Deck 15: International Finance

Question 1

Which of the following would be a debit in the Canadian balance of payments?

A)the purchase of air service from a Canadian airline by a Japanese traveller
B)the purchase of a Japanese car by a Canadian
C)a short-term loan extended to a Japanese manufacturer by a Canadian bank
D)the purchase of Canadian grain by a Japanese bakery

Answer 1

the purchase of a Japanese car by a Canadian

Question 2

Where would you find the records of all the international transactions of a country?

A)the international trade payments
B)the current account
C)the balance of payments
D)the net transfers account

Answer 2

the balance of payments

Question 3

Which of the following would supply Canadian dollars to the foreign exchange market?

A)the spending of British tourists in Canada
B)the purchase of Florida oranges by a Canadian consumer
C)the sale of a Canadian corporation to a Saudi Arabian investor
D)the sale of a Canadian automobile to a Mexican consumer

Answer 3

the purchase of Florida oranges by a Canadian consumer

Question 4

What is the difference between the value of a country's merchandise exports and merchandise imports known as?

A)the balance on current account
B)the balance of payments
C)the balance on capital account
D)the balance of trade

Question 5

Which of the following would be recorded as a credit in the Canadian balance of payments accounts?

A)the purchase of a Government of Canada bond by a French investment company
B)the import of Honda trucks by a Canadian automobile dealer
C)European travel expenditures of a Canadian college student
D)the purchase of a German business by a Canadian investor

Question 6

If the value of a nation's merchandise exports exceeds merchandise imports,what is the nation running?

A)a merchandise trade deficit
B)a balance of payments deficit
C)a balance of payments surplus
D)a merchandise trade surplus

Question 7

Under a flexible exchange rate system,what can we conclude if a nation is running a deficit in its balance of merchandise trade?

A)The nation must be running a surplus in the nonmerchandise components of its transactions with other countries.
B)The nation's currency will depreciate.
C)The nation must be running a deficit in the nonmerchandise components of its transactions with other countries.
D)The nation's currency will appreciate.

Question 8

Which of the following would increase the demand for Canadian dollars in the foreign exchange market?

A)the sale of Canadian computer software to an American buyer
B)the spending of Canadian tourists in France
C)the purchase of Japanese automobiles by Canadian consumers
D)the purchase of a Mexican shoe factory by a Canadian investor

Question 9

Which of the following would be a credit in the Canadian balance of payments?

A)a short-term loan extended to a South American country by the Canadian government
B)the purchase of a German car by a Canadian
C)a trip to Japan by a Canadian student
D)the purchase of insurance from Lloyd's of London by a Canadian resident

Question 10

What is the difference between the balance of merchandise trade and the balance of payments?

A)Balance of merchandise trade and balance of payments both describes the same international exchange transactions.
B)The value of goods imported and exported is included in the balance of merchandise trade, while the balance of payments includes only capital account transactions.
C)Only the value of goods imported and exported are included in the balance of merchandise trade, while the balance of payments includes the value of all payments to and from foreigners.
D)The value of all goods, services, and unilateral transfers is included in the balance of merchandise trade, while the balance of payments includes both current account and capital account transactions.

Question 11

If your aunt in Italy lends you $5000 to complete your Canadian education,how will this be entered on the Canadian balance of payments account?

A)as a devaluation, since the net value of the Canadian capital stock will be reduced by the amount of your debt
B)as a nonentry, affecting Italy's payments but not those of Canada
C)as a debit (-)
D)as a credit (+)

Question 12

Whenever there is a deficit in the current account,what will the capital account be?

A)It will be the same amount as the deficit.
B)It will be positive.
C)It will be negative.
D)It will be zero.

Question 13

What is the term for the record of all transactions with foreign nations that involve the exchange of merchandise goods and services or unilateral gifts?

A)current account
B)balance of payments
C)balance of trade
D)capital account

Question 14

If consumers in Europe and Asia develop strong preferences for Canadian goods,what impact will this have on Canada's current account?

A)It will not be affected since purchases of Canadian goods by foreigners are recorded in the capital account.
B)It will not be affected since purchases of Canadian goods based on mere preferences are recorded under statistical discrepancy.
C)It will move toward surplus, since purchases of Canadian goods are recorded as credits on our current account.
D)It will move toward deficit, since purchases of Canadian goods by foreigners are counted as debits in our current account.

Question 15

Which of the following is a debit in the Canadian current account?

A)the purchase of insurance from Lloyd's of London by a Canadian
B)the purchase of Canadian lumber by a German
C)a trip to Canada by a Chinese student
D)the purchase of the Eaton Centre by Japanese investors

Question 16

Whenever there is a surplus in the current account,what will the capital account be?

A)It will be the same amount as the surplus.
B)It will be negative.
C)It will be positive.
D)It will be zero.

Question 17

Under a pure flexible exchange rate system,what does the rate that equates demand and supply in the exchange rate market imply?

A)The capital account balance equals zero.
B)Merchandise exports equals merchandise imports.
C)The current and capital account balances will be equal in magnitude, but opposite in sign.
D)The current account balance equals zero.

Question 18

Which of the following statements about the Canadian balance of trade is most accurate?

A)It is the difference between merchandise exports and merchandise imports.
B)It is the same as the current account balance.
C)It typically is negative since Canada imports far more goods than it exports.
D)It includes net stock transactions.

Question 19

Suppose a video craze in Canada makes a particular Japanese-produced video game very popular.What effect would this have?

A)It would tend to affect the Canadian balance of payments but not the balance of trade.
B)It would tend to increase the balance of trade deficit of Canada.
C)It would tend to increase the balance of trade surplus of Canada.
D)It would tend to reduce any existing balance of trade deficit in Canada.

Question 20

What must occur when goods or services cross international borders?

A)Money must generally move in the opposite direction.
B)Payment must be made in another good, using barter.
C)Countries must ship gold to make payment.
D)A future shipment must be made to offset the current sale/purchase.

Question 21

Suppose the exchange rate between Canadian dollars and U.S.dollars is $0.60 U.S.dollars per Canadian dollar.If the exchange rate goes to $0.50 U.S.dollars per Canadian dollar,what will happen to the exports of American goods into Canada?

A)They will tend to fall.
B)They will tend to rise.
C)They will tend to change in an indeterminate direction.
D)They will tend to stay the same.

Question 22

Suppose the exchange rate between the Japanese yen and the Canadian dollar is 130 yen to the dollar.If it then changes to 150 yen to the dollar,what will happen to the price of Canadian goods for Japanese importers?

A)It will change in an indeterminate direction.
B)It will fall.
C)It will rise.
D)It will stay the same.

Question 23

Suppose the exchange rate between Canadian dollars and U.S.dollars is $0.60 U.S.dollars per Canadian dollar.If the exchange rate goes to $0.70 U.S.dollars per Canadian dollar,what will happen to the exports of American goods into Canada?

A)They will tend to fall.
B)They will tend to change in an indeterminate direction.
C)They will tend to rise.
D)They will tend to stay the same.

Question 24

On March 16ᵗʰ,2012,the Canadian dollar was worth 1.0087 U.S.dollars.How many Canadian dollars did it take to buy one U.S.dollar?

A)0.9914
B)0.9987
C)1.0000
D)1.0087

Question 25

If the exchange rate between yen and dollars is 120 yen per dollar,when a Japanese tourist purchases a good valued at $600,what is its cost in yen?

A)5 yen
B)120 yen
C)600 yen
D)72 000 yen

Question 26

Is it possible for a currency to appreciate relative to another currency,and depreciate relative to a third?

A)Yes, this could occur under a strict gold standard.
B)Yes, this is possible in a world of floating exchange rates.
C)Yes, in theory, but it does not happen in reality.
D)No, this is not theoretically possible; a currency rises or falls against all others.

Question 27

Suppose the exchange rate between British pounds and Canadian dollars is originally $2.50 per pound.If it then changes to $3 for 1 pound,what will happen to the imports of British goods into Canada?

A)They will tend to fall.
B)They will tend to stay the same.
C)They will tend to change in an indeterminate direction.
D)They will tend to rise.

Question 28

If the price in Canadian dollars of Mexican pesos changes from $0.10 per peso to $0.14 per peso,what has happened to the peso?

A)It has appreciated.
B)It has depreciated.
C)It has stayed at the same exchange rate.
D)It has devalued.

Question 29

Suppose the exchange rate between British pounds and Canadian dollars is originally $2.50 per pound.If it then changes to $3 for 1 pound,what will happen to the price of Canadian goods for British importers?

A)It will change in an indeterminate direction.
B)It will rise.
C)It will fall.
D)It will stay the same.

Question 30

If the exchange rate between euros and dollars is 2 euros per dollar,when a Canadian purchases a good valued at 80 euros,what is its cost in dollars?

A)$40
B)$80
C)$120
D)$160

Question 31

What is a consequence of the Canadian dollar depreciating?

A)It rises in value.
B)It takes fewer dollars to buy units of other currencies.
C)Other currencies appreciate.
D)It decreases in value within Canada.

Question 32

What does the statement,"at any given moment there is one exchange rate," refer to?

A)There is one exchange rate for all the world's currencies.
B)There is one exchange rate for currencies in the free world.
C)There is one exchange rate established by the Bank of Canada.
D)There is one exchange rate between every pair of currencies.

Question 33

What is a consequence of the Canadian dollar appreciating?

A)Other currencies also appreciate.
B)It takes more dollars to buy units of other currencies.
C)Other currencies depreciate.
D)It increases in value within Canada.

Question 34

Suppose the exchange rate between Mexican pesos and Canadian dollars is 8 pesos per dollar.If the exchange rate goes to 10 pesos per dollar,what will happen to the exports of Canadian goods into Mexico?

A)They will tend to rise.
B)They will tend to change in an indeterminate direction.
C)They will tend to stay the same.
D)They will tend to fall.

Question 35

On March 16ᵗʰ,2012,the Canadian dollar was worth 0.7698 euros.Roughly how many Canadian dollars did it take to buy one euro?

A)0.2302
B)0.7698
C)1.2990
D)1.4232

Question 36

On March 16ᵗʰ,2012,the Canadian dollar was worth 0.6386 U.K.pounds.How many Canadian dollars did it take to buy one U.K.pound?

A)0.2614
B)0.63866
C)1.5659
D)1.6386

Question 37

Suppose the exchange rate between Mexican pesos and Canadian dollars is 8 pesos per dollar.If the exchange rate goes to 6 pesos per dollar,what will happen to the exports of Canadian goods into Mexico?

A)They will tend to change in an indeterminate direction.
B)They will tend to fall.
C)They will tend to rise.
D)They will tend to stay the same.

Question 38

Suppose the exchange rate between Japanese yen and Canadian dollars is originally 130 yen to the dollar.If it then changes to 150 yen to the dollar,what will happen to the imports of Japanese goods into Canada?

A)They will change in an indeterminate direction.
B)They will fall.
C)They will rise.
D)They will stay the same.

Question 39

Which of the following statements about the exchange rate is the most accurate?

A)It states the price of one currency in terms of another currency.
B)It is closely related to the concept of absolute advantage.
C)It is closely related to the concept of comparative advantage.
D)It is the rate at which one country's money is flowing to a second country.

Question 40

If the exchange rate between yen and dollars is 120 yen per dollar,when a Canadian purchases a good valued at 600 yen,what is its cost in dollars?

A)$5
B)$120
C)$600
D)$72 000

Question 41

In foreign exchange markets,how is the demand for dollars determined?

A)by the level of Canadian imports and the demand for foreign assets by Canadian citizens and the Canadian government.
B)solely by the level of Canadian merchandise imports
C)by the level of Canadian exports and the demand for Canadian assets by foreigners
D)solely by the level of Canadian merchandise exports

Question 42

What is the expected result if the number of British pounds that exchange for a Canadian dollar falls on foreign currency markets?

A)The British will find it more difficult to export goods to Canada.
B)The British will travel more to Canada.
C)The British will find Canadian goods to be less expensive in their stores.
D)The British will have an incentive to import fewer Canadian goods.

Question 43

If a British student pays her way to attend McGill University in Montreal,what impact will her actions have?

A)It will create a supply of pounds and a demand for dollars in the foreign currency market.
B)It will cause the Canadian dollar to depreciate.
C)It will cause the British pound to appreciate.
D)It will create a supply of dollars and a demand for pounds in the foreign currency market.

Question 44

Which of the following is most likely to cause the depreciation of the Canadian dollar?

A)a German-owned company that buys Canadian oil
B)a Canadian farmer who relies on exports
C)a Canadian professor on extended vacation in Paris
D)a German professor on vacation in Quebec

Question 45

Suppose the dollar rises from 100 to 125 yen.What will result?

A)Exports to Japan will likely increase.
B)Canadian consumers will more likely buy Japanese-made automobiles.
C)Japanese tourists will more likely visit Canada.
D)Canadian businesses will be less likely to use Japanese shipping lines to transport their products.

Question 46

If real incomes in foreign nations are growing less rapidly than Canadian real incomes,what would this result in?

A)There would likely be no effect on the exchange rate of the dollar relative to other currencies.
B)The exchange rate of the dollar would increase relative to other currencies.
C)There would be an indeterminate effect on the exchange rate of the dollar relative to other currencies.
D)The exchange rate of the dollar would decline relative to other currencies.

Question 47

If Canada purchases oil from Kuwait,what is the effect in the exchange market?

A)It will increase the supply of Canadian dollars.
B)It will decrease the demand for Canadian dollars.
C)It will decrease the supply of Canadian dollars.
D)It will increase the demand for Canadian dollars.

Question 48

If Canada experiences a sharp increase in exports,what will happen to demand for the Canadian dollar?

A)It will be unchanged.
B)It will increase.
C)It will decrease.
D)It will change at the same rate as the supply of dollars will change.

Question 49

Which event would cause Sweden's currency to appreciate?

A)The demand for imports by Swedes increases.
B)The demand for Sweden's exports increases.
C)Real interest rates in Sweden decrease relative to the rest of the world.
D)Sweden's inflation rate rises relative to inflation in the rest of the world.

Question 50

Which of the following would cause a decrease in the exchange rate of the Canadian dollar?

A)a decrease in the amount of foreign debt purchased by Canadian citizens
B)an increase in Canadian imports
C)an increase in demand by foreigners to buy Canadian government securities
D)an increase in Canadian exports

Question 51

If the exchange rate between the dollar and the Euro changes from $1 per euro to $2 per euro,what impact will this have on the prices and imports of European goods for Canadians?

A)European goods will become more expensive for Canadians, and imports of European goods to Canada will fall.
B)European goods will become less expensive for Canadians, and imports of European goods to Canada will fall.
C)European goods will become less expensive for Canadians, and imports of European goods to Canada will rise.
D)European goods will become more expensive for Canadians, and imports of European goods to Canada will rise.

Question 52

If a dollar is more expensive in terms of a foreign currency than the equilibrium exchange rate,what will happen in the foreign exchange market?

A)There will be a shortage of dollars and downward pressure on the exchange rate.
B)There will be a shortage of dollars and upward pressure on the exchange rate.
C)There will be a surplus of dollars and downward pressure on the exchange rate.
D)There will be a surplus of dollars and upward pressure on the exchange rate.

Question 53

Can the Canadian dollar and the U.K.pound both appreciate relative to each other?

A)Yes, provided the central banks agree to permit it.
B)No, the citizens of the countries would not agree to it.
C)No, if one currency appreciates relative to another, the other depreciates.
D)Yes, both countries can gain in this manner.

Question 54

What is the economic effect of a student group from your university touring the United Kingdom?

A)It causes the English pound to depreciate.
B)It creates a demand for English pounds and a supply of dollars in the foreign currency market.
C)It causes the Canadian dollar to appreciate.
D)It creates a demand for dollars and a supply of English pounds in the foreign currency market.

Question 55

Which of the following examples would lead to a demand for euros?

A)Judy Potter, a Canadian, purchases a German automobile.
B)Telus pays a dividend to its Dutch shareholders.
C)Jim Potter, Judy's husband, sells French stocks.
D)Fiat, an Italian carmaker, buys the Canadian assets of Chrysler.

Question 56

If the dollar appreciates relative to other currencies,how does the amount of the other currency necessary to buy a dollar change?

A)It takes less of the other currency to buy a dollar.
B)There is not enough information to determine.
C)There is no charge in the currency needed to buy a dollar.
D)It takes more of the other currency to buy a dollar.

Question 57

If the Canadian dollar depreciates relative to the Japanese yen,we would expect to happen in terms of trade between the two countries?

A)The Japanese imports from Canada would decrease.
B)The Japanese trade deficit with Canada would decrease.
C)The Japanese trade surplus with Canada would increase.
D)The Japanese exports to Canada would decrease.

Question 58

If a dollar is cheaper in terms of a foreign currency than the equilibrium exchange rate,what will happen in the foreign exchange market?

A)There will be a shortage of dollars and upward pressure on the exchange rate.
B)There will be a surplus of dollars and upward pressure on the exchange rate.
C)There will be a surplus of dollars and downward pressure on the exchange rate.
D)There will be a shortage of dollars and downward pressure on the exchange rate.

Question 59

In foreign exchange markets,how is the supply of dollars determined?

A)solely by the level of Canadian merchandise imports
B)by the level of Canadian imports and the demand for foreign assets by Canadian citizens and the Canadian government
C)solely by the level of Canadian merchandise exports
D)by the levels of Canadian merchandise exports and merchandise imports

Question 60

If the demand by foreigners for Canadian government bonds increases,other things equal,what will happen to the exchange rate for the Canadian dollar and the amount of Canadian exports?

A)It will decrease the exchange rate of the dollar and increase exports.
B)It will decrease the exchange rate of the dollar and decrease exports.
C)It will increase the exchange rate of the dollar and decrease exports.
D)It will increase the exchange rate of the dollar and increase exports.

Question 61

What will happen to Canadian net exports and the subsequent value of the Canadian dollar if there is an increase in foreign demand for Canadian goods?

A)Net exports will increase and the Canadian dollar will appreciate.
B)Net exports will decrease and the Canadian dollar will appreciate.
C)Net exports will decrease and the Canadian dollar will depreciate.
D)Net exports will increase and the Canadian dollar will depreciate.

Question 62

If the interest rates in two countries were the same,which country would you prefer to invest in the assets of?

A)the country whose currency had the greatest exchange rate
B)the country whose currency was likely to appreciate
C)the country whose currency was likely to depreciate
D)the country whose currency had the lowest exchange rate

Question 63

If a Japanese pension fund decides to purchase Canadian government bonds,what is the effect in the exchange market?

A)It will increase the demand for Japanese yen.
B)It will increase the supply of Japanese yen.
C)It will decrease the supply of Japanese yen.
D)It will decrease the demand for Japanese yen.

Question 64

If the rate of inflation in Canada falls relative to the rate of inflation in foreign nations,what will happen to the amount of Canadian net exports and subsequently the exchange rate for the Canadian dollar?

A)It will increase net exports, which in turn will increase the value of the dollar.
B)It will decrease net exports, which in turn will increase the value of the dollar.
C)It will decrease net exports, which in turn will decrease the value of the dollar.
D)It will increase net exports, which in turn will decrease the value of the dollar.

Question 65

Suppose Canada imposed a high tariff on a major imported item.What effect would this have?

A)It would tend to cause the dollar to appreciate in value.
B)It would tend to decrease the Canadian merchandise trade surplus.
C)It would tend to increase Canadian exports of goods.
D)It would tend to cause the dollar to depreciate in value.

Question 66

Under what circumstances would a country tend to experience currency depreciation relative to other countries?

A)if people in the foreign currency markets expect the value of the currency will rise in the near future
B)if its inflation rate is high relative to other countries.
C)if the profitability of investments within the country increases relative to the rest of the world
D)if the foreign demand for its exports increases

Question 67

If the rate of inflation in Canada rises relative to the rate of inflation in foreign nations,what will happen to the amount of Canadian net exports and subsequently the exchange rate for the Canadian dollar?

A)It will decrease net exports, which in turn will increase the value of the dollar.
B)It will increase net exports, which in turn will increase the value of the dollar.
C)It will decrease net exports, which in turn will decrease the value of the dollar.
D)It will increase net exports, which in turn will decrease the value of the dollar.

Question 68

Under what circumstances would a country tend to experience currency depreciation relative to other countries?

A)Real interest rates rise relative to other countries.
B)Traders in the foreign currency markets expect the value of the currency will fall in the near future.
C)The foreign demand for its exports increases.
D)The profitability of investments in other countries decreases relative to that country.

Question 69

If fewer British tourists visit Niagara Falls,what is the effect in the foreign exchange market?

A)It will decrease the supply of British pounds.
B)It will increase the demand for British pounds.
C)It will decrease the demand for British pounds.
D)It will increase the supply of British pounds.

Question 70

If Canada exports coal to Japan,what is the effect in the exchange market?

A)It will decrease the supply of Canadian dollars.
B)It will increase the demand for Canadian dollars.
C)It will increase the supply of Canadian dollars.
D)It will decrease the demand for Canadian dollars.

Question 71

What will happen to Canadian net exports and the subsequent value of the Canadian dollar if there is a decrease in foreign demand for Canadian goods?

A)Net exports will decrease and the Canadian dollar will appreciate.
B)Net exports will increase and the Canadian dollar will depreciate.
C)Net exports will increase and the Canadian dollar will appreciate.
D)Net exports will decrease and the Canadian dollar will depreciate.

Question 72

What is the term for exchange rates determined by the laws of supply and demand?

A)dirty exchange rates
B)flexible exchange rates
C)equilibrium exchange rates
D)fixed exchange rates

Question 73

Which of the following would most likely cause a nation's currency to depreciate?

A)an increase in domestic real interest rates
B)a balance-of-trade surplus
C)an increase in the nation's inflation rate
D)an increase in exports coupled with a decline in imports

Question 74

If real interest rates in Canada rose and real interest rates in England fell,we would expect people to:

A)buy relatively more Canadian assets
B)increase their demand for British pounds
C)borrow more from Canadian sources
D)buy relatively more British assets

Question 75

What is the term for an exchange rate that is partly determined by government intervention?

A)a government rate
B)a dirty float
C)a fixed rate
D)an influenced float

Question 76

What effect would a depreciation in the Canadian dollar have?

A)It would discourage foreign consumers from buying Canadian goods.
B)It would reduce the number of dollars it would take to buy a Swiss franc.
C)It would encourage foreigners to buy more Canadian goods.
D)It would discourage foreigners from making investments in Canada.

Question 77

If real interest rates in Canada rise relative to real interest rates in other countries,other things equal,what would likely occur?

A)The exchange rate of the dollar would increase relative to other currencies.
B)There would be an indeterminate effect on the exchange rate of the dollar relative to other currencies.
C)There would likely be no effect on the exchange rate of the dollar relative to other currencies.
D)The exchange rate of the dollar would decline relative to other currencies.

Question 78

If a Japanese pension fund decides to purchase Canadian government bonds,what is the effect in the exchange market?

A)It will decrease the supply of Canadian dollars.
B)It will decrease the demand for Canadian dollars.
C)It will increase the demand for Canadian dollars.
D)It will increase the supply of Canadian dollars.

Question 79

Other things being constant,which of the following will most likely cause the dollar to appreciate on the exchange rate market?

A)expansionary domestic monetary policy
B)reduced inflation abroad
C)higher interest rates abroad
D)higher domestic interest rates

Question 80

If a nation wants to maintain a constant exchange rate at a time when supply and demand are causing the exchange rate of its currency to appreciate,what action might the nation take?

A)reduce taxes and run a budget deficit to push domestic interest rates up
B)decrease its tariffs and/or eliminate restrictive quotas
C)shift to a more contractionary monetary policy
D)restrict the export of oil and other natural resources