Deck 11: Exchange Rates and the Balance of Payments

Question 1

All of the following,except one,are implications of the purchasing power parity theory.Which is the exception?

A)The relative prices of products in different countries should be the same.
B)Exchange rates will adjust to ensure that the cost of living in one country is the same as that in another.
C)Inflation should lead to the depreciation of that country's currency.
D)One hour's labour,of a given quality,should pay the same (though in different currencies)in all countries.
E)The currencies of different countries should be at par.

Answer 1

The currencies of different countries should be at par.

Question 2

Suppose that the price of a ton of coal in France is 1,000 euros while it is $200 in Canada.If the purchasing power parity theory holds true,what would you expect the exchange rate to be?

A)$1 Canadian =.2 euros.
B)$1 Canadian =.5 euros.
C)$1 Canadian = 5 euros.
D)$1 Canadian = 2 euros.

Answer 2

$1 Canadian = 5 euros.

Question 3

Which of the following will generate a demand for Canadian dollars in the foreign exchange market?

A)Travel abroad by Canadians.
B)The purchase by Canadians of French stocks and bonds.
C)The import of goods into Canada.
D)The receipt by Canadians of interest payments on American bonds.
E)The receipt by foreigners of interest payments on Canadian bonds.

Answer 3

The receipt by Canadians of interest payments on American bonds.

Question 4

Graphically,what will an appreciation of the Canadian dollar cause?

A)The demand for dollars to shift left.
B)The demand for dollars to shift right.
C)The supply of dollars to shift left.
D)The supply of dollars to shift right.
E)An increase in the quantity of Canadian dollars sold.

Question 5

Which of the following is true of the Canadian dollar,in terms of the U.S.dollar?

A)It has never been above par.
B)It has never been below $0.75.
C)It has always been overvalued.
D)It has been at par.

Question 6

If,in the long run,the purchasing power parity theory held true for two countries,what would we expect of the exchange rate for each of these two countries?

A)They would be proportionate to the relative price levels in the two countries.
B)They would be at par.
C)They would be unpredictable given the information provided.
D)They would be gradually decrease.

Question 7

What is the result of the exchange rate changing so that fewer French francs are needed to buy a Canadian dollar?

A)Canadians will buy more French goods and services.
B)French will buy fewer Canadian goods and services.
C)Canadians will buy fewer French goods and services.
D)The Canadian dollar has appreciated in value.
E)The French franc has depreciated in value.

Question 8

What is the effect of an appreciation of the Canadian dollar?

A)It increases the effective prices of both Canadian imports and exports.
B)It decreases the effective prices of both Canadian imports and exports.
C)It decreases the effective prices of Canadian goods to foreigners,but increases the prices of foreign goods to Canadians.
D)It increases the effective prices of Canadians goods to foreigners,but decreases the prices of foreign goods to Canadians.

Question 9

Which of the following groups has a demand for Canadian dollars?

A)American tourists visiting Mexico.
B)Canadians who receive dividends from American corporations.
C)Canadian supermarkets that buy Washington state apples.
D)Americans who receive interest on their holdings of Canadian savings bonds.
E)International speculators who think that the Canadian dollar will soon depreciate.

Question 10

If the exchange rate between the Canadian dollar and the Mexican peso is $1 per 10 pesos,then what is the price of 1 peso in Canadian terms?

A)$0.01.
B)$0.1.
C)$10.
D)$0.001.
E)$100.

Question 11

What will depreciation of the Hong Kong dollar do?

A)Make Hong Kong exports cheaper,but its imports more expensive.
B)Make Hong Kong exports more expensive,but its imports cheaper.
C)Make Hong Kong's exports and imports both less expensive.
D)Make Hong Kong exports and imports both more expensive.
E)Will lead to a balance of payments surplus for Hong Kong.

Question 12

All of the following except one explain why the purchasing power theory does not hold in the real world.Which is the exception?

A)Most personal services cannot be traded between countries.
B)There are costs of transportation involved in international trading,and differences in these costs may persist.
C)Some products are more expensive to produce in one country than in another.
D)Tariffs and quotas alter the prices of products and affect the free trading of products.
E)Consumers in different countries sometimes have different preferences.

Question 13

If the price of a Canadian dollar becomes more expensive to Mexicans,then what has happened?

A)The Mexican peso has appreciated.
B)The price of a Mexican peso to Canadians has also increased.
C)The Canadian dollar has depreciated.
D)The Mexican peso has depreciated.

Question 14

Refer to the graph above to answer this question.If the American dollar was fixed at a value of OB Canadian dollars and the demand was to drop from D1 to D2,then which of the following would be true?

A)There would be a balance of payments surplus with Canada of HJ.
B)There would be a balance of payments surplus with Canada of FG.
C)The exchange rate would fall from OB to OA.
D)There would be a balance of payments deficit with Canada of FG.
E)The Canadian dollar would depreciate until the demand and supply of the American dollar was again equal.

Question 15

If a French importer can buy 8 Swiss francs for 10 euros,then what is the rate of exchange?

A)1 euro = 1.2 Swiss francs.
B)1 euro = 0.8 Swiss francs.
C)1 euro = 1.25 Swiss francs.
D)1 Swiss franc = 1.20 French francs.

Question 16

If the exchange rate changes so that fewer Canadian dollars are needed to buy a British pound sterling,what results?

A)The pound has appreciated in value.
B)More dollars will be needed to buy the same quantity of British goods.
C)Fewer pounds will be needed to buy the same quantity of Canadian goods.
D)The dollar has depreciated in value.
E)Fewer dollars will be needed to buy the same quantity of British goods.

Question 17

If the Canadian dollar appreciates which of the following is true?

A)Canadian interest rates must have recently fallen.
B)The effective price of Canadian exports increases.
C)Total exports from Canada are likely to rise
D)Canadian importers are hurt.

Question 18

If the Canadian dollar appreciates relative to the Swiss franc,then all of the following statements except one are true regarding the Swiss franc.Which is the exception?

A)The franc will be less expensive to Canadians.
B)The franc will depreciate against the dollar.
C)The franc may remain unchanged against the pound sterling.
D)The franc will appreciate against the dollar.
E)The franc will buy fewer Canadian dollars.

Question 19

Refer to the graph above to answer this question.Suppose that the demand for the American dollar shifts from D1 to D2.What might be the reason for this shift?

A)The Canadian dollar has depreciated.
B)The prices of Canadian goods and services have increased relative to American prices.
C)The prices of American goods and services have increased relative to Canadian prices.
D)The Canadian economy has entered a boom period.
E)Interest rates in the USA have decreased relative to Canadian rates.

Question 20

Advocates of flexible exchange rates argue all of the following except one.Which is the exception?

A)A country with flexible exchange rates cannot have a balance of payments deficit nor suffer its consequences.
B)The problems of inflation and unemployment can be addressed by a country without concerning itself with external disruptions.
C)World trade will be greater with flexible exchange rates because international prices will more accurately reflect market conditions.
D)Fixed exchange rates often distort the patterns of output and trade.
E)Flexible exchange rates automatically produce balance of payments surpluses which can be used,for instance,to pay off the national debt.

Question 21

Assume that France and Britain have flexible exchange rates.If incomes increase by more in Britain than in France,what could we expect?

A)That the euro will depreciate.
B)That the pound will appreciate.
C)That the pound will depreciate.
D)That foreign reserves of France will fall.
E)That foreign reserves of Britain will fall.

Question 22

What does the quantity supplied of Canadian dollars equal?

A)The quantity demanded of foreign currencies by foreigners.
B)The quantity demanded of foreign currencies by Canadians.
C)The quantity supplied of foreign currencies by Canadians.
D)The quantity supplied of foreign currencies by foreigners.

Question 23

Refer to the graph above to answer this question.Under a system of flexible exchange rates,what will the shift in demand from D1 to D2 do?

A)Cause Canadian exports to decline and its imports to rise.
B)Cause the Canadian dollar to depreciate.
C)Cause the franc to depreciate.
D)Cause the Canadian dollar to appreciate.
E)Cause a balance of payments deficit in Switzerland.

Question 24

Assume that Canada and Britain have flexible exchange rates.If the price level is stable in Canada,but Britain experiences rapid inflation,what could we expect?

A)That the dollar would depreciate.
B)That the pound will appreciate.
C)That the pound will depreciate.
D)That foreign reserves of Canada will fall.
E)That foreign reserves of Britain will fall.

Question 25

Refer to the graph above to answer this question.Assume that the demand for the U.S.dollar was to shift from D1 to D2 and that exchange rates were flexible.What would result?

A)The value of the U.S.dollar in Canadian terms would increase to OC.
B)A problem of rationing a shortage of U.S.dollars would arise in Canada.
C)The value of the Canadian dollar in U.S.terms would rise from 1/OB U.S.dollars equals Can $1,to 1/OA U.S.dollars equals Can $1.
D)The demand for the Canadian dollar would fall by a similar amount.

Question 26

When will the supply of Canadian dollars on world markets increase?

A)When Canadians travel abroad.
B)When an American corporation invests in Canada.
C)When a Canadian resident receives interest payments on a foreign investment.
D)When a Canadian exporter sells products abroad.
E)When a retired American,living on Prince Edward Island,receives a pension cheque from the U.S.

Question 27

Suppose that the American economy goes into a severe recession.Under a flexible exchange rate system,what can we expect?

A)That the demand for the Canadian dollar would increase,leading to an appreciation of the Canadian dollar.
B)That the demand for the Canadian dollar would decrease,leading to a depreciation of the Canadian dollar.
C)That the supply of the Canadian dollar would increase,leading to an appreciation of the Canadian dollar.
D)That the supply of the Canadian dollar would decrease,leading to a depreciation of the Canadian dollar.
E)That the supply of the Canadian dollar would increase,leading to a depreciation of the Canadian dollar.

Question 28

By what method may a government be able to increase the value of its country's currency?

A)By buying its own currency.
B)By buying foreign currencies.
C)By selling its own currencies.
D)By decreasing its rate of interest.
E)By imposing an export tax.

Question 29

Refer to the graph above to answer this question.Given a change in demand from D1 to D2,how could Switzerland maintain the value of francs in Canadian terms?

A)By shifting the S curve to the right by imposing tariffs on Canadian imports.
B)By instituting exchange controls to ration Eg francs to Canadian importers who want Ec francs.
C)By using international monetary reserves to cover the Ec shortage of francs.
D)By using international monetary reserves to cover the cg shortage of francs.
E)By imposing exchange controls on Swiss citizens.

Question 30

Consider the economies of Canada and Japan.Under a system of flexible exchange rates,what would be the result of an increase in Canadian interest rates?

A)The Japanese government would ration dollars to Japanese investors.
B)Japanese interest rates would fall.
C)The price of dollars would increase.
D)The price of yen would increase.
E)The yen would appreciate.

Question 31

All of the following,except one,will be the result of an increase in the demand for the Canadian dollar on the foreign exchange markets.Which is the exception?

A)It will cause the dollar to appreciate.
B)It could have been caused by an increase in the supply of dollars.
C)It could have been caused by Canadian inflation rates being higher than those in other countries.
D)It could have been caused by Canadian interest rates being lower than those in other countries.

Question 32

Which of the following statements is correct?

A)When the Canadian dollar appreciates,the effective price of Canadian imports decreases and total imports are likely to fall.
B)When the Canadian dollar appreciates,the effective price of Canadian imports decreases and total imports are likely to rise.
C)When the Canadian dollar depreciates,the effective price of Canadian imports increases and total imports are likely to rise.
D)When the Canadian dollar depreciates,the effective price of Canadian imports decreases and total imports are likely to rise.

Question 33

The following table shows the price,in Canadian dollars,of utops,the currency used in the hypothetical economy of Utopia.Assume that a system of flexible exchange rates is in place.

Refer to the information above to answer this question.Suppose that Utopia decided to import more products from Canada.What would we expect?

A)That the demand for utops would rise and the dollar would appreciate
B)That the demand for utops would fall and the dollar would depreciate.
C)That the supply of utops would rise and the dollar would appreciate.
D)That the supply of utops would fall and the dollar would depreciate.

Question 34

Refer to the graph above to answer this question.What might cause a shift of the demand curve from D1 to D2?

A)An increase in interest rates in Canada.
B)An increase in Swiss prices relative to Canadian prices.
C)A recession in Canada.
D)An increase in interest rates in Switzerland.

Question 35

The supply of Canadian dollars on foreign exchange markets will increase in all of the following cases except one.Which is the exception?

A)Imports into Canada rise.
B)Canadian businesses send money abroad in search of higher returns.
C)Canadian businesses pay dividends to foreigners.
D)Fewer Canadians travel abroad.

Question 36

Suppose that,under a system of flexible exchange rates,Mexicans decide to increase their investments in Canada.What will result?

A)Interest rates in Canada will fall.
B)Mexicans will want to buy more Canadian products at the new exchange rate.
C)The peso and the Canadian dollar will both appreciate in value.
D)The peso will depreciate and the Canadian dollar will appreciate in value.
E)The peso will appreciate and the Canadian dollar will depreciate in value.

Question 37

How could one describe the international demand for the Canadian dollar?

A)It is downward-sloping because a higher price of the dollar means that Canadian goods are cheaper to foreigners.
B)It is downward-sloping because a higher price of the dollar means that Canadian goods are more expensive to foreigners.
C)It is upward-sloping because a lower price of the dollar means that Canadian goods are cheaper to foreigners.
D)It is downward-sloping because a lower price of the dollar means that Canadian goods are more expensive to foreigners.
E)It is upward-sloping because a lower price of the dollar means that Canadian goods are more expensive to foreigners.

Question 38

The following table shows the price,in Canadian dollars,of utops,the currency used in the hypothetical economy of Utopia.Assume that a system of flexible exchange rates is in place.

Refer to the information above to answer this question.What is the equilibrium exchange rate?

A)1 utop for one dollar.
B)2 utops for one dollar.
C)0.50 Canadian dollars for one utop.
D)2 Canadian dollars for one utop.

Question 39

Refer to the graph above to answer this question.If the fixed exchange rate is fixed at OE,what will be the result of the shift in demand from D1 to D2?

A)An increase in Canada's stocks of international monetary reserves.
B)A Swiss balance of payments deficit.
C)A Canadian balance of payments deficit.
D)A Canadian balance of payments surplus.
E)The Canadian dollar to depreciate.

Question 40

The following table shows the price,in Canadian dollars,of utops,the currency used in the hypothetical economy of Utopia.Assume that a system of flexible exchange rates is in place.

Refer to the information above to answer this question.What is the equilibrium rate of exchange of the utop?

A)$1.
B)$2.
C)$3.
D)$4.
E)$5.

Question 41

Which of the following is one of the indicators of a rising balance of payments deficit?

A)An appreciation of that country's currency.
B)An excess of exports over imports.
C)The amount of that country's foreign reserves starts to fall.
D)A decrease in the amount of that country's currency held by other nations.

Question 42

Assuming a fixed exchange rate system,which of the following would contribute to a Canadian balance of payments surplus?

A)The USA increases the tariff on Canadian softwood lumber.
B)The popularity of Mexican tequila in Canada increases dramatically.
C)Canada increases its investment in Mexican oil fields.
D)Canada increases the number of military personal stationed abroad.
E)The number of Japanese tourists visiting Canada increases greatly.

Question 43

An increase in the supply of the Canadian dollar will have what effect?

A)The exchange rate will fall and the quantity of dollars traded will fall.
B)The exchange rate will fall and the quantity of dollars traded will rise.
C)The exchange rate will rise and the quantity of dollars traded will fall.
D)The exchange rate will rise and the quantity of dollars traded will rise.

Question 44

Which of the following are ways that a government can defend an overvalued exchange rate?

A)Introducing quotas or tariffs.
B)Introducing foreign exchange controls.
C)Negotiating voluntary export restrictions.
D)Creating a recession at home.
E)Introducing quotas or tariffs,introducing foreign exchange controls,negotiating voluntary export restrictions,and creating a recession at home.

Question 45

Assume that Canada and France have flexible exchange rates.If Canada institutes an easy money policy,what can we expect?

A)That financial investment in Canada will become more attractive,leading to the appreciation of the dollar.
B)That financial investment in Canada will become more attractive,leading to the depreciation of the dollar.
C)That financial investment in Canada will become less attractive,leading to the appreciation of the dollar.
D)That financial investment in Canada will become less attractive,leading to the depreciation of the dollar.

Question 46

If the Swiss franc appreciates in terms of the U.S.dollar,what follows?

A)The U.S.dollar will depreciate in terms of the Swiss franc.
B)Swiss exports to the U.S.will increase.
C)The Canadian dollar is worth less than it was in terms of Swiss francs.
D)US exports to Switzerland will decrease.
E)The U.S.dollar will depreciate in terms of the Swiss franc and Swiss exports to the U.S.will increase.

Question 47

This graph is for the Canadian economy.

All of the following,except one,could have caused the increase in aggregate demand from AD1 to AD2.Which is the exception?

A)An increase in U.S.income received by Canadians.
B)A lower Canadian dollar exchange rate.
C)An increase in the number of American tourists in Canada.
D)More American direct investment in Canada.
E)Less American portfolio investment in Canada.

Question 48

All of the following,except one,are determinants of the international demand for a nation's currency.Which is the exception?

A)The level of foreign incomes.
B)The price of its products relative to the price of foreign products.
C)The level of its GDP.
D)Foreigner's preferences.
E)The level of its interest rates relative to foreign interest rates.

Question 49

In May of 1970,Canadian authorities abandoned their fixed exchange rate policy which had,for many years,fixed the Canadian dollar at $0.925 U.S.Within a few weeks the freely floating rate was around $0.95.Based on this information what can be deduced?

A)Canada probably had a large balance of payments deficit prior to the change.
B)Canada previously had an under-valued currency.
C)Canadians significantly decreased their rate of cross-border shopping.
D)Canada probably had a current account surplus.

Question 50

Advocates of the fixed exchange rate system argue all of the following except one.Which is the exception?

A)Fixed exchange rates are not vulnerable to the actions of speculators.
B)Fixed exchange rates introduced greater future certainty into trading which will increase the volume of international trade.
C)Fixed exchange rates are able to adjust rapidly so as to attract foreign investment.
D)With fixed exchange rates,export and import industries do not suffer severe and unpredictable fluctuations in business.
E)The certainty that comes from fixed exchange rates increases the volume of international investment.

Question 51

Which of the following will result from an increase in the U.S.GDP?

A)Canadian exports would rise.
B)Both Canadian exports and imports would rise.
C)Canadian exports would rise,and imports would decrease.
D)Canadian exports would decrease,and imports would rise.
E)Canadian imports would rise.

Question 52

Which of the following creates a supply of Japanese yen in foreign exchange markets?

A)A Japanese tourist takes a trip to the Canadian Rockies.
B)A Canadian student purchases a new Japanese car.
C)A Canadian goes on a business trip to Japan.
D)A Japanese investor receives dividends on some Canadian stock.
E)A Japanese company sells an insurance policy to a Canadian citizen.

Question 53

Which of the following could explain the change in aggregate demand from AD1 to AD2?

A)The relative price level of Canadian goods rose faster than that of American goods.
B)The inflation rate in Canada decreased while that in the US increased.
C)Interest rates in Canada decreased while those in the US increased.
D)The US economy went into a recession.

Question 54

If there is a surplus of Canadian dollars on the foreign exchange market,which of the following statements is true?

A)The Canadian dollar is over-valued.
B)The Canadian dollar is under-valued.
C)Canada must be on a flexible exchange rate system.
D)Demand for the currency could have recently fallen.
E)a)and d).

Question 55

What effect will an increase in the demand for the Canadian dollar have?

A)The exchange rate will fall and the quantity of dollars traded will fall.
B)The exchange rate will fall and the quantity of dollars traded will rise.
C)The exchange rate will rise and the quantity of dollars traded will fall.
D)The exchange rate will rise and the quantity of dollars traded will rise.

Question 56

Which of the following is true of a currency devaluation?

A)It refers to the value of a currency increasing.
B)It refers to a fixed exchange rate being lowered.
C)It is not possible now that the gold standard has been abandoned.
D)It is something governments aspire to but seldom achieve.

Question 57

What could have caused the increase in aggregate demand from AD1 to AD2?

A)Inflation rates in the US which are lower than those in Canada.
B)A higher Canadian dollar exchange rate.
C)A decrease in the number of American tourists in Canada.
D)Less American direct investment in Canada.
E)An economic expansion in the United States.

Question 58

If,in a system of fixed exchange rates,the value of the Canadian dollar,as measured in British pounds,is above the equilibrium level,which of the following would happen?

A)Canada will have a balance of trade surplus.
B)There will be an inflow of foreign currencies into Canada.
C)The Canadian dollar will depreciate.
D)There will be a shortage of foreign currencies in Canada.
E)The Bank of Canada will be forced to ration Canadian dollars to foreign importers.

Question 59

Which of the following is an argument in favour of fixed exchange rates?

A)They add a degree of certainty to international trade.
B)They prevent instability in the export and import industries.
C)They discourage currency speculation.
D)They appeal to people who tend to equate the exchange rate with national prestige.
E)They enhance the effectiveness of monetary policy.

Question 60

Suppose a country has a balance on its current account of negative $10 billion,while the balance on its capital account is a positive $4 billion.What can we conclude?

A)That the country has a surplus on its balance of trade.
B)That the country has a deficit on its balance of trade.
C)That its reserves of foreign currencies are falling.
D)That the country has a balance of payments surplus.
E)That the country has a balance of payments of zero.

Question 61

Table 11.6 contains hypothetical data for Canada's balance of payments accounts for a particular year.(Figures are in $ billions. )

Refer to Table 11.6 to answer this question.What is Canada's capital account balance?

A)A deficit of $10 billion.
B)A surplus of $10 billion.
C)A surplus of $5 billion.
D)A surplus of $30 billion.

Question 62

Until the last few years,the trade in goods and services has usually produced:

A)A positive balance of trade.
B)A net outflow of foreign investment funds.
C)A positive balance on its current account.
D)A net inflow of foreign currencies.
E)A negative balance on its capital account.

Question 63

If the Canadian dollar appreciates in value against the Mexican peso,what happens to the value of the Mexican peso against the dollar?

A)It appreciates.
B)It depreciates.
C)It might appreciate or depreciate.
D)It remains unchanged.

Question 64

Which of the following would result from an increase in Canada's GDP?

A)Canadian exports would rise and the Canadian dollar would depreciate.
B)Both Canadian exports and imports would rise and there would be no change in the value of the Canadian dollar.
C)Canadian exports would rise,but imports would decrease and there would be no change in the value of the Canadian dollar.
D)Canadian imports would rise and the Canadian dollar would depreciate.

Question 65

Table 11.6 contains hypothetical data for Canada's balance of payments accounts for a particular year.(Figures are in $ billions. )

Refer to Table 10.3 to answer this question.What is Canada's current account balance?

A)A surplus of $10 billion.
B)A surplus of $15 billion.
C)A deficit of $10 billion.
D)A deficit of $20 billion.

Question 66

Table 11.6 contains hypothetical data for Canada's balance of payments accounts for a particular year.(Figures are in $ billions. )

Refer to Table 11.6 to answer this question.What is Canada's balance of trade?

A)A surplus of $150 billion.
B)A surplus of $5 billion.
C)A deficit of $15 billion.
D)A deficit of $10 billion.

Question 67

The following table contains hypothetical data for Canada's balance of payments in a particular year.

Refer to the information above to answer this question.As a result of international financial transactions summarized in Canada's balance of payments,which of the following is true?

A)There was an increase in Canada's foreign reserves.
B)There was a decrease in Canada's foreign reserves.
C)There was no change in Canada's foreign reserves.
D)The demand for Canadian dollars exceeded the supply.
E)The supply of foreign currencies exceeded the demand.

Question 68

What is arbitrage?

A)The cost of shipping and insuring exported goods.
B)The buying of a currency at one price and its immediate sale at another price.
C)The cost of holding goods whose price is expected to increase in the future.
D)Speculation on the future price of a currency.

Question 69

What is the theory of purchasing power parity?

A)A theory suggesting that exchange rates will change so as to equate the purchasing power of each currency.
B)A theory suggesting that exchange rates tend to diverge over time.
C)A theory suggesting that all currencies will be,in time,at par.
D)A formula used to calculate the exchange rate of one currency for another.

Question 70

If a country is suffering perennial balance of payments deficits,all except one of the following will help solve the problem.Which is the exception?

A)The introduction of exchange controls to restrict the outflow of foreign currencies.
B)The introduction of quotas on imported goods.
C)An increase in interest rates.
D)The reduction in tariffs on imported goods.
E)An increase in subsidies to exporting industries.

Question 71

The following table contains hypothetical data for Canada's balance of payments in a particular year.

Refer to the information above to answer this question.What is Canada's balance on its current account?

A)A surplus of $10 billion.
B)A deficit of $10 billion.
C)A surplus of $15 billion.
D)A surplus of $20 billion.
E)A deficit of $20 billion.

Question 72

The following table contains hypothetical data for Canada's balance of payments in a particular year.

Refer to the information above to answer this question.What is the state of Canada's balance of payments (balance of current and capital accounts)?

A)There is a deficit of $10 billion.
B)There is a surplus of $10 billion.
C)There is a surplus of $20 billion.
D)There is a deficit of $20 billion.
E)There is neither a deficit nor a surplus.

Question 73

An American resident who receives interest on the Canadian savings bond she holds will be demanding what currency?

A)Canadian dollars.
B)U.S.dollars.
C)Euros.
D)British pounds.

Question 74

If Canada and the United Kingdom are both on flexible exchange-rate systems,what would happen if the United Kingdom experiences rapid inflation,while prices remain steady in Canada?

A)The Canadian dollar will depreciate.
B)The British pound will depreciate.
C)The British pound will appreciate.
D)The exchange rate will not change.

Question 75

The following table contains hypothetical data for Canada's balance of payments in a particular year.

Refer to the information above to answer this question.Which of the following reflects the state of Canada's capital account?

A)It has a deficit of $10 billion.
B)It has a deficit of $20 billion.
C)It has a surplus of $5 billion.
D)It has a surplus of $30 billion.

Question 76

All of the following groups except one demand Canadian dollars.Which is the exception?

A)An American tourist visiting Canada.
B)Canadians who received dividends from American corporations.
C)Texans who purchase Alberta beef.
D)Americans who receive interest on their holdings of Canadian savings bonds.
E)International speculators who think that the Canadian dollar will soon appreciate.

Question 77

If a nation's exports are $100 billion,its imports are $110 billion,the net foreign investment income is minus $10 billion and net transfers are plus $5 billion,then what can we deduce?

A)That its balance of trade is +$10 billion.
B)That its current account balance is +$15 billion.
C)That its net exports are +$10 billion.
D)That its balance of current and capital accounts are -$15 billion.
E)That its current account balance is -$15 billion.

Question 78

What is the value of the euro in terms of dollars if a French importer can buy 8 dollars for 10 euros?

A)$1.25.
B)$0.8.
C)$80.
D)$2.

Question 79

What does a managed (or dirty)float mean?

A)That a country's currency is fixed to the price of gold.
B)That a country's currency is fixed to the value of the U.S.dollar.
C)That a country's balance of payments is persistently in deficit.
D)That the country's central bank fixes the value of its currency.
E)That a country's central bank buys and sells currencies in order to smooth out short-run fluctuations in its own currency.

Question 80

Which of the following would increase the supply of Canadian dollars on the international money market?

A)Canadians traveling abroad.
B)An American corporation investing in Canada.
C)A Canadian resident receiving interest payments on a foreign bond.
D)A Canadian exporter selling products abroad.
E)A retired American,living on Vancouver Island,receiving a pension cheque from U.S.Social Security.