Deck 9: The Exchange Rate and the Balance of Payments

Question 1

In the foreign exchange market, the of one country is traded for the of another country.

A) goods; goods
B) currency; financial instruments
C) currency; goods
D) currency; currency

Answer 1

D

Question 2

The exchange rate is the price at which the of one country exchanges for the _ of another country.

A) currency; currency
B) goods; goods
C) currency; goods
D) currency; financial instruments

Answer 2

A

Question 3

The market in which the currency of one country is exchanged for the currency of another country is the .

A) Chicago Money Exchange
B) foreign currency market
C) foreign exchange market
D) G8

Answer 3

C

Question 4

When the value of one currency falls relative to another currency, the exchange rate for the first currency has

A) appreciated.
B) depreciated.
C) demanded.
D) revalued.

Question 5

If the United States sells beef to Japan, the U.S. beef producer is paid with

A) euros, or any other third currency.
B) international monetary credits.
C) dollars.
D) yen, the Japanese currency.

Question 6

Suppose that the exchange rate between the dollar and the peso changed from 6 pesos per dollar to 8 pesos per dollar. This change means that the

A) peso depreciated.
B) dollar depreciated.
C) peso appreciated.
D) Both answers A and B are correct.

Question 7

Which of the following statements is correct?
I) The exchange rate is a price.
II) The exchange rate is different from other prices because it is NOT determined by supply and demand.

A) only I
B) only II
C) I and II
D) neither I nor II

Question 8

The currency used to buy imported goods is

A) the seller's home currency.
B) the currency of a third country.
C) special drawing rights.
D) the buyer's home currency.

Question 9

If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with

A) international monetary credits.
B) yuan, the Chinese currency.
C) euros, or any other third currency.
D) dollars.

Question 10

By definition, currency depreciation occurs when the value of

A) one currency falls relative to another currency.
B) one currency rises relative to another currency.
C) gold falls relative to the value of currencies.
D) all currencies fall relative to gold.

Question 11

When Safeway supermarkets in the United States buys strawberries from Mexico,

A) it may use any currency it chooses.
B) the transaction shows up in the U.S. capital account.
C) it must use pesos to pay Mexican farmers.
D) it must use dollars to pay Mexican farmers.

Question 12

Americans demand Japanese yen in order to

A) supply American goods in Japanese markets.
B) balance the current account.
C) allow the Japanese to buy U.S. products.
D) buy Japanese products.

Question 13

If the dollar's value changes from 120 yen per dollar to 110 yen per dollar, the dollar has

A) devalued.
B) depreciated.
C) demanded.
D) appreciated.

Question 14

If the U.S. dollar depreciates, then

A) foreign currency becomes more expensive.
B) it becomes less relatively less expensive to buy U.S.- produced goods.
C) Both answers A and B are correct.
D) Neither answer A nor B is correct.

Question 15

The market in which the currency of one country is exchanged for the currency of another is the

A) foreign funds market.
B) currency exchange market.
C) currency dollar exchange market since all currencies are exchangeable with the dollar.
D) foreign exchange market.

Question 16

A decrease in the value of a currency in terms of other currencies is known as

A) an appreciation.
B) a depreciation.
C) a gold point.
D) a par value.

Question 17

The exchange rate between the United States and Japan is directly determined by

A) the World Trade Organization, WTO.
B) the Federal Reserve.
C) a joint GATT agreement between the United States, Japan, and the European Union.
D) equilibrium in the foreign exchange market.

Question 18

The term "foreign currency" refers to foreign
I) coins.
II) notes.
III) bank deposits.

A) I, II, and III
B) II and III only
C) II only
D) I and II only

Question 19

The exchange rate is the

A) price of one country's currency expressed in terms of another country's currency.
B) ratio between imports and exports.
C) interest rate that is charged on risk- free international capital flow.
D) opportunity cost of pursuing a nation's comparative advantage.

Question 20

The exchange rate is the

A) price for which one currency exchanges for another.
B) rate at which a currency falls in value.
C) rate at which a currency rises in value.
D) None of the above is correct.

Question 21

By definition, currency appreciation occurs when

A) the value of all currencies rise relative to gold.
B) the value of one currency falls relative to another currency.
C) the value of all currencies fall relative to gold.
D) the value of one currency rises relative to another currency.

Question 22

If the pound- dollar exchange rate changes from £0.60 per dollar to £0.65 per dollar, then the pound has _ against the dollar and the dollar has _ against the pound.

A) depreciated; appreciated
B) depreciated; depreciated
C) appreciated; depreciated
D) appreciated; appreciated

Question 23

Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. Today is it 11 pesos per dollar. Here, the dollar _ against the peso, and the peso _ against the dollar

A) depreciated; appreciated
B) appreciated; appreciated
C) depreciated; depreciated
D) appreciated; depreciated

Question 24

If the value of a dollar rises in terms of yen, the dollar has and the yen has .

A) appreciated; depreciated
B) depreciated; depreciated
C) depreciated; appreciated
D) appreciated; appreciated

Question 25

If the Japanese yen was 123 per dollar and now is 114 yen per dollar, it can be said that

A) the yen has depreciated against the dollar.
B) the dollar has appreciated against the yen.
C) the yen appreciated against the dollar.
D) None of the above answers is correct.

Question 26

If the U.S. dollar appreciates, then

A) foreign currency becomes more expensive.
B) it becomes relatively less expensive for U.S. residents to buy imported goods.
C) Both answers A and B are correct.
D) Neither answer A nor B is correct.

Question 27

If the exchange rate falls from 120 yen per dollar to 100 yen per dollar, the dollar has _ and the yen has .

A) depreciated; appreciated
B) depreciated; depreciated
C) appreciated; appreciated
D) appreciated; depreciated

Question 28

When the U.S. dollar depreciates against the yen, the yen becomes _ expensive and the exchange rate .

A) more; falls
B) less; falls
C) less; rises
D) more; rises

Question 29

When the value of the U.S. dollar appreciates against the Canadian dollar

A) the Canadian official settlements balance rises.
B) the U.S. official settlements balance rises.
C) the exchange rate, in terms of Canadian dollars to U.S. dollars, rises.
D) the exchange rate, in terms of U.S. dollars to Canadian dollars, rises.

Question 30

When the U.S. dollar depreciates against the yen, the yen and the exchange rate _ _.

A) depreciates; rises
B) depreciates; falls
C) appreciates; falls
D) appreciates; rises

Question 31

An increase in the value of a domestic currency in terms of other currencies is known as

A) a depreciation.
B) a flexible exchange rate.
C) an appreciation.
D) a term not given in the above answers.

Question 32

Which of the following examples definitely illustrates a depreciation of the U.S. dollar?

A) The dollar exchanges for 120 euros and then exchanges for 100 euros.
B) The dollar exchanges for 250 yen and then exchanges for 275 euros.
C) The dollar exchanges for 100 euros and then exchanges for 120 yen.
D) The dollar exchanges for 1 pound and then exchanges for 1.2 pounds.

Question 33

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has and the yen has .

A) appreciated; appreciated
B) appreciated; depreciated
C) depreciated; appreciated
D) depreciated; depreciated

Question 34

Suppose the exchange rate of the U.S. dollar was 1.50 British pounds = $1.00 (U.S.) on Wednesday, and on Monday the exchange rate was $.75 (U.S.) = 1.00 British pound. Which of the following best describes what happened between Wednesday and Monday?

A) The U.S. dollar appreciated against the British pound.
B) The British pound appreciated against the U.S. dollar.
C) The U.S. dollar depreciated against the British pound.
D) Both answers B and C are correct.

Question 35

Which of the following examples definitely illustrates an appreciation of the U.S. dollar?

A) The dollar exchanges for 1.2 pounds and then exchanges for 200 yen.
B) The dollar exchanges for 120 euros and then exchanges for 100 euros.
C) The dollar exchanges for 200 yen and then exchanges for 250 yen.
D) none of the above

Question 36

Which of the following examples definitely illustrates an appreciation of the U.S. dollar?

A) The dollar exchanges for 1 pound and then exchanges for 1.2 pounds.
B) The dollar exchanges for 200 yen and then exchanges for 250 euros.
C) The dollar exchanges for 120 euros and then exchanges for 100 euros.
D) none of the above

Question 37

Suppose $1 will buy 1.20 euros in January and 1.10 euros in December. As a result,

A) U.S. exports have increased.
B) the euro has appreciated.
C) the euro has depreciated.
D) the dollar has appreciated.

Question 38

Suppose the exchange rate of the U.S. dollar was 1.00 euro = $0.50 on Thursday, and on Friday the exchange rate was $1.00 = 2.10 euros. Which of the following best explains what has happened between Thursday and Friday?

A) The U.S. dollar depreciated against the euro.
B) The euro appreciated against the U.S. dollar.
C) The U.S. dollar appreciated against the euro.
D) Both answers B and C are correct.

Question 39

Suppose $1 will buy 200 yen in January and buy 300 yen in December. As a result,

A) U.S. exports have decreased.
B) the dollar has appreciated.
C) the dollar has depreciated.
D) the yen has appreciated.

Question 40

Which of the following examples definitely illustrates a depreciation of the U.S. dollar?

A) The dollar exchanges for 200 yen and then exchanges for 250 yen.
B) The dollar exchanges for 250 yen and then exchanges for 200 euros.
C) The dollar exchanges for 2,000 pesos and then exchanges for 3,400 pesos.
D) The dollar exchanges for 120 yen and then exchanges for 100 yen.

Question 41

The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2007 and 2008, the U.S. dollar against the euro and against the Japanese yen.

A) depreciated; depreciated
B) appreciated; appreciated
C) depreciated; appreciated
D) appreciated; depreciated

Question 42

When people who are holding the money of some other country want to exchange it for U.S. dollars, they U.S. dollars and _ that other country's money.

A) supply, demand
B) demand, supply
C) demand, demand
D) supply, supply

Question 43

Suppose the exchange rate between the U.S. dollar and the French franc is 0.25 francs per dollar. If a television sells for 100 francs in France, what is the dollar price of the television set?

A) $25
B) $400
C) $200
D) $50

Question 44

The real exchange rate is the

A) trade- weighted index
B) price of foreign goods relative to the price of domestic goods
C) relative price of U.S. produced output relative to foreign- produced output.
D) current account balance

Question 45

If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African rands per dollar, then the real exchange rate is

A) 6 South African goods per U.S. good.
B) 1.4 South African goods per U.S. good.
C) 9.8 South African goods per U.S. good.
D) 8.4 South African goods per U.S. good.

Question 46

Suppose the exchange rate of the U.S. dollar was 1.50 British pounds = $1.00 on Wednesday, and on Monday the exchange rate was $0.75 = 1.00 British pound. Which of the following best explains what has happened between Wednesday and Monday?

A) The U.S. dollar appreciated against the British pound.
B) The British pound appreciated against the U.S. dollar.
C) The U.S. dollar depreciated against the British pound.
D) Both answers B and C are correct.

Question 47

Given the U.S. price level P, the foreign country price level P*, and the nominal exchange rate E in foreign currency per U.S. dollar, the real exchange rate RER is given by

A) RER = (P/P*) / E
B) RER = E x (P*/P)
C) RER = P x (E/P*)
D) RER = E x (P/P*)

Question 48

The average exchange rate of the U.S. dollar against other currencies, weighted by their importance in U.S. international trade is

A) the average- index nominal exchange rate.
B) the trade- indexed exchange rate.
C) the indexed real exchange rate.
D) the trade- weighted index.

Question 49

Suppose that a dollar buys 120 yen. If a VCR sells for 18,600 yen in Japan, the price of the VCR in dollars is .

A) $120.00
B) $186.00
C) $155.00
D) $223.20

Question 50

The nominal exchange rate is

A) a measure of the quantity of the nominal GDP of other countries that we get per unit of U.S. nominal GDP.
B) the real exchange rate multiplied by the ratio of the U.S. price level to the foreign price level.
C) the value of the U.S. dollar expressed in units of foreign currency per U.S. dollar.
D) the relative price of U.S. produced goods to foreign produced goods.

Question 51

Suppose the peso- dollar foreign exchange rate changes from 50 pesos per dollar to 30 pesos per dollar. Then the peso has _ against the dollar and the dollar has against the peso.

A) depreciated; depreciated
B) depreciated; appreciated
C) appreciated; appreciated
D) appreciated; depreciated

Question 52

Given the U.S. price level P, the foreign country price level P*, and the real exchange rate RER in foreign currency per U.S. dollar, the nominal exchange rate E would be given by

A) E = P x (RER/P*)
B) E = RER x (P*/P)
C) E = (P/P*) / RER
D) E = RER x (P/P*)

Question 53

Suppose that the yen- dollar foreign exchange rate changes from 130 yen per dollar to 140 yen per dollar. Then the yen has

A) depreciated against the dollar, and the dollar has appreciated against the yen.
B) appreciated against the dollar, and the dollar has appreciated against the yen.
C) appreciated against the dollar, and the dollar has depreciated against the yen.
D) depreciated against the dollar, and the dollar has depreciated against the yen.

Question 54

If the nominal exchange rate rises and price levels stay constant, the real exchange rate will

A) fall
B) rise
C) could rise, fall or stay constant
D) stay constant

Question 55

The real exchange rate is

A) the nominal exchange rate multiplied by the ratio of the foreign price level to the U.S. price level.
B) the money price of foreign produced goods relative to the money price of U.S. produced goods.
C) the relative price of U.S. produced goods to foreign produced goods.
D) a measure of how much currency exchanges for a unit of another currency.

Question 56

During the period 1998 to 2008, the U.S. dollar as compared to the trade- weighted index of other currencies

A) appreciated up to 2001, and then depreciated.
B) depreciated.
C) depreciated up to 2001, and then appreciated.
D) appreciated.

Question 57

The trade - weighted index of major currencies is an index based on currencies of

A) the United States, Europe, Japan and the United Kingdom.
B) the United States, Europe, Australia, Canada, Japan, Sweden, Switzerland and the United Kingdom.
C) Europe, Sweden, Switzerland and the United Kingdom.
D) Europe, Australia, Canada, Japan, Sweden, Switzerland and the United Kingdom.

Question 58

Suppose your firm wants to import sugarcane from Brazil. The exchange rate is 3 Brazilian reals per U.S. dollar and sugarcane costs 36 reals per ton. How much is a ton of sugarcane in U.S. dollars?

A) $108
B) $109
C) $39
D) $12

Question 59

The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2007 and 2008, the Japanese yen against the U.S dollar and the euro _ against the
U)S. dollar.

A) appreciated; appreciated
B) depreciated; depreciated
C) depreciated; appreciated
D) appreciated; depreciated

Question 60

Initially the nominal exchange rate between the South Korean won and the U.S. dollar is 950 won per dollar. If the nominal exchange rate increases to 1000 won per dollar and the U.S and Korean price levels do not change, the real exchange rate

A) is greater than before.
B) is the same as before.
C) is less than before.
D) More information is needed to answer the question.

Question 61

The law of demand in the foreign exchange market refers to the relationship between

A) exchange rates and quantity of U.S. dollars demanded
B) U.S. price levels and nominal exchange rates
C) interest rates and the quantity of U.S. dollars demanded
D) real exchange rates and nominal exchange rates

Question 62

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for dollars?

A) the interest rate in the foreign country
B) the interest rate in the domestic country
C) the exchange rate
D) the expected future exchange rate

Question 63

When the U.S. exchange rate falls, U.S. goods become _ _ to foreign residents and U.S. exports _.

A) more expensive; increase
B) less expensive; decrease
C) more expensive; decrease
D) less expensive; increase

Question 64

A rise in the U.S. exchange rate will

A) decrease the quantity of dollars demanded.
B) decrease the demand for dollars.
C) increase the demand for dollars.
D) increase the quantity of dollars demanded.

Question 65

As the exchange rate _, the is the value of U.S. _ .

A) falls; greater; exports
B) rises; greater; exports
C) falls; greater; imports
D) rises; smaller; imports

Question 66

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 2 euro per 21 yuan, the price of this airplane to China Airlines is

A) 86 million yuan.
B) 997.5 million yuan.
C) 953 million yuan.
D) 9.1 million yuan.

Question 67

As the value of U.S. exports _ , the quantity of _ _ demanded increases.

A) decreases; dollars
B) increases; foreign currencies
C) increases; dollars
D) None of the above is correct because the value of U.S. exports has nothing to do with the quantity of dollars or foreign currency demanded.

Question 68

The law of demand for dollars means that the

A) lower the exchange rate, the greater the quantity of dollars demanded.
B) higher the exchange rate, the smaller the quantity of dollars demanded.
C) lower the exchange rate, the smaller the quantity of U.S. exports demanded.
D) Both answers A and B are correct.

Question 69

Which of the following creates a demand for U.S. dollars?

A) a Japanese tourist catching a show in London
B) a U.S. restaurant purchasing Mexican tomatoes
C) Toyota, a Japanese firm, purchasing land in Texas
D) a U.S. tourist catching a show in London

Question 70

A factor helping determine the demand for U.S. dollars in the foreign exchange market is

A) consumer and investment demand.
B) both the demand for U.S. exports and U.S. demand for imports.
C) the ratio of U.S. exports to imports.
D) world demand for U.S. exports.

Question 71

Exports of U.S. goods creates a

A) supply of foreign currency with no effect on the market for dollars.
B) demand for foreign currency and supply of dollars.
C) demand for dollars with no effect on markets for foreign currencies.
D) supply of foreign currency and demand for dollars.

Question 72

The greater the demand for U.S. exports, the

A) larger is the demand for non- U.S. currencies.
B) larger is the demand for U.S. dollars.
C) larger is the current account deficit.
D) smaller is the demand for U.S. dollars.

Question 73

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 10 yuan, the price of this airplane to China Airlines is

A) 9.5 million yuan.
B) 85.5 million yuan.
C) 10 million yuan.
D) 950 million yuan.

Question 74

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 9 yuan, the price of this airplane to China Airlines is

A) 85.5 million yuan.
B) 10.6 million yuan.
C) 855 million yuan.
D) 83.6 million yuan.

Question 75

When the exchange rate falls, in the foreign exchange market the

A) demand for the currency increases.
B) demand for the currency decreases.
C) quantity demanded of the currency increases.
D) quantity demanded of the currency decreases.

Question 76

With everything else the same, in the foreign exchange market the

A) the lower the exchange rate, the smaller is the expected profit from buying dollars.
B) larger the value of U.S. exports, the greater is the quantity of dollars demanded.
C) lower the exchange rate, the smaller the amount of U.S. exports.
D) the higher the exchange rate, the cheaper are U.S.- produced goods and services.

Question 77

The demand curve for U.S. dollars slopes downward because as the dollar _ U.S. goods become expensive to foreign residents, so they purchase fewer U.S. goods, and the quantity of dollars demanded decreases.

A) appreciates; less
B) depreciates; more
C) appreciates; more
D) depreciates; less

Question 78

In the foreign exchange market, which of the following increases the quantity of dollars demanded?
I) Firms expect a larger profit from holding dollars.
II) Mexicans' income rise so that they buy more U.S. made goods.

A) I only
B) II only
C) both I and II
D) neither I nor II

Question 79

The quantity of dollars demanded by foreign nations increases as

A) U.S. residents travel abroad more.
B) U.S. exports fall.
C) foreigners purchase more U.S. goods.
D) U.S. residents purchase more foreign goods.

Question 80

A fall in the U.S. exchange rate will

A) decrease the quantity of dollars demanded.
B) increase the demand for dollars.
C) increase the quantity of dollars demanded.
D) decrease the demand for dollars.