Question 1

Purchasing power parity suggests that exchange rates adjust to equalize prices.

Accepted Answer

A) True 
 B)False

Question 2

China has purposefully fixed its exchange rate so that the yuan is overvalued relative to the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 3

Canadian exports are negative numbers on Canada's balance of payments accounts.

Accepted Answer

A) True 
 B)False

Question 4

Because demand for one currency is also the supply of another currency, the balance of payments accounts must add up to zero.

Accepted Answer

A) True 
 B)False

Question 5

A current account deficit means

Accepted Answer

A)  Canadian spending on imports from R.O.W. is greater than R.O.W. spending on Canadian exports. 
B)  R.O.W. spending on Canadian exports is greater than Canadian spending on imports from R.O.W. 
C)  Canadian investments in R.O.W. are greater than R.O.W. investments in Canada. 
D)  R.O.W. investments in Canada are greater than Canadian investments in R.O.W. 
E)  there is also a capital account deficit.

Question 6

When a student from Toronto pays her tuition to a American university, the supply of Canadian dollars decreases in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 7

Canadians' supply of Canadian dollars is a supply of exports and assets to R.O.W.

Accepted Answer

A) True 
 B)False

Question 8

Which statement about the balance of payments accounts is true?

Accepted Answer

A)  Flows of Canadian dollars into Canada are positive numbers. 
B)  Flows of Canadian dollars out of Canada are positive numbers. 
C)  Canadian exports are negative numbers. 
D)  Canadian imports are positive numbers. 
E)  Flows of Canadian dollars into Canada are negative numbers.

Question 9

As the value of the Canadian dollar rises in the foreign exchange market, the

Accepted Answer

A)  import effect increases the quantity of Canadian dollars supplied. 
B)  import effect increases the quantity of Canadian dollars demanded. 
C)  import effect causes a decrease in imports. 
D)  export effect causes an increase in exports. 
E)  export effect increases the quantity of Canadian dollars demanded.

Question 10

When Michael from Ontario buys hockey tickets in Michigan to watch the Maple Leafs crush the Red Wings, the effect on the foreign exchange market is a(n)

Accepted Answer

A)  increased supply of U.S. dollars. 
B)  increased demand for Canadian dollars. 
C)  increased supply of Canadian dollars. 
D)  decreased supply of U.S. dollars. 
E)  decreased demand for U.S. dollars.

Question 11

A stronger Canadian dollar is always preferable to a weaker Canadian dollar.

Accepted Answer

A) True 
 B)False

Question 12

A financial account surplus means that R.O.W. invested more in Canada than Canadians invested in R.O.W.

Accepted Answer

A) True 
 B)False

Question 13

The law of one price states that different products and services in a market must have the same price.

Accepted Answer

A) True 
 B)False

Question 14

The two main items on the current account are Canadian investments in R.O.W. and R.O.W. investments in Canada.

Accepted Answer

A) True 
 B)False

Question 15

What increases the supply of Canadian dollars in the foreign exchange market?

Accepted Answer

A)  An increase in demand for imports from R.O.W. by Canadians. 
B)  A decrease in demand for Canadian exports by non-Canadians. 
C)  The Canadian dollar is expected to appreciate next year. 
D)  U.S. interest rates fall. 
E)  None of the above.

Question 16

All of the following create a demand for Canadian dollars in the foreign exchange market except

Accepted Answer

A)  Susan from Manitoba goes shopping in New York. 
B)  Richard from New York buys a Government of Canada bond. 
C)  Samantha from France buys a bottle of Canadian wine. 
D)  Alexandra from Mexico pays tuition to the University of Montreal. 
E)  Rachel from New Jersey goes on a shopping trip in Toronto.

Question 17

When Canadian interest rates fall the

Accepted Answer

A)  demand curve for Canadian dollars in the foreign exchange market shifts rightward. 
B)  Canadian inflation rate falls. 
C)  demand for Canadian exports decreases. 
D)  supply curve of Canadian dollars in the foreign exchange market shifts leftward. 
E)  Canadian dollar depreciates.

Question 18

According to the law of supply for Canadian dollars, as the exchange rate

Accepted Answer

A)  rises, the quantity supplied of Canadian dollars increases. 
B)  rises, the supply of Canadian dollars increases. 
C)  falls, the quantity supplied of Canadian dollars increases. 
D)  falls, the supply of Canadian dollars increases. 
E)  rises or falls, none of above are true.

Question 19

When most speculators expect the Canadian dollar to appreciate, they increase the supply of our currency in the FOREX market so, the Canadian dollar appreciates.

Accepted Answer

A) True 
 B)False

Question 20

Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada and US$1.80 in the U.S. PPP suggests that the Canadian dollar is undervalued.

Accepted Answer

A) True 
 B)False

Exam 10: Trading Dollars for Dollars Exchange Rates and Payments With the Rest of the World

Purchasing power parity suggests that exchange rates adjust to equalize prices.

China has purposefully fixed its exchange rate so that the yuan is overvalued relative to the U.S. dollar.

Canadian exports are negative numbers on Canada's balance of payments accounts.

Because demand for one currency is also the supply of another currency, the balance of payments accounts must add up to zero.

A current account deficit means

When a student from Toronto pays her tuition to a American university, the supply of Canadian dollars decreases in the foreign exchange market.

Canadians' supply of Canadian dollars is a supply of exports and assets to R.O.W.

Which statement about the balance of payments accounts is true?

As the value of the Canadian dollar rises in the foreign exchange market, the

When Michael from Ontario buys hockey tickets in Michigan to watch the Maple Leafs crush the Red Wings, the effect on the foreign exchange market is a(n)

A stronger Canadian dollar is always preferable to a weaker Canadian dollar.

A financial account surplus means that R.O.W. invested more in Canada than Canadians invested in R.O.W.

The law of one price states that different products and services in a market must have the same price.

The two main items on the current account are Canadian investments in R.O.W. and R.O.W. investments in Canada.

What increases the supply of Canadian dollars in the foreign exchange market?

All of the following create a demand for Canadian dollars in the foreign exchange market except

When Canadian interest rates fall the

According to the law of supply for Canadian dollars, as the exchange rate

When most speculators expect the Canadian dollar to appreciate, they increase the supply of our currency in the FOREX market so, the Canadian dollar appreciates.

Suppose purchasing power parity (PPP) depends only on hamburgers. The exchange rate is C$1.00 = US$0.80 and hamburger prices are C$2.00 in Canada and US$1.80 in the U.S. PPP suggests that the Canadian dollar is undervalued.