Deck 34: Exchange Rates and the Balance of Payments

Question 1

When a Japanese firm buys Canadian lumber,this transaction appears as a

A)debit on the Canadian capital account.
B)credit on the Japanese capital account.
C)credit on the Canadian current account.
D)credit on the Japanese current account.
E)debit on Canada's trade account.

Answer 1

credit on the Canadian current account.

Question 2

A credit entry in Canada's balance-of-payments accounts

A)is any transaction that involves a payment to other nations.
B)is any transaction that involves a receipt from other nations.
C)typically results in less foreign exchange being held by Canadians.
D)typically gives rise to the acquisition of foreign exchange on current-account transactions and the loss of foreign exchange on capital-account transactions.
E)can be recorded only by the central bank in the official financing accounts.

Answer 2

is any transaction that involves a receipt from other nations.

Question 3

The capital-service account in Canada's balance-of-payments is the section of the

A)capital account which records the net change in Canadian investments abroad and the net change in foreign investments in Canada.
B)capital account which represents the financial reserves held by the Bank of Canada which they can use in the foreign-exchange market.
C)current account which records the interest charges and earnings of Canadian importers and exporters.
D)current account which records income paid to foreign owners of assets in Canada and income received by Canadians for assets located abroad.
E)current account which records the financial reserves held by the Bank of Canada which they can use in the foreign-exchange market.

Answer 3

current account which records income paid to foreign owners of assets in Canada and income received by Canadians for assets located abroad.

Question 4

A credit entry in the Canadian balance-of-payments accounts
1)is a credit in the balance-of-payments accounts for foreign countries;
2)occurs when Canadians receive investment income from foreign countries;
3)is any transaction that results in a payment to other nations.

A)1 only
B)2 only
C)3 only
D)1 and 2
E)2 and 3

Question 5

A debit entry in the Canadian balance-of-payments accounts
1)is a credit in the balance-of-payments accounts for foreign countries;
2)arises when Canadian assets are sold to foreigners;
3)typically results in more foreign exchange being held by foreigners.

A)1 only
B)2 only
C)3 only
D)1 and 2
E)1 and 3

Question 6

Which one of the following transactions would appear as a credit in the capital account of the Canadian balance of payments?

A)Canadians purchase foreign securities.
B)A Dutch firm purchases a uranium mine in Canada.
C)Canadian firms pay dividends to foreigners.
D)Coffee is imported from Venezuela.
E)French tourists buy ski tickets in Canada.

Question 7

Which of the following would appear as a credit item in the trade account of the Canadian balance of payments?

A)dividends payable to Canadians on Canadian-owned assets located in Cuba
B)sales of Canadian steel to European importers
C)Canadian purchases of American-made vehicles
D)purchases by Japanese firms of shares of Canadian firms in the entertainment industry
E)the opening of an Ottawa branch of a Swiss bank

Question 8

The purchase of foreign assets by Canadians is,for Canada,considered a capital

A)outflow and is recorded as a debit on the current account.
B)outflow and is recorded as a debit on the capital account.
C)inflow and is recorded as a credit on the current account.
D)inflow and is recorded as a credit on the capital account.
E)inflow and is recorded as a debit on the capital account.

Question 9

Consider the following annual transactions in Canada's current account.If Canadian exports of goods and services are $40 billion,imports of goods and services are $35 billion,transfers by Canadians to foreigners are $2 billion and transfers from foreigners to Canadian citizens are $1 billion,then the current account balance is

A)+ $6 billion.
B)+ $4 billion.
C)- $4 billion.
D)- $6 billion.
E)- $7 billion

Question 10

Canadian firms' receipts from foreign consumers arising from the exports of goods and services are shown in Canada's

A)investment account.
B)capital account.
C)official financing account.
D)trade account.
E)capital-service account.

Question 11

Which of the following is true? A credit entry in the Canadian balance-of-payments accounts

A)is any transaction that results in a payment to other nations.
B)typically results in more foreign exchange being held by foreigners.
C)is a credit in the balance-of-payments accounts for foreign countries.
D)arises when Canadian assets are sold to foreigners.
E)arises when Canadians purchase assets from foreigners.

Question 12

Payments by Canadians of interest and dividends on foreign-owned capital located in Canada

A)are a debit in the current account.
B)are a debit in the capital account.
C)contribute to a surplus on the trade account.
D)contribute to increased foreign-exchange holding by the Bank of Canada.
E)are a credit in the capital account.

Question 13

With respect to Canada's balance of payments,

A)if the current account is in deficit,the capital account must also be in deficit.
B)the current account balance must be zero.
C)the current account balance plus the capital account balance must be zero.
D)the trade account plus the capital account must equal the official financing account.
E)the capital account balance must be zero.

Question 14

With respect to Canada's balance of payments,

A)if the current account is in deficit,the capital account must also be in deficit.
B)the current account balance must be zero.
C)the trade account balance must be zero.
D)total payments must equal total receipts.
E)if the current account is in surplus,the capital account must also be in surplus.

Question 15

The purchase of Canadian assets by foreigners is,for Canada,considered a capital

A)outflow and is recorded as a credit on the current account.
B)outflow and is recorded as a debit on the capital account.
C)outflow and is recorded as a debit on the current account.
D)inflow and is recorded as a credit on the capital account.
E)inflow and is recorded as a credit on the current account.

Question 16

Consider Canada's balance of payments.If the Canadian government were to purchase more foreign-exchange reserves,this transaction

A)represents the sale of an asset,and thus enters as a credit item in the official financing account.
B)represents the purchase of an asset from abroad,and thus enters as a debit item in the official financing account.
C)enters as a credit in the current account.
D)enters as a credit in the capital account.
E)represents the purchase of an asset from abroad,and thus enters as a debit item in the capital-service account.

Question 17

Payments made to foreign firms arising from Canadians' purchases of foreign goods and services are shown in Canada's

A)capital account.
B)current account.
C)official financing account.
D)capital-service account.
E)foreign-currency reserves.

Question 18

Consider the following annual transactions in Canada's capital account.If Canadian purchases of foreign real estate are $100 million,Canadian purchases of foreign-country bonds are $50 million,foreign purchases of Canadian real estate are $75 million,and foreign purchases of Canadian bonds are $35 million,then the capital account balance is equal to

A)+ $90 million.
B)+ $40 million.
C)- $10 million.
D)- $40 million.
E)- $90 million.

Question 19

Which of the following would appear as a debit item in the trade account of the Canadian balance of payments?

A)dividends payable to Canadians on Canadian-owned assets located in Australia
B)sales of Canadian steel to European importers
C)Canadian purchases of Colombian coffee
D)purchases by a Japanese pension fund of CN Rail shares
E)purchases by General Motors of Canadian-made auto parts

Question 20

Which one of the following transactions would appear as a debit in the current account of the Canadian balance of payments?

A)The Arabian Capital Investment Corporation makes a loan to a Canadian firm.
B)A Canadian subsidiary exports raw materials to its Dutch parent company.
C)Canadians receive dividends on U.S.investment in Latin America.
D)Canadian tourists in France purchase cases of wine.
E)The Bank of Canada purchases euros to hold in its official reserves.

Question 21

Consider Canada's balance of payments.Suppose Canada's capital account has a deficit of $10 billion in 2013.It follows that Canada must have a current account ________ of ________,meaning that net payments of this amount from the sale of goods and services (plus net investment income)are flowing ________ Canada.

A)surplus; $10 billion; into
B)deficit; $10 billion; out of
C)deficit; less than $10 billion; out of
D)surplus; $10 billion; out of
E)deficit; $10 billion; into

Question 22

Canada's balance of payments is sometimes incorrectly said to be "in deficit." The reason this must be incorrect is that

A)Canada's balance of payments has been in surplus for almost all of its history.
B)unlike most countries,Canada's balance of payments is almost always balanced.
C)like any other country in the world,Canada's balance of payments is always perfectly balanced.
D)the Canadian government has long been committed to avoiding balance of payments deficits.
E)it is not possible for capital flows to be in a deficit situation.

Question 23

Consider the balance-of-payments accounting information for Lalaland in 2015 as shown in the table below.All values are in billions of dollars and any variables not provided below have a value of zero.
TABLE 34-1
Refer to Table 34-1.What is the balance of payments for Lalaland in 2015?

A)$90 billion
B)$60 billion
C)$0
D)-$90 billion
E)-$60 billion

Question 24

The difference between the payments and receipts from international transactions in goods and services (plus net foreign-investment income)is represented in the

A)official financing account.
B)trade balance.
C)capital service account.
D)current account balance.
E)merchandise account.

Question 25

Consider Canada's balance of payments.Suppose Canada's current account has a deficit of $12 billion in 2013.It follows that Canada must have a capital account ________ of ________,meaning that there is a capital flow of this amount ________ Canada.

A)surplus; $12 billion; into
B)deficit; $12 billion; out of
C)deficit; less than $12 billion; out of
D)surplus; less than $12 billion; into
E)deficit; $12 billion; into

Question 26

Canada's balance of payments is sometimes incorrectly said to be "in surplus." The reason this must be incorrect is that

A)Canada's balance of payments has been in deficit for almost all of its history.
B)unlike most countries,Canada's balance of payments is almost always balanced.
C)like any other country in the world,Canada's balance of payments is always perfectly balanced.
D)the Canadian government has long been committed to avoiding balance of payments surpluses.
E)it is not possible for capital flows to be in a surplus situation.

Question 27

Consider Canada's balance of payments.If Canada's current account is in deficit,then we can be sure that there is a ________ on the capital account,which means a capital ________ to (from)Canada.

A)surplus; inflow
B)deficit; inflow
C)surplus; outflow
D)deficit; outflow

Question 28

In 2014,Canada had a current account deficit of approximately $41 billion.In the absence of any statistical discrepancy,this deficit would imply that during that year,Canada

A)had negative net assets with the rest of the world.
B)also had a capital account deficit.
C)had a net debt to the rest of the world of more than $41 billion.
D)experienced a capital inflow of $41 billion.
E)experienced a decrease in GDP of $41 billion.

Question 29

Consider Canada's balance of payments.When a grocery importer in Sweden buys Quebec maple syrup,this transaction

A)appears as a debit item on the Canadian current account.
B)appears as a credit item on the Swedish current account.
C)appears as a credit item on the Canadian capital account.
D)appears as a debit item on the Swedish current account.
E)appears as a debit item on the Canadian capital account.

Question 30

The difference between the payments and receipts from international transactions in assets is represented in the

A)official financing account.
B)trade balance.
C)capital account balance.
D)current account balance.
E)merchandise account.

Question 31

Consider the balance-of-payments accounting information for Lalaland in 2015 as shown in the table below.All values are in billions of dollars and any variables not provided below have a value of zero.
TABLE 34-1
Refer to Table 34-1.What is the net capital flow between Lalaland and the rest of the world in 2015?

A)a net capital outflow from Lalaland of $90 billion
B)a net capital outflow from Lalaland of 180 billion
C)a net capital inflow into Lalaland of $90 billion
D)a net capital inflow into Lalaland of $180 billion
E)a net capital outflow from Lalaland of $60 billion

Question 32

Consider Canada's balance of payments.Suppose Canada's current account has a surplus of $18 billion in 2013.It follows that Canada must have a capital account ________ of ________,meaning that there is a capital flow of this amount ________ Canada.

A)surplus; $18 billion; into
B)deficit; $18 billion; out of
C)deficit; less than $18 billion; out of
D)surplus; less than $18 billion; into
E)deficit; $18 billion; into

Question 33

Consider a country's balance of payments.An excess of payments over receipts on the current account

A)must equal the net debit balance of the capital account.
B)must equal the net credit balance of the current account.
C)is not possible.
D)must be matched by an excess of payments over receipts on the capital account.
E)must be matched by an excess of receipts over payments on the capital account.

Question 34

Consider Canada's balance of payments.If the Government of Canada were to sell some of its foreign-exchange reserves to a foreign government,the transaction would

A)represent the sale of an asset,and thus enter as a credit item in the official financing account.
B)represent the purchase of an asset from abroad,and thus enter as a debit item in the official financing account.
C)enter as a credit in the current account.
D)enter as a debit in the capital account.
E)enters as a credit in the capital-service account.

Question 35

Consider the balance-of-payments accounting information for Lalaland in 2015 as shown in the table below.All values are in billions of dollars and any variables not provided below have a value of zero.
TABLE 34-1
Refer to Table 34-1.What is the net change in the stock of Lalaland's investments abroad in 2015?

A)a decrease of $180 billion
B)a decrease of $90 billion
C)an increase of $90 billion
D)an increase of $180 billion
E)insufficient information to determine

Question 36

Consider the balance-of-payments accounting information for Lalaland in 2015 as shown in the table below.All values are in billions of dollars and any variables not provided below have a value of zero.
TABLE 34-1
Refer to Table 34-1.What is the capital account balance for Lalaland in 2015?

A)-$270 billion
B)-$90 billion
C)$0
D)$90 billion
E)$270 billion

Question 37

Consider Canada's balance of payments.If the Canadian government were to purchase more foreign-exchange reserves,this transaction

A)represents the sale of an asset,and thus enters as a credit item in the official financing account.
B)represents the purchase of an asset from abroad,and thus enters as a debit item in the capital-service account.
C)enters as a credit in the current account.
D)enters as a debit in the capital account.
E)enters as a credit in the capital account.

Question 38

Consider the balance-of-payments accounting information for Lalaland in 2015 as shown in the table below.All values are in billions of dollars and any variables not provided below have a value of zero.
TABLE 34-1
Refer to Table 34-1.What is the current account balance for Lalaland in 2015?

A)-$250 billion
B)-$90 billion
C)$0
D)$90 billion
E)$210 billion

Question 39

A country's balance of payments is sometimes incorrectly said to be "in surplus." This usually refers to a situation where

A)total credits exceed total debits.
B)the government is increasing its holding of foreign-currency reserves.
C)the official financing account is also in surplus.
D)the official financing accounts show a decrease in the stocks of official reserves.
E)credits exceed debits on the capital account only.

Question 40

A country's balance of payments is sometimes incorrectly said to be "in deficit." This statement often refers to a situation where

A)total debits exceed total credits.
B)the official financing account is in surplus.
C)the official financing account is also "in deficit."
D)the government is increasing its stock of foreign-exchange reserves.
E)debits exceed credits on the capital account only.

Question 41

A depreciation of the Canadian dollar implies

A)a fall in the external value of the dollar,such that fewer dollars are required to purchase foreign currency.
B)a fall in the external value of the dollar,such that more dollars are required to buy foreign currency.
C)a rise in the external value of the dollar,such that fewer dollars are required to purchase foreign currency.
D)a rise in the external value of the dollar,such that more dollars are required to purchase foreign currency.
E)a rise in the official reserves of foreign currency held by the Bank of Canada.

Question 42

The demand for Canadian dollars in the foreign-exchange market is derived from

A)exports from Canada + capital outflows from Canada.
B)exports from Canada + capital inflows to Canada.
C)imports to Canada + capital outflows from Canada.
D)imports to Canada + capital inflows to Canada.
E)the Canadian government's holding of official reserves.

Question 43

Imports into Canada,Canadians travelling outside of Canada,and capital flows out of Canada to purchase foreign assets all give rise to

A)a supply of Canadian currency on the foreign-exchange market.
B)a supply of foreign currency on the foreign-exchange market.
C)a higher value of the Canadian dollar.
D)an increase in foreign-exchange reserves in Canada.
E)an appreciation of the Canadian dollar.

Question 44

Other things being equal,an appreciation of the domestic currency tends to

A)discourage Canadians from travelling abroad.
B)encourage foreigners to travel to Canada.
C)have a positive effect on the domestic trade account.
D)encourage merchandise imports.
E)encourage merchandise exports.

Question 45

A Canadian traveling to the United States converts $100 Canadian into 95 U.S.dollars.One month later he does the same thing and receives 105 U.S.dollars.There are no transactions costs.The Canadian-U.S.exchange rate has ________ and the Canadian dollar has ________ relative to the U.S.dollar.

A)increased; depreciated
B)fallen; depreciated
C)increased; appreciated
D)fallen; appreciated
E)not changed; remained stationary

Question 46

To macroeconomists,"foreign exchange" refers to

A)the price at which purchases and sales of foreign goods take place.
B)the movement of goods and services from one country to another.
C)foreign currency or various claims on it.
D)the difference between exports and imports.
E)the actual transaction that occurs as currencies are traded.

Question 47

The supply of Canadian dollars to the foreign-exchange market,which is also the demand for foreign currency,is derived from

A)imports to Canada + capital inflows to Canada.
B)exports from Canada + capital outflows from Canada.
C)exports from Canada + capital inflows to Canada.
D)the Canadian government's holdings of official reserves.
E)imports to Canada + capital outflows from Canada.

Question 48

In 2014,Canada had a capital account surplus of nearly $31 billion.In the absence of any statistical discrepancy,this surplus would imply that during that year,
1)foreigners purchased net $31 billion of Canadian assets
2)Canada had a current account deficit
3)Canadians purchased net $31 billion of foreign assets

A)1 only
B)2 only
C)3 only
D)1 and 2
E)2 and 3

Question 49

If the exchange rate between British pounds sterling and the Canadian dollar is 1 pound = $2.80,then

A)one pound exchanges for 0.28 dollars.
B)one pound exchanges for 2.40 dollars.
C)one dollar exchanges for 0.280 pounds.
D)one dollar exchanges for 0.357 pounds.
E)one dollar exchanges for 1.40 pounds.

Question 50

Consider Canada's trade with the United States.Canadian exports to the U.S.,Americans travelling in Canada,and U.S.capital flows into Canada all give rise to

A)a supply of U.S.dollars on the foreign-exchange market.
B)a demand for U.S.dollars on the foreign-exchange market.
C)a lower value of the Canadian dollar.
D)a decrease in U.S.dollar reserves in Canada.
E)a depreciation of the Canadian dollar.

Question 51

Other things being equal,an appreciation of the domestic currency

A)lowers the domestic price of imported goods.
B)raises the domestic price of imported goods.
C)raises the world price of imported goods.
D)lowers the world price of imported goods.
E)lowers the value of our currency in a foreign country.

Question 52

A Canadian traveling to the United States converts $100 Canadian into 85 U.S.dollars.One month later he does the same thing and receives only 80 U.S.dollars.There are no transactions costs.The Canadian-U.S.exchange rate has ________ and the Canadian dollar has ________ relative to the U.S.dollar.

A)increased; depreciated
B)fallen; depreciated
C)increased; appreciated
D)fallen; appreciated
E)not changed; remained stationary

Question 53

A fall in the Canadian-dollar price of foreign currency is referred to as

A)a depreciation of the Canadian dollar.
B)an increase in the exchange rate.
C)a loss in the relative value of the Canadian dollar.
D)a fall in the external value of the Canadian dollar.
E)an appreciation of the Canadian dollar.

Question 54

The supply curve for Japanese yen on the foreign-exchange market is upward-sloping when plotted against the exchange rate (measured as the Canadian dollar price of one Japanese yen)because

A)when the dollar appreciates,Canadian goods are cheaper in Japan.
B)a depreciation of the dollar will cause the yen prices of Canadian goods to rise.
C)when the dollar depreciates,the price of Japanese exports to Canada decreases.
D)an appreciation of the dollar will cause the yen prices of Canadian exports to fall.
E)when the dollar depreciates,Canadian goods are cheaper in Japan,and more Canadian exports are therefore demanded.

Question 55

An American traveling to Canada converts U.S.$100 into $118 Canadian dollars.One month later he does the same thing and receives $125 Canadian dollars.There are no transactions costs.The Canadian-U.S.exchange rate has

A)risen.
B)fallen.
C)neither risen nor fallen.
D)either risen or fallen; more information is required to determine the direction of movement with certainty.

Question 56

An appreciation of the Canadian dollar implies

A)a fall in the external value of the dollar,such that fewer dollars are required to purchase foreign currency.
B)a fall in the external value of the dollar,such that more dollars are required to buy foreign currency.
C)a rise in the external value of the dollar,such that fewer dollars are required to purchase foreign currency.
D)a rise in the external value of the dollar,such that more dollars are required to purchase foreign currency.
E)is shown only by changes in the official reserves of the Bank of Canada and does not influence the exchange rate.

Question 57

A rise in the Canadian-dollar price of foreign currency is referred to as

A)an appreciation of the Canadian dollar.
B)a depreciation of the Canadian dollar.
C)a decrease in the exchange rate.
D)a gain in the relative value of the Canadian dollar.
E)a rise in the external value of the Canadian dollar.

Question 58

For Canada,the term "exchange rate," as used by most economists,refers to

A)the price at which purchases and sales of foreign goods take place in Canada.
B)Canadian exports minus imports.
C)the price of foreign currency in terms of Canadian dollars.
D)the ratio of Canadian exports to imports.
E)dividends from foreign sources minus interest paid by residents to non-residents.

Question 59

Other things being equal,a depreciation of the domestic currency tends to

A)encourage merchandise imports.
B)discourage foreigners from travelling to Canada.
C)encourage Canadians to travel abroad.
D)have a negative effect on the domestic trade account.
E)encourage merchandise exports.

Question 60

Suppose there are only two countries in the world,countries A and B.If the currency of country A appreciates,the currency of country B

A)can appreciate relative to other countries.
B)must appreciate.
C)may appreciate or depreciate,depending on the elasticity of demand for the exports of country A.
D)must depreciate.
E)may appreciate or depreciate,depending on the volume of trade between the two countries.

Question 61

In a competitive foreign-exchange market between the dollar and the British pound,a price of pounds (in terms of dollars)above the free-market equilibrium would

A)result in the quantity of pounds demanded being greater than the quantity supplied.
B)indicate that some people who wish to purchase pounds will not be able to do so at the current exchange rate.
C)lead to an appreciation of the dollar.
D)result in the quantity of dollars supplied being greater than the quantity demanded.
E)lead to a depreciation of the dollar.

Question 62

Suppose that in Canada we experience a rise in the Canadian dollar price of foreign exchange.In this circumstance,the dollar will have ________ and the exchange rate will have ________.

A)depreciated; fallen
B)depreciated; risen
C)appreciated; fallen
D)appreciated; risen
E)appreciated; depreciated

Question 63

FIGURE 34-2
Refer to Figure 34-2.If the exchange rate is e₁,there is

A)an excess demand for foreign exchange.
B)pressure for the Canadian dollar to depreciate.
C)pressure for the exchange rate to rise.
D)an excess supply of foreign exchange.
E)a surplus of Canadian dollars.

Question 64

FIGURE 34-1
Refer to Figure 34-1.A fall in the exchange rate (moving down the vertical axis)indicates

A)that more dollars are needed to purchase one euro.
B)that fewer euros are required to purchase one Canadian dollar.
C)an appreciation of the Canadian dollar.
D)a depreciation of the Canadian dollar.
E)no effect on the value of the currency.

Question 65

Suppose a Canadian grocery chain imports one million kilograms of cheese from a Swiss exporter.Ceteris paribus,the effect is to

A)decrease the number of Canadian dollars needed to buy one Swiss franc.
B)increase the number of Swiss francs needed to buy one Canadian dollar.
C)increase the demand for Swiss francs in the foreign-exchange market.
D)increase the supply of Swiss francs in the foreign-exchange market.
E)increase the demand for Canadian dollars in the foreign-exchange market.

Question 66

Other things being equal,if the Canadian dollar appreciates,there will be a ________ in the demand for foreign imports,and the number of dollars offered in the foreign-exchange market will ________.

A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
E)fall; remain constant

Question 67

FIGURE 34-1
Refer to Figure 34-1.A rise in the exchange rate (moving up the vertical axis)indicates

A)that fewer dollars are needed to purchase one euro.
B)that more euros are required to purchase one Canadian dollar.
C)an appreciation of the Canadian dollar.
D)a depreciation of the Canadian dollar.
E)no effect on the value of the currency.

Question 68

In a competitive foreign-exchange market between the Canadian dollar and the British pound,a price of pounds (in terms of dollars)below the free-market equilibrium would

A)result in the quantity of pounds supplied being greater than the quantity demanded.
B)indicate that all people who wish to purchase pounds will be able to do so at the current exchange rate.
C)lead to an appreciation of the dollar.
D)result in a sustained shortage of pounds.
E)lead to a depreciation of the dollar.

Question 69

FIGURE 34-2
Refer to Figure 34-2.If the exchange rate is e₁,there is

A)a shortage of foreign exchange.
B)a surplus of Canadian dollars.
C)pressure on the Canadian dollar to depreciate.
D)pressure on the exchange rate to rise.
E)a shortage of Canadian dollars.

Question 70

Consider the market in which Canadian dollars are exchanged for British pounds.An increased preference of British consumers for Canadian goods would

A)shift the supply-of-pounds curve to the left and lead to a rise in the exchange rate.
B)shift the demand-for-pounds curve to the right and lead to a rise in the exchange rate.
C)shift the supply-of-pounds curve to the right and lead to a fall in the exchange rate.
D)shift the demand-for-pounds curve to the left and lead to a fall in the exchange rate.
E)lead to a temporary excess demand for British pounds on the international currency market.

Question 71

FIGURE 34-1
Refer to Figure 34-1.A fall in the exchange rate (moving down the vertical axis)indicates

A)a depreciation of the Canadian dollar.
B)that more dollars are needed to purchase one euro.
C)that fewer dollars are needed to purchase one euro.
D)that fewer euros are required to purchase one Canadian dollar.
E)no effect on the value of the currency.

Question 72

FIGURE 34-2
Refer to Figure 34-2.If the exchange rate is e₂,there is

A)an excess supply of foreign exchange.
B)pressure for the Canadian dollar to appreciate.
C)pressure for the exchange rate to fall.
D)a shortage of Canadian dollars.
E)an excess demand for foreign exchange.

Question 73

FIGURE 34-2
Refer to Figure 34-2.If the exchange rate is e₂,there is

A)an excess demand for Canadian dollars.
B)pressure for the Canadian dollar to appreciate.
C)pressure for the exchange rate to fall.
D)pressure for the Canadian dollar to depreciate.
E)a surplus of foreign exchange.

Question 74

The supply of Canadian dollars to the foreign-exchange market,which is also the demand for foreign currency,will increase if

A)tourism to Canada increases.
B)foreign demand for Canadian goods increases.
C)imports into Canada increase.
D)Canadian interest rates are high.
E)Canadian inflation rates are low.

Question 75

Consider the market in which Canadian dollars are exchanged for British pounds.An increased preference of Canadian consumers for British goods would

A)shift the supply-of-pounds curve to the left and lead to a rise in the exchange rate.
B)shift the demand-for-pounds curve to the right and lead to a rise in the exchange rate.
C)shift the supply-of-pounds curve to the right and lead to a fall in the exchange rate.
D)shift the demand-for-pounds curve to the left and lead to a fall in the exchange rate.
E)lead to a temporary excess supply of British pounds on the international currency market.

Question 76

If Canadian demand for French wine increases,the supply of Canadian dollars to the foreign-exchange market will ________ and the demand for euros will therefore ________.

A)decrease; decrease
B)decrease; increase
C)increase; decrease
D)increase; increase
E)increase; remain the same

Question 77

Suppose that in Canada we experience a fall in the Canadian dollar price of foreign exchange.In this circumstance,the dollar will have ________ and the exchange rate will have ________.

A)depreciated; fallen
B)depreciated; risen
C)appreciated; fallen
D)appreciated; risen
E)appreciated; remained the same

Question 78

Consider the market in which Canadian dollars are exchanged for Chinese yuan (the Chinese currency).An increase in Chinese demand for Canadian resources would

A)shift the supply-of-yuan curve to the right and lead to an appreciation of the Canadian dollar.
B)shift the supply-of-yuan curve to the left and lead to an appreciation of the Canadian dollar.
C)shift the demand-for-yuan curve to the right and lead to a depreciation of the Canadian dollar.
D)shift the demand-for-yuan curve to the left and lead to an appreciation of the Canadian dollar.
E)have no effect on the foreign-exchange market.

Question 79

FIGURE 34-1
Refer to Figure 34-1.A rise in the exchange rate (moving up the vertical axis)indicates

A)an appreciation of the Canadian dollar.
B)that more dollars are needed to purchase one euro.
C)that fewer dollars are needed to purchase one euro.
D)that more euros are required to purchase one Canadian dollar.
E)no effect on the value of the currency.

Question 80

FIGURE 34-2
Refer to Figure 34-2.If the exchange rate is e₁,there is

A)an excess demand for foreign exchange.
B)pressure for the Canadian dollar to appreciate.
C)pressure for the exchange rate to rise.
D)an excess supply of Canadian dollars.
E)a surplus of Canadian dollars.