Question 1

Suppose that the price of copper crashes. Describe what would happen to the current account balance in Chile.

Accepted Answer

The answer of Suppose that the price of copper crashes....

Question 2

Intervention in the foreign exchange market would be associated with:

Accepted Answer

A)  rightward shift of the supply curve. 
B)  a leftward shift of the supply curve 
C)  a leftward shift in the demand curve. 
D)  corruption. 
E)  none of the above

Question 3

Which of the following would cause the exchange rate to depreciate?

Accepted Answer

A)  an increase in the supply 
B)  an increase in demand 
C)  a decrease in supply 
D)  a and b 
E)  b and c

Question 4

The tendency of investors to withdraw portfolio capital from an entire region in response to perceived economic difficulties in a single country or subset of countries is known as:

Accepted Answer

A)  crawling peg 
B)  exchange rate regime 
C)  intervention 
D)  contagion 
E)  Bretton Woods system

Question 5

Show how a tariff would tend to worsen the welfare of the average citizen in Latin America.

Accepted Answer

The answer of Show how a tariff would tend to...

Question 6

Show and explain what would happen in a country if the inflation rate is very high and the exchange rate is floating.

Accepted Answer

The answer of Show and explain what would happen in...

Question 7

What are remittances?

Accepted Answer

A)  the transfers of money from foreign workers to their home country 
B)  grants given for development aid 
C)  the profits made from FDI 
D)  interest rate paid to the IMF 
E)  a crawling peg exchange system

Question 8

Given that _____ is relatively scarce in Latin America, the outflows of capital from the region have been historically ______.

Accepted Answer

A)  labor, large 
B)  labor, small 
C)  capital, large 
D)  capital, small 
E)  commodities, small

Question 9

If the exchange rate is fixed, then a commodity exporter would need to accumulate foreign exchange when commodity prices are high. Show why this is true.

Accepted Answer

The answer of If the exchange rate is fixed, then...

Question 10

Explain the concepts of absolute purchasing power parity, relative purchasing power parity, and the law of one price. Why are they relevant for Latin America?

Accepted Answer

The answer of Explain the concepts of absolute purchasing power...

Question 11

Rationing of foreign exchange is associated with:

Accepted Answer

A)  exchange controls. 
B)  floating exchange rates. 
C)  monetary policy. 
D)  fiscal policy. 
E)  none of the above

Question 12

What international institution was created at the Bretton Woods conference?

Accepted Answer

A)  the United Nations 
B)  UNCTAD 
C)  the International Court of Justice 
D)  the International Monetary Fund 
E)  the International Olympic Committee

Question 13

Describe the current account. Be sure to list all of its component parts. What does a typical current account look like for a Latin American nation?

Accepted Answer

The answer of Describe the current account. Be sure to...

Question 14

The buying and selling of foreign exchange used to acquire foreign assets is known as:

Accepted Answer

A)  exchange rate regime 
B)  intervention 
C)  unilateral transfers 
D)  real exchange rate 
E)  contagion

Question 15

Describe several methods of exchange control. Why might a country choose to implement exchange controls?

Accepted Answer

The answer of Describe several methods of exchange control. Why...

Question 16

Draw a graph showing how a fixed exchange rate is associated with a current account deficit. Next, list how the current account deficit can be offset.

Accepted Answer

The answer of Draw a graph showing how a fixed...

Question 17

Which of the following is not part of the current account?

Accepted Answer

A)  FDI 
B)  exports 
C)  remittances 
D)  ODA 
E)  none of the above

Question 18

Which of these is a type of unilateral transfer?

Accepted Answer

A)  FDI 
B)  dividends from investments 
C)  IMF or World Bank loan 
D)  remittances 
E)  profits from investments

Question 19

The difference between the income from and the payments to the rest of the world constitute the balance on what?

Accepted Answer

A)  investment income 
B)  FDI 
C)  the current account 
D)  the financial account 
E)  unilateral transfers

Question 20

Explain why Latin American nations tend to have surpluses for their balance of trade, yet deficits on their current account balance.

Accepted Answer

The answer of Explain why Latin American nations tend to...

Exam 8: Exchange-Rate Policy