

Accepted Answer

A) equal to $.50 
B) equal to $.53 
C) less than $.50 
D) greater than $.53 
E) indeterminate 
A) equal to $.50 
B) equal to $.53 
C) less than $.50 
D) greater than $.53 
E) indeterminate D

Question 4

If the U.S. dollar appreciates, it becomes cheaper for Australians to visit their relatives in the United States.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 20-4
  
-Which of the following is represented by Exhibit 20-4?

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 6

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 7

The debit side of the current account includes the imports of

Accepted Answer

A) goods only 
B) goods and services 
C) services only 
D) services and resources only 
E) financial assets 
A) goods only 
B) goods and services 
C) services only 
D) services and resources only 
E) financial assets

Question 8

If interest rates fall in country A, other things constant,

Accepted Answer

A) demand for that country's currency will fall and the currency will depreciate 
B) demand for that country's currency will fall and the currency will appreciate 
C) demand for that country's currency will rise and the currency will depreciate 
D) demand for that country's currency will rise and the currency will appreciate 
E) people in country B will pull money out of country A 
A) demand for that country's currency will fall and the currency will depreciate 
B) demand for that country's currency will fall and the currency will appreciate 
C) demand for that country's currency will rise and the currency will depreciate 
D) demand for that country's currency will rise and the currency will appreciate 
E) people in country B will pull money out of country A

Question 9

In a fixed exchange rate system, rates are maintained by the central bank's ongoing purchases and sales of currencies.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is true concerning unilateral transfers in the U.S. balance of payments?

Accepted Answer

A) Unilateral transfers have been positive since World War II. 
B) Unilateral transfers have been negative since World War II. 
C) Unilateral transfers have been negative every year since World War II except during the war in Iraq. 
D) The United States places tight restrictions on moneys being sent out of the country. 
E) Developing countries ordinarily place no restrictions on moneys being sent out of their countries. 
A) Unilateral transfers have been positive since World War II. 
B) Unilateral transfers have been negative since World War II. 
C) Unilateral transfers have been negative every year since World War II except during the war in Iraq. 
D) The United States places tight restrictions on moneys being sent out of the country. 
E) Developing countries ordinarily place no restrictions on moneys being sent out of their countries.

Question 11

Net unilateral transfers in the United States in 2012 averaged about ______ per US resident.

Accepted Answer

A) $1250 
B) $850 
C) $520 
D) $440 
E) $210 
A) $1250 
B) $850 
C) $520 
D) $440 
E) $210

Question 12

The U.S. dollar will appreciate if

Accepted Answer

A) the U.S. demand for foreign exchange decreases 
B) the U.S. demand for foreign exchange increases 
C) the U.S. supply of foreign exchange decreases 
D) Americans want to buy more foreign goods 
E) foreigners want fewer American goods 
A) the U.S. demand for foreign exchange decreases 
B) the U.S. demand for foreign exchange increases 
C) the U.S. supply of foreign exchange decreases 
D) Americans want to buy more foreign goods 
E) foreigners want fewer American goods

Question 13

In determining the exchange rate between U.S. dollars and Swiss francs, all of the following are assumed constant along the supply curve for francs except one. Which is not assumed constant?

Accepted Answer

A) U.S. interest rates 
B) Swiss income 
C) expected rates of inflation in the United States 
D) expected rates of inflation in Switzerland 
E) the price of the Swiss franc 
A) U.S. interest rates 
B) Swiss income 
C) expected rates of inflation in the United States 
D) expected rates of inflation in Switzerland 
E) the price of the Swiss franc

Question 14

If the U.S. dollar appreciates in the foreign exchange market,

Accepted Answer

A) American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans 
B) American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans 
C) American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans 
D) American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans 
E) neither the price of U.S. exports nor the price of U.S. imports will change 
A) American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans 
B) American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans 
C) American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans 
D) American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans 
E) neither the price of U.S. exports nor the price of U.S. imports will change

Question 15

Suppose a basket of goods costs $400 in the United States and £200 in Britain. If the exchange rate is $1/pound, what will happen in the foreign exchange market, according to the purchasing power parity theory?

Accepted Answer

A) The market will go further out of equilibrium because of increased activity. 
B) An increase in demand for pounds will lead to an increase in the price of pounds. 
C) An increase in demand for dollars will lead to an increase in the price of dollars. 
D) An increase in demand for dollars will lead to a decrease in the price of dollars. 
E) An increase in demand for pounds will lead to a decrease in the price of pounds. 
A) The market will go further out of equilibrium because of increased activity. 
B) An increase in demand for pounds will lead to an increase in the price of pounds. 
C) An increase in demand for dollars will lead to an increase in the price of dollars. 
D) An increase in demand for dollars will lead to a decrease in the price of dollars. 
E) An increase in demand for pounds will lead to a decrease in the price of pounds.

Question 16

Which of the following statements concerning speculators is true?

Accepted Answer

A) There is no risk involved in speculative activity. 
B) They simultaneously buy and sell a currency in different markets. 
C) They hope to profit by trading a currency at a different exchange rate later. 
D) Their actions do not affect exchange rates. 
E) Their actions are exactly like those of arbitrageurs. 
A) There is no risk involved in speculative activity. 
B) They simultaneously buy and sell a currency in different markets. 
C) They hope to profit by trading a currency at a different exchange rate later. 
D) Their actions do not affect exchange rates. 
E) Their actions are exactly like those of arbitrageurs.

Question 17

The Big Mac Index uses the price of a Big Mac in local currencies around the world as a way of testing the purchasing power parity theory. Which of the following is a partial explanation for why the PPP theory does not apply to the Big Mac Index?

Accepted Answer

A) Wages do not differ across countries 
B) Trade barriers, such as tariffs and quotas on beef, may distort local prices 
C) Taxes do not distort local prices 
D) Rent does not vary substantially across countries 
E) The Big Mac is traded internationally 
A) Wages do not differ across countries 
B) Trade barriers, such as tariffs and quotas on beef, may distort local prices 
C) Taxes do not distort local prices 
D) Rent does not vary substantially across countries 
E) The Big Mac is traded internationally

Question 18

The trade balance is

Accepted Answer

A) the services balance plus the current account balance plus the capital account balance 
B) merchandise exports minus merchandise imports 
C) the current account balance plus the capital account balance 
D) foreign purchases of domestic assets minus domestic purchases of foreign assets 
E) the services balance plus the capital account balance 
A) the services balance plus the current account balance plus the capital account balance 
B) merchandise exports minus merchandise imports 
C) the current account balance plus the capital account balance 
D) foreign purchases of domestic assets minus domestic purchases of foreign assets 
E) the services balance plus the capital account balance

Question 19

If the exchange rate changes from 75 cents per euro to $1 per euro, the euro

Accepted Answer

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

Question 20

Today's exchange rate system can be described as

Accepted Answer

A) a fixed exchange rate system 
B) a freely floating exchange rate system 
C) a pegged exchange rate system 
D) a flexible exchange rate system 
E) a managed float 
A) a fixed exchange rate system 
B) a freely floating exchange rate system 
C) a pegged exchange rate system 
D) a flexible exchange rate system 
E) a managed float

Exam 20: International Finance

The U.S. demand curve for foreign currency is drawn holding constant all except one of the following factors. Which is the exception?

The merchandise trade balance measures

Exhibit 20-6 -In Exhibit 20-6 the free market exchange rate would be

If the U.S. dollar appreciates, it becomes cheaper for Australians to visit their relatives in the United States.

Exhibit 20-4 -Which of the following is represented by Exhibit 20-4?

The purchasing power parity theory

The debit side of the current account includes the imports of

If interest rates fall in country A, other things constant,

In a fixed exchange rate system, rates are maintained by the central bank's ongoing purchases and sales of currencies.

Which of the following is true concerning unilateral transfers in the U.S. balance of payments?

Net unilateral transfers in the United States in 2012 averaged about ______ per US resident.

The U.S. dollar will appreciate if

In determining the exchange rate between U.S. dollars and Swiss francs, all of the following are assumed constant along the supply curve for francs except one. Which is not assumed constant?

If the U.S. dollar appreciates in the foreign exchange market,

Suppose a basket of goods costs $400 in the United States and £200 in Britain. If the exchange rate is $1/pound, what will happen in the foreign exchange market, according to the purchasing power parity theory?

Which of the following statements concerning speculators is true?

The Big Mac Index uses the price of a Big Mac in local currencies around the world as a way of testing the purchasing power parity theory. Which of the following is a partial explanation for why the PPP theory does not apply to the Big Mac Index?

The trade balance is

If the exchange rate changes from 75 cents per euro to $1 per euro, the euro

Today's exchange rate system can be described as

The Art and Science of Economic Analysis

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Introduction to Macroeconomics

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