Deck 20: International Finance

Question 1

The current account reflects

A)trade in tangible products
B)trade in goods as well as services
C)trade in services only
D)the purchase of securities from foreigners
E)the sale of securities to foreigners

Answer 1

B

Question 2

Because of the accounting techniques used, the balance of payments showsthat debits equal credits only if exports equal imports.

Answer 2

False

Question 3

Which of the following events would not be recorded in the U.S.balance ofpayments?

A)The money supply of a foreign nation increases.
B)Oxfam America, a U.S.relief agency, sends food to drought victims in sub­Saharan Africa.
C)Oxfam America, a U.S.relief agency, sends farm equipment to drought victims in sub­Saharan Africa.
D)The Pentagon stations troops in Saudi Arabia.
E)Pepsi­Cola sends its soft drink to Russia; in return, the United States gets Stolichnaya vodka.No money
Changes hands.

Answer 3

A

Question 4

A nation has an unfavorable balance of trade when

A)it has a surplus in its balance of payments
B)it has a deficit in its balance of payments
C)the value of its imports of goods is greater than the value of its exports of goods
D)its current account is in surplus and its capital account is in deficit
E)it has high tariffs

Question 5

The balance of payments can be thought of as the balance of economictransactions.

Question 6

A nation's merchandise trade balance reflects

A)trade in tangible products
B)value of exports
C)value of imports
D)the same information as its balance of payments
E)trade in tangibles and intangibles

Question 7

The balance of goods and services is

A)the same as the merchandise trade balance, since services cannot be traded
B)equivalent to the trade balance
C)the value of all goods and services exported minus the value of all goods and services imported
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

Question 8

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

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 9

In 2012, the United States largest balance of trade deficit was with

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

Question 10

Which of the following is not considered as a unilateral transfer?

A)income earned from foreign investments
B)foreign aid
C)personal gifts to friends or family abroad
D)institutional charitable donations
E)government transfers to foreign residents

Question 11

The merchandise trade balance does not include

A)exports of refrigerators
B)imports of automobiles
C)exports of agricultural products
D)shipping and insurance costs
E)imports of food items with heavy tariffs

Question 12

The value of a country's exports is listed in its balance of payments accountas a(n)

A)credit
B)debit
C)payment
D)investment
E)unilateral transfer

Question 13

If the current account is in deficit, imports of goods and services exceedexports of goods and services (plus net unilateral transfers).

Question 14

The merchandise trade balance

A)reflects trade in intangibles like insurance and tourism
B)includes personal gifts to friends abroad
C)records the flow of financial assets like stocks and bonds
D)equals the value of imports minus the value of exports
E)equals the value of tangible products exported minus the value of tangible products imported

Question 15

In 2012, the United States balance of trade deficit with China was about 10times as large as the balance of trade deficit with Canada

Question 16

The merchandise trade balance measures

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

Question 17

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

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

Question 18

Which of the following is not true about the U.S.trade balance since 1979?

A)The balance of trade has been in deficit.
B)During recessions the balance has usually been flat.
C)The balance of trade has been in surplus.
D)When the economy expanded, the demand for imports increased.
E)When the economy expanded, the trade balance worsened.

Question 19

The balance of payments always balances, because each of the specificaccounts must, by definition, be in balance.

Question 20

The trade balance is

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 21

Which of the following is true of the United States?

A)It has been and continues to be a net capital exporter.
B)It is today the world's largest debtor nation.
C)It was, until the last decade, a net capital importer.
D)It has historically been a debtor nation.
E)It is the world's largest creditor nation.

Question 22

Current account transactions are records of the income and expendituresfrom exports and imports, plus international financial investments andborrowing.

Question 23

A net importer of assets must have a

A)current account deficit
B)capital account deficit
C)current account surplus
D)capital account surplus
E)balance of deficit trade

Question 24

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

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 25

Which of the following would contribute, directly or indirectly, to a deficitin the capital account of the U.S.balance of payments?

A)A British citizen buys stock in Ford.
B)A British citizen buys a bond from Ford.
C)Interest rates fall in the United States relative to their level in the rest of the world.
D)Australian publisher Rupert Murdoch buys The New York Times.
E)Developing countries become more stable and so borrow less from U.S.banks.

Question 26

Foreign investors may wish to purchase U.S.assets for all of the followingreasons except one.Which is the exception?

A)The rate of return on assets is higher in the United States than in other countries.
B)They may wish to diversify their portfolios.
C)The United States may be regarded as a relatively safer place in which to invest.
D)Governments of most other industrialized countries actively discourage foreign investment.
E)With their increased foreign debt burdens, investment in developing countries has become less
Attractive.

Question 27

The current account shows transactions in goods and services; the capitalaccount shows purchases and sales of assets; and the official reservetransactions account shows movement of international reserves.

Question 28

If a country runs a deficit in its current account, it is because

A)exports exceed imports
B)imports exceed exports
C)net unilateral transfers are negative
D)foreign currency received from exports and transfers exceeds the foreign exchange needed to pay for
Imports and to make unilateral transfers
E)foreign currency received from exports and transfers is less than the foreign exchange needed to pay for
Imports and to make unilateral transfers

Question 29

Which of the following components of the U.S.balance of paymentsincludes direct investment by Americans in foreign securities?

A)U.S.official reserve assets
B)the capital account
C)the current account
D)U.S.government assets abroad
E)merchandise trade balance

Question 30

) Given the hypothetical data in Exhibit 20­1, what is the balance on currentaccount?

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

Question 31

When net unilateral transfers are added to the net exports of goods andservices, the result is called the

A)merchandise trade balance
B)official reserve transactions account
C)balance of payments
D)balance on capital account
E)balance on current account

Question 32

When an American buys a Swedish financial asset,

A)both c and d
B)the U.S.balance of goods and services worsens
C)the U.S.capital account balance declines
D)the U.S.balance of payments worsens
E)the U.S.trade balance worsens

Question 33

Which of the following is not considered a unilateral transfer?

A)foreign aid from one government to another
B)income earned from foreign investments
C)personal gifts to friends in foreign countries
D)donations to foreign countries from non­government domestic charities
E)government transfers to foreign residents

Question 34

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

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

Question 35

Which of the following is true?

A)both b and c
B)the U.S.capital account records international transactions involving purchases of investments
C)the U.S.capital account records international transactions involving sales of investments
D)U.S.capital refers to the export of real capital only
E)U.S.capital outflows result when foreigners purchase U.S.assets

Question 36

The United States is a net importer of capital.This means

A)that U.S.citizens own more foreign assets than foreigners own U.S.assets
B)that citizens of other countries are buying more U.S. assets than U.S.citizens are buying foreign assets
C)only that U.S.citizens own foreign assets
D)only that foreign citizens own U.S.assets
E)either that U.S.citizens own foreign assets or that foreign citizens own U.S.assets

Question 37

United States net unilateral transfers have been

A)positive every year since 1950
B)negative every year since 1950
C)positive every year since 1950 except 1991, during the Persian Gulf War
D)negative every year since 1950 except 1991, during the Persian Gulf War
E)positive about half the time and negative about half the time since 1950

Question 38

Utopia would be a debtor nation

A)if consumers in other countries bought goods and services from Utopia
B)only if it had a deficit in its current account
C)only if it had a deficit in its balance of goods and services
D)if it had a deficit in its balance of trade
E)if it had a deficit after adding together the balances in both its current account and its capital account

Question 39

The debit side of the current account includes the imports of

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

Question 40

The capital account keeps track of the amount of

A)foreign­owned machinery in a country
B)domestically owned machinery in foreign countries
C)exports and imports of goods only
D)exports and imports of goods and services
E)assets in one country owned by citizens of another

Question 41

Since 1983, the US has typically run a financial account surplus.

Question 42

Which of the following is not true of the statistical discrepancy in thebalance of payments?

A)It is residual.
B)It is a measure of net error in the balance of payments data.
C)It is necessary because some transactions go unreported.
D)An excess of credits in all other accounts must be offset by equivalent debits in the statistical discrepancy
Account.
E)A difference between credits and debits is taken care of by changes in the official reserve transaction
Account.

Question 43

The statistical discrepancy in the balance of payments

A)is always positive
B)is always negative
C)is always zero
D)is either positive, negative, or zero
E)is indeterminate

Question 44

International reserves include all except one of the following.Which is theexception?

A)gold
B)dollars
C)yen
D)Special Drawing Rights
E)oil

Question 45

In order for the balance of payments to balance,

A)the current account balance must equal the capital account balance
B)international reserves must flow out of the country
C)international reserves must flow into the country
D)the current account balance plus the capital account balance plus the net flow of international reserves plus
The statistical discrepancy must equal zero
E)the current account balance plus the capital account balance plus the net flow of international reserves must
Be greater than the statistical discrepancy

Question 46

If the current account shows a deficit, the capital account must show asurplus of the same amount.

Question 47

Which of the following is a credit item (+) in the U.S.balance of payments?

A)U.S.companies sell merchandise abroad.
B)Foreign companies sell merchandise to U.S. consumers.
C)U.S.consumers send money to foreign companies.
D)Immigrants to the United States send presents of money back to their families in their native countries.
E)Immigrants to the United States send presents of goods back to their families in their native countries.

Question 48

When is a balance of payments account out of balance?

A)only when exports are greater than imports
B)only when imports are greater than exports
C)when exports are either greater or less than imports
D)only when exports are greater or less than imports over a sustained period
E)never

Question 49

Which of the following would be represented as a debit in the U.S.balanceof payments?

A)U.S.purchase of cars from Italy
B)U.S.sale of beef to Israel
C)U.S.government receives transfers from foreign governments to support U.S.expenses incurred in
Europe
D)U.S.residents receive gifts of money from friends abroad
E)income received by U.S.resident from overseas investment

Question 50

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

Question 51

The world's largest net debtor nation is

A)Russia
B)China
C)Brazil
D)Mexico
E)the United States

Question 52

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

Question 53

In the balance of payments accounts, a net importer of capital is a nationthat

A)sells more goods in foreign countries than it imports
B)buys more goods from foreign countries than it exports
C)sells more assets to individuals in other countries than the assets it buys from them
D)buys more assets from individuals in other countries than the assets it sells to them
E)imports less machinery than it exports

Question 54

International reserves are

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 55

Which one of the following is not true?

A)An exchange rate is the price of one currency in terms of another.
B)An exchange rate is the means by which the price of a good in one country is translated into the price to the
Buyer in another country.
C)The cost of a foreign good in dollars will depend on the current exchange rate.
D)The exchange rate will affect the willingness of foreign buyers and sellers to trade with each other.
E)The exchange rate is the price of a currency in terms of another currency for exchanges of goods and
Services but not for financial transactions.

Question 56

Between 1917 and 1982, the US ran a financial account deficit.

Question 57

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

Question 58

The statistical discrepancy

A)is always positive
B)is always negative
C)must be reduced to zero and eliminated from the balance of payments before the records become official
D)is a residual factor that indicates the net error in the balance of payments data
E)is a record of all transactions between residents of two countries over a specified period

Question 59

Which of the following is not a credit item (+) in the U.S.balance ofpayments?

A)imports of cars from Japan
B)any transaction that results in an inflow of dollars
C)a capital outflow
D)a U.S.firm's purchase of steel from a European steel mill
E)an increase in American vacations abroad

Question 60

Bank deposits denominated in Mexican pesos are an example of foreignexchange.

Question 61

An exchange rate is

A)the rate at which goods are traded between countries
B)the rate of the net difference between exports and imports
C)the denomination of currency used to purchase imports
D)the price of one currency in terms of another
E)the price at which one good trades for another

Question 62

If $1 equals 2 euros, then 1 euro equals

A)$4.00
B)$2.00
C)$0.50
D)$1.00
E)$0.25

Question 63

Foreign exchange means

A)changing dollars into foreign currency
B)domestic currency held to finance international trade
C)foreign currency
D)trade between governments
E)trade between individuals in different countries

Question 64

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

Question 65

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

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 66

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

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 67

If you are planning to visit wildlife preserves in Kenya, you hope the U.S.dollar appreciates against Kenya's currency.

Question 68

If the British pound appreciates, U.S.television stations need fewer dollarsto buy episodes of a Britcom from the British Broadcasting Company.

Question 69

A German who exchanges euros for dollars in a U.S.airport is

A)contributing to U.S.exports
B)lending dollars to Germans
C)participating in the foreign exchange market
D)engaging in speculative activities
E)engaging in illegal activities

Question 70

From the U.S.perspective, a drop in the price of foreign exchange meansthat

A)fewer U.S.dollars are needed to purchase foreign currency
B)more U.S.dollars are needed to purchase foreign currency
C)worldwide, imports will become more expensive
D)worldwide, exports will become cheaper
E)transaction costs on international markets will decrease

Question 71

If the exchange rate changes from 1 euro per U.S.dollar to 1.2 euros perU.S.dollar, the Euro has

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

Question 72

The exchange rate is the

A)total yearly amount of money changed from one country's currency to another country's currency
B)total monetary value of exports minus imports
C)amount of a country's currency that can be exchanged for one ounce of gold
D)sum of net unilateral transfers
E)price of one country's currency in terms of another country's currency

Question 73

If the U.S.dollar depreciates, it means that

A)the value of the U.S.dollar has increased
B)the value of foreign exchange has decreased
C)fewer U.S.dollars are required to purchase foreign exchange
D)more U.S.dollars are required to purchase foreign exchange
E)exports will immediately fall

Question 74

A drop in dollar price of British pounds means that

A)fewer dollars are needed to buy British pounds
B)more dollars are needed to buy British pounds
C)the mark has appreciated
D)the dollar has depreciated
E)British goods are now more expensive to Americans

Question 75

If on Tuesday you can buy 125 yen per U.S.dollar and on Wednesday youcan buy 120 yen per U.S.dollar,

A)both the U.S.dollar and the yen have appreciated
B)both the U.S.dollar and the yen have depreciated
C)the U.S.dollar has appreciated and the yen has depreciated
D)the U.S.dollar has depreciated and the yen has appreciated
E)the yen has appreciated and the U.S.dollar has remained constant

Question 76

The exchange rate is the

A)ratio of exports to imports
B)interest rate the U.S.government charges on international transactions
C)pricing policy of goods scheduled for export
D)price of one nation's currency in terms of another nation's currency
E)price that central banks charge each other for currency exchanges

Question 77

The foreign exchange rate is the

A)current account
B)the law of comparative advantage
C)the capital account
D)the balance of trade
E)the price of one currency in terms of another

Question 78

If the U.S.dollar appreciates, it means that

A)the value of the U.S.dollar has decreased
B)the value of foreign exchange has increased
C)fewer U.S.dollars are required to purchase foreign exchange
D)more U.S.dollars are required to purchase foreign exchange
E)exports will fall immediately