Question 1

When domestic currency depreciates, foreign demand for domestic goods increases.

Accepted Answer

A) True 
 B)False  True

Question 2

A computer sells for $800 in the United States and for 600 British pounds in England. Given an exchange rate of 0.65 British pound = $1, how do the computer prices of these countries compare?

Accepted Answer

A)   The computer sells for the same price in both countries.
B)   The computer costs $923 more in the United States.
C)   The computer costs $95 more in England.
D)   The computer costs $123 less in the United States.
E)   The computer costs $123 less in England. D

Question 3

A U.S. tourist travels to Italy and spends $900 during the trip. How is this activity recorded in the U.S. current account?

Accepted Answer

A)   Credit unilateral transfers for $900
B)   Debit unilateral transfers for $900
C)   Credit merchandise for $900
D)   Debit services for $900
E)   Credit services for $900 D

Question 4

The _____ account reflects the movement of goods and services into and out of the country. The _____ account reflects the flow of financial assets into and out of the country.

Accepted Answer

A)   universal transfer; financial
B)   universal transfer; current
C)   current; financial
D)   capital; current
E)   capital; financial

Question 5

The traders in the foreign exchange market need to interact personally while exchanging currencies.

Accepted Answer

A) True 
 B)False

Question 6

The balance of payments is:

Accepted Answer

A)   the difference between the dollar value of exports and the dollar value of imports.
B)   the same as the merchandise account.
C)   a summary statement of all international transactions of one country with the rest of the world.
D)   a summary statement of the foreign assets held by U.S. citizens.
E)   a record of the amount of U.S. dollars held abroad.

Question 7

The hours of trading of North American markets overlap with those of both the European markets and the Asian markets.

Accepted Answer

A) True 
 B)False

Question 8

Foreign aid, royalties earned abroad, and long-term capital flows are part of the current account.

Accepted Answer

A) True 
 B)False

Question 9

A hamburger costs $1.79 in New York and 2.54 euros in Paris. If the exchange rate is $0.93 per euro, what price difference exists in terms of European currency?

Accepted Answer

A)   The hamburger sells for €0.13 less in New York.
B)   The hamburger sells for €0.13 more in New York
C)   The hamburger sells for €0.62 less in Paris.
D)   The hamburger sells for €0.62 more in Paris.
E)   The hamburger sells for the same price in both cities.

Question 10

The average household in Australia spends AUD $560 on groceries per month. What would this grocery bill amount to in U.S. dollars if the current exchange rate is AUD $1.55 per dollar?

Accepted Answer

A)   $868.00
B)   $560.00
C)   $447.91
D)   $361.29
E)   $222.00

Question 11

Which of the following would be included in the financial account of the U.S. balance of payments?

Accepted Answer

A)   The U.S. government foreign aid
B)   The purchase of stock in a U.S. corporation by a foreigner
C)   The purchase of a Japanese computer by a U.S. corporation
D)   The purchase of a plane ticket from Australian Airlines by an American
E)   The purchase of a German car by an American

Question 12

If the current dollars/peso exchange rate is $0.10 per peso, so that 10 pesos buy you a dollar, then how many dollars do you need to buy something that costs 50 pesos?

Accepted Answer

A)   $50
B)   $5
C)   $15
D)   $0.50
E)   $1.50

Question 13

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.
Table 6.1
 $\begin{array}{|l|c|}
\hline \text { German 2010 Transactions } & \text { Millions of Euros } \
\hline \text { Capital Inflows } & € 1,420 \
\hline \text { Exports of Goods } & € 750 \
\hline \text { Imports of Services } & -€ 430 \
\hline \text { Investment Income Receipts } & € 400 \
\hline \text { Investment Income Payments } & € 670 \
\hline \text { Unilateral Transfers } & -€ 470 \
\hline \text { Exports of Services } & € 340 \
\hline \text { Imports of Goods } & -€ 790 \
\hline \text { Capital Outflows } & -€ 920 \
\hline
\end{array}$
-Refer to Table 6.1. Compute the capital account balance for Germany.

Accepted Answer

A)   -€430
B)   -€800
C)   €180
D)   €500
E)   -€550

Question 14

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.
Table 6.1
 $\begin{array}{|l|c|}
\hline \text { German 2010 Transactions } & \text { Millions of Euros } \
\hline \text { Capital Inflows } & € 1,420 \
\hline \text { Exports of Goods } & € 750 \
\hline \text { Imports of Services } & -€ 430 \
\hline \text { Investment Income Receipts } & € 400 \
\hline \text { Investment Income Payments } & € 670 \
\hline \text { Unilateral Transfers } & -€ 470 \
\hline \text { Exports of Services } & € 340 \
\hline \text { Imports of Goods } & -€ 790 \
\hline \text { Capital Outflows } & -€ 920 \
\hline
\end{array}$
-Refer to Table 6.1. Compute the merchandise trade balance of Germany in 2011.

Accepted Answer

A)   -€800
B)   -€130
C)   -€40
D)   €40
E)   €130

Question 15

If one U.S. dollar = 11.76 Mexican pesos, then the reciprocal exchange rate equals:

Accepted Answer

A)   $11.76.
B)   Ps 3.92.
C)   Ps 0.008.
D)   Ps 0.085.
E)   $0.085.

Question 16

A trade deficit experienced by a country during a year generally signals the poor health of the economy.

Accepted Answer

A) True 
 B)False

Question 17

When economists talk about a "balance of payments" deficit, they refer to a condition in which total debits exceed total credits in the balance of payments account.

Accepted Answer

A) True 
 B)False

Question 18

A majority of international transactions involves the buying and selling of _____.

Accepted Answer

A)   bank deposits denominated in foreign currency
B)   currency notes
C)   traveler's checks
D)   stocks denominated in foreign currency
E)   bills of exchange

Question 19

Suppose an economics professor receives a $10,000 royalty check from a foreign publishing company and deposits the amount in a local bank. This transaction would be recorded as:

Accepted Answer

A)   a $10,000 credit entry in the domestic services account.
B)   a $5,000 debit entry in the domestic capital account.
C)   a $20,000 debit entry in the domestic capital account.
D)   a $10,000 credit entry in the domestic capital account.
E)   a $10,000 debit entry in the domestic services account.

Question 20

Tourism requires the actual movement of currency notes while investment in international bank deposits does not.

Accepted Answer

A) True 
 B)False

Exam 6: An Introduction to the Foreign Exchange Market and the Balance of Payments

When domestic currency depreciates, foreign demand for domestic goods increases.

A computer sells for $800 in the United States and for 600 British pounds in England. Given an exchange rate of 0.65 British pound = $1, how do the computer prices of these countries compare?

A U.S. tourist travels to Italy and spends $900 during the trip. How is this activity recorded in the U.S. current account?

The _ account reflects the movement of goods and services into and out of the country. The _ account reflects the flow of financial assets into and out of the country.

The traders in the foreign exchange market need to interact personally while exchanging currencies.

The balance of payments is:

The hours of trading of North American markets overlap with those of both the European markets and the Asian markets.

Foreign aid, royalties earned abroad, and long-term capital flows are part of the current account.

A hamburger costs $1.79 in New York and 2.54 euros in Paris. If the exchange rate is $0.93 per euro, what price difference exists in terms of European currency?

The average household in Australia spends AUD $560 on groceries per month. What would this grocery bill amount to in U.S. dollars if the current exchange rate is AUD $1.55 per dollar?

Which of the following would be included in the financial account of the U.S. balance of payments?

If the current dollars/peso exchange rate is $0.10 per peso, so that 10 pesos buy you a dollar, then how many dollars do you need to buy something that costs 50 pesos?

If one U.S. dollar = 11.76 Mexican pesos, then the reciprocal exchange rate equals:

A trade deficit experienced by a country during a year generally signals the poor health of the economy.

When economists talk about a "balance of payments" deficit, they refer to a condition in which total debits exceed total credits in the balance of payments account.

A majority of international transactions involves the buying and selling of _____.

Suppose an economics professor receives a $10,000 royalty check from a foreign publishing company and deposits the amount in a local bank. This transaction would be recorded as:

Tourism requires the actual movement of currency notes while investment in international bank deposits does not.