Deck 20: International Finance

Question 1

The trade balance is

A) the services balance plus the current account balance plus the capital account balance
B) merchandise exports minus merchandise imports
C) the current account balance plus the capital account balance
D) foreign purchases of domestic assets minus domestic purchases of foreign assets
E) the services balance plus the capital account balance

Answer 1

B

Question 2

The merchandise trade balance measures

A) the value of goods and services exported
B) the value of all goods and services exported minus the value of all goods and services imported
C) the value of all goods and services exported minus the value of all goods and services imported, and transactions to finance the difference
D) the value of all tangible products exported minus the value of all tangible products imported
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference

Answer 2

D

Question 3

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

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

Answer 3

A

Question 4

A nation has an unfavorable balance of trade when

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

Question 5

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

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

Question 6

The balance of payments summarizes the transactions that occur during a given time period between

A) the government of one country and the government of another country
B) the national government and local governments in the same country
C) individuals, firms, and government of one country and individuals, firms, and governments throughout the rest of the world
D) individuals, firms, and governments of two countries
E) non-government residents (individuals and firms) of two countries

Question 7

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

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

Question 8

The merchandise trade balance

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

Question 9

In the United States, imports have exceeded exports in every year since 1960.

Question 10

In 2009, the United States largest balance of trade deficit was with

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

Question 11

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

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

Question 12

The balance of payments can be thought of as the balance of economic transactions.

Question 13

In the United States, imports have exceeded exports in every year since 1979.

Question 14

In 2009, the United States balance of trade deficit with China was about 4 times as large as the balance of trade deficit with Canada

Question 15

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

Question 16

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

Question 17

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

Question 18

The merchandise trade balance does not include

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

Question 19

A nation's merchandise trade balance reflects

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

Question 20

The balance of goods and services is

A) the same as the merchandise trade balance, since services cannot be traded
B) equivalent to the trade balance
C) the value of all goods and services exported minus the value of all goods and services imported
D) the value of all tangible products exported minus the value of all tangible products imported
E) the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the difference

Question 21

Net unilateral transfers in the United States in 2009 averaged about ______ per US resident.

A) $1250
B) $850
C) $520
D) $430
E) $210

Question 22

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

Question 23

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

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

Question 24

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

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

Question 25

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

A) Unilateral transfers have been positive since World War II.
B) Unilateral transfers have been negative since World War II.
C) Unilateral transfers have been negative every year since World War II except during the war in Iraq.
D) The United States places tight restrictions on moneys being sent out of the country.
E) Developing countries ordinarily place no restrictions on moneys being sent out of their countries.

Question 26

Which of the following is not considered a unilateral transfer?

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

Question 27

United States net unilateral transfers have been

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

Question 28

Utopia would be a debtor nation

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

Question 29

A wealthy Japanese executive decides to buy a large amount of U.S. assets. This would contribute to

A) a deficit in the U.S. current account
B) a deficit in the U.S. capital account
C) a surplus in the U.S. current account
D) a surplus in the U.S. capital account
E) a deficit in the total balance of payments

Question 30

The debit side of the current account includes the imports of

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

Question 31

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

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

Question 32

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

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

Question 33

NARRBEGIN: Exhibit 33-1
Exhibit 20-1

Given the hypothetical data in Exhibit 20-1, what is the balance on current account?

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

Question 34

When an American buys a Swedish financial asset,

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

Question 35

Which of the following is true?

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

Question 36

Current account transactions are records of the income and expenditures from exports and imports, plus international financial investments and borrowing.

Question 37

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

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

Question 38

The current account reflects

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

Question 39

The capital account keeps track of the amount of

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

Question 40

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

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

Question 41

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

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

Question 42

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

A) a deficit in the U.S. current account
B) a deficit in the U.S. capital account
C) a surplus in the U.S. current account
D) a surplus in the U.S. capital account
E) a surplus in the total balance of payments

Question 43

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

Question 44

Which of the following is true of the United States?

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

Question 45

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

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

Question 46

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

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

Question 47

The statistical discrepancy

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

Question 48

The statistical discrepancy in the balance of payments

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

Question 49

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

Question 50

A net importer of assets must have a

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

Question 51

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

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

Question 52

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

Question 53

When is a balance of payments account out of balance?

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

Question 54

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

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

Question 55

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

Question 56

International reserves are

A) foreign exchange held by governments only
B) foreign exchange held by central banks only
C) foreign exchange held by governments or central banks
D) gold only
E) various internationally acceptable assets

Question 57

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

Question 58

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

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

Question 59

In order for the balance of payments to balance,

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

Question 60

The world's largest net debtor nation is

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

Question 61

Bank deposits denominated in Mexican pesos are an example of foreign exchange.

Question 62

A drop in dollar price of British pounds means that

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

Question 63

If the exchange rate changes from 1500 lire per U.S. dollar to 1000 lire per U.S. dollar, the U.S. dollar has

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

Question 64

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

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

Question 65

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

Question 66

If on Monday you can buy 13 Mexican pesos per U.S. dollar and on Wednesday you can buy 15 Mexican pesos per U.S. dollar,

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

Question 67

The foreign exchange rate is the

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

Question 68

Foreign exchange means

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

Question 69

An exchange rate is

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

Question 70

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

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

Question 71

Which one of the following is not true?

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

Question 72

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

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

Question 73

NARRBEGIN: Exhibit 33-2
Exhibit 20-2

Given the data in Exhibit 20-2, what is the inflow of foreign capital into the United States?

A) $340
B) -$590
C) -$230
D) $280
E) $490

Question 74

The exchange rate is the

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

Question 75

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

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

Question 76

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

A) appreciated, since its value has increased
B) appreciated, since its value has declined
C) depreciated, making French goods more expensive in U.S. dollars
D) depreciated, since its value has declined
E) depreciated, since its value has increased

Question 77

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

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

Question 78

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

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

Question 79

If $1 equals 2 euros, then 1 euro equals

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

Question 80

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

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