Question 1

An increase in the demand for rubles causes the ruble to appreciate.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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 4

The primary function of the World Bank is to:

Accepted Answer

A) lend money to the World Trade Organization. 
B) provide loans to countries experiencing huge budget deficit. 
C) finance economic development in poor countries. 
D) assist countries experiencing balance of payments deficits. 
E) finance the fiscal stabilization program of the U.S.government. 
A) lend money to the World Trade Organization. 
B) provide loans to countries experiencing huge budget deficit. 
C) finance economic development in poor countries. 
D) assist countries experiencing balance of payments deficits. 
E) finance the fiscal stabilization program of the U.S.government.

Question 5

What is the interest rate on a 12-month U.K.certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?

Accepted Answer

A) 15 percent 
B) 13 percent 
C) 9 percent 
D) 5 percent 
E) 4 percent 
A) 15 percent 
B) 13 percent 
C) 9 percent 
D) 5 percent 
E) 4 percent

Question 6

Suppose the yen value of a $100, 000 wheat import contract rises from ¥12, 000, 000 to ¥13, 000, 000 between the contract and the payment date.This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S.goods.

Accepted Answer

A) True 
 B)False

Question 7

Carlos Silva, a Colombian singer, goes on tour to the United States for one month, following high American demand for his live shows.Assuming that all the show's expenses are paid by the U.S.promoters, other things equal, the U.S.tour will bring about:

Accepted Answer

A) a decreased supply of Colombian pesos in the foreign exchange market. 
B) an increased supply of American dollars in the foreign exchange market. 
C) an increased supply of Colombian pesos in the foreign exchange market. 
D) a decreased demand for Colombian pesos in the foreign exchange market. 
E) an increased demand for American dollars in the foreign exchange market. 
A) a decreased supply of Colombian pesos in the foreign exchange market. 
B) an increased supply of American dollars in the foreign exchange market. 
C) an increased supply of Colombian pesos in the foreign exchange market. 
D) a decreased demand for Colombian pesos in the foreign exchange market. 
E) an increased demand for American dollars in the foreign exchange market.

Question 8

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 36.1   In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 36.1.Determine the equilibrium exchange rate and equilibrium quantity of Brazilian reals, if D1 and S1 are the relevant demand and supply curves for Brazilian reals in this market.

Accepted Answer

A) 10 pesos per real and a quantity of 150 reals 
B) 6 pesos per real and a quantity of 250 reals 
C) 8 pesos per real and a quantity of 150 reals 
D) 8 pesos per real and a quantity of 250 reals 
E) 6 pesos per real and a quantity of 200 reals 
A) 10 pesos per real and a quantity of 150 reals 
B) 6 pesos per real and a quantity of 250 reals 
C) 8 pesos per real and a quantity of 150 reals 
D) 8 pesos per real and a quantity of 250 reals 
E) 6 pesos per real and a quantity of 200 reals

Question 9

The IMF mostly receives its funds from:

Accepted Answer

A) the subscription fees paid by the member nations. 
B) selling of bonds. 
C) the loans given by the World Bank. 
D) the central banks of the major industrialized nations. 
E) the gold reserves available with the Fed. 
A) the subscription fees paid by the member nations. 
B) selling of bonds. 
C) the loans given by the World Bank. 
D) the central banks of the major industrialized nations. 
E) the gold reserves available with the Fed.

Question 10

The exchange-rate arrangement that emerged from the Bretton Woods conference is often called a managed float standard.

Accepted Answer

A) True 
 B)False

Question 11

When a U.S.importer needs $22, 000 to settle an invoice for 25, 520 Swiss francs, the exchange rate must be:

Accepted Answer

A) 1 Swiss franc = $1.16. 
B) 1 Swiss franc = $0.16. 
C) 1 Swiss franc = $0.84. 
D) $1 = 1.16 Swiss franc. 
E) $1 = 1.84 Swiss franc. 
A) 1 Swiss franc = $1.16. 
B) 1 Swiss franc = $0.16. 
C) 1 Swiss franc = $0.84. 
D) $1 = 1.16 Swiss franc. 
E) $1 = 1.84 Swiss franc.

Question 12

Suppose a U.S.firm buys a one-year U.K.bond for 6, 000 British pounds when 1 British pound is worth $1.50 on the foreign exchange market.What is the firm's approximate rate of return on the bond if the interest rate on the bond is 15 percent and the exchange rate is 1 British pound is worth $1.93 at maturity?

Accepted Answer

A) 11 percent 
B) 15 percent 
C) 25 percent 
D) 33 percent 
E) 48 percent 
A) 11 percent 
B) 15 percent 
C) 25 percent 
D) 33 percent 
E) 48 percent

Question 13

Assume that a Chrysler automobile sells for $15, 000 in the United States and that the exchange rate is $1 = €1.3.For purchasing power parity to hold, the same car should sell in Germany for:

Accepted Answer

A) €15, 000. 
B) €11, 538. 
C) €19, 500. 
D) €1, 538. 
E) €15, 500. 
A) €15, 000. 
B) €11, 538. 
C) €19, 500. 
D) €1, 538. 
E) €15, 500.

Question 14

One of the advantages of floating exchange rates is that:

Accepted Answer

A) consumers always know how much imported goods cost. 
B) businesses always know, in advance, what future exchange rates will be. 
C) countries are free to pursue their own macroeconomic policies without maintaining exchange rates. 
D) countries cannot act independently and must thus coordinate their macroeconomic policies. 
E) the global interest rate tends to decline to the lowest possible level. 
A) consumers always know how much imported goods cost. 
B) businesses always know, in advance, what future exchange rates will be. 
C) countries are free to pursue their own macroeconomic policies without maintaining exchange rates. 
D) countries cannot act independently and must thus coordinate their macroeconomic policies. 
E) the global interest rate tends to decline to the lowest possible level.

Question 15

Economists typically date the beginning of the gold standard to the period:

Accepted Answer

A) before 1500. 
B) before 1776. 
C) between 1880 and 1914. 
D) between the two world wars. 
E) between 1970 and 2000. 
A) before 1500. 
B) before 1776. 
C) between 1880 and 1914. 
D) between the two world wars. 
E) between 1970 and 2000.

Question 16

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2   Refer to Figure 36.2.Suppose S1 is the initial supply curve and the British demand for U.S.manufactured computers decreases.Then, with flexible exchange rates:

Accepted Answer

A) the price per British pound decreases by $0.10 and the quantity of British pounds increases by 50. 
B) the price per British pound decreases by $0.10 and the quantity of British pounds decreases by 50. 
C) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 50. 
D) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 75. 
E) the price per British pound and the quantity of British pounds remain unchanged. 
A) the price per British pound decreases by $0.10 and the quantity of British pounds increases by 50. 
B) the price per British pound decreases by $0.10 and the quantity of British pounds decreases by 50. 
C) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 50. 
D) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 75. 
E) the price per British pound and the quantity of British pounds remain unchanged.

Question 17

In the foreign exchange market where French francs are traded for Japanese yen, a decrease in the interest rate in France is most likely to cause:

Accepted Answer

A) a decrease in the yen price of the French franc. 
B) an increase in the interest rate in Japan. 
C) an increase in the yen price of the French franc. 
D) an increase in the demand for French francs. 
E) an increase in the supply of yen. 
A) a decrease in the yen price of the French franc. 
B) an increase in the interest rate in Japan. 
C) an increase in the yen price of the French franc. 
D) an increase in the demand for French francs. 
E) an increase in the supply of yen.

Question 18

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2   Refer to Figure 36.2.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 19

Under a fixed exchange-rate system, in order to maintain the exchange rate:

Accepted Answer

A) governments must adopt a laissez-faire economic policy. 
B) all trading partners must enjoy the same level of economic growth. 
C) currencies must be inconvertible. 
D) the imports of one country must equal the exports of its trading partner. 
E) governments must intervene in the foreign exchange market. 
A) governments must adopt a laissez-faire economic policy. 
B) all trading partners must enjoy the same level of economic growth. 
C) currencies must be inconvertible. 
D) the imports of one country must equal the exports of its trading partner. 
E) governments must intervene in the foreign exchange market.

Question 20

A permanent shift in the foreign exchange market supply and demand curves such that the fixed exchange rate is no longer an equilibrium rate is referred to as:

Accepted Answer

A) permanent devaluation. 
B) speculative disequilibrium. 
C) permanent revaluation. 
D) speculative equilibrium. 
E) fundamental disequilibrium. 
A) permanent devaluation. 
B) speculative disequilibrium. 
C) permanent revaluation. 
D) speculative equilibrium. 
E) fundamental disequilibrium.

Exam 57: Exchange Rates and Financial Links Between Countries

An increase in the demand for rubles causes the ruble to appreciate.

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

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?

The primary function of the World Bank is to:

What is the interest rate on a 12-month U.K.certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?

Suppose the yen value of a $100, 000 wheat import contract rises from ¥12, 000, 000 to ¥13, 000, 000 between the contract and the payment date.This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S.goods.

Carlos Silva, a Colombian singer, goes on tour to the United States for one month, following high American demand for his live shows.Assuming that all the show's expenses are paid by the U.S.promoters, other things equal, the U.S.tour will bring about:

The IMF mostly receives its funds from:

The exchange-rate arrangement that emerged from the Bretton Woods conference is often called a managed float standard.

When a U.S.importer needs $22, 000 to settle an invoice for 25, 520 Swiss francs, the exchange rate must be:

Assume that a Chrysler automobile sells for $15, 000 in the United States and that the exchange rate is $1 = €1.3.For purchasing power parity to hold, the same car should sell in Germany for:

One of the advantages of floating exchange rates is that:

Economists typically date the beginning of the gold standard to the period:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2 Refer to Figure 36.2.Suppose S1 is the initial supply curve and the British demand for U.S.manufactured computers decreases.Then, with flexible exchange rates:

In the foreign exchange market where French francs are traded for Japanese yen, a decrease in the interest rate in France is most likely to cause:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2 Refer to Figure 36.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

Under a fixed exchange-rate system, in order to maintain the exchange rate:

A permanent shift in the foreign exchange market supply and demand curves such that the fixed exchange rate is no longer an equilibrium rate is referred to as:

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

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

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 36.2 Refer to Figure 36.2.Suppose S₁ is the initial supply curve and the British demand for U.S.manufactured computers decreases.Then, with flexible exchange rates: