Question 1

If U.S. residents boycotts French goods, this will

Accepted Answer

A)  reduce the demand for euros in the foreign exchange market.
B)  increase the demand for euros in the foreign exchange market.
C)  cause the euro to appreciate.
D)  have no effect on the euro.E) None of the above
F) B) and D)

Question 2

In the balance of payments, any transaction that leads to a receipt by a resident of a country is a

Accepted Answer

A)  minus item.
B)  debit item.
C)  surplus item.
D)  deficit item.E) C) and D)
F) B) and D)

Question 3

Suppose there was a substantial increase in political instability in the rest of the world. What would be the effects on the U.S. current account? Explain.

Accepted Answer

Increased instability in the rest of the...

Question 4

Current account transactions are payments and gifts that are related to the purchase or sale of

Accepted Answer

A)  financial instruments only.
B)  both goods and services.
C)  goods only.
D)  services only.E) A) and C)
F) A) and D)

Question 5

An increase in the demand for the Brazilian real induces

Accepted Answer

A)  an increase in the demand for Brazilian goods.
B)  a decrease in the supply of dollars.
C)  an increase in the real price of a dollar.
D)  an increase in the dollar price of a real.E) None of the above
F) A) and D)

Question 6

An increase in the value of a domestic currency in terms of other currencies is known as

Accepted Answer

A)  an appreciation.
B)  a depreciation.
C)  a flexible exchange rate.
D)  a discount rate.E) None of the above
F) C) and D)

Question 7

-Based on the transactions in the above table, what is the change in the U.S. balance of trade?

Accepted Answer

A)  $11,000
B)  $29,700
C)  -$30,000
D)  -$31,000E) C) and D)
F) B) and D) B

Question 8

Which of the following is included in both the balance of trade and the balance of payments?

Accepted Answer

A)  exports
B)  earnings on domestic assets owned by foreign residents
C)  international capital movements
D)  earnings by domestic residents on assets located abroadE) None of the above
F) All of the above

Question 9

Every transaction concerning the importation of goods into the United States constitutes a

Accepted Answer

A)  supply of foreign currency with no effect on the market for the dollar.
B)  demand for dollars with no effect on markets for foreign currencies.
C)  supply of foreign currencies and a demand for dollars.
D)  demand for foreign currencies and a supply of dollars.E) B) and C)
F) A) and B)

Question 10

In the balance of payments, the buying and selling of real and financial assets is represented in

Accepted Answer

A)  current account.
B)  capital account.
C)  labor account.
D)  official reserve transactions account.E) A) and C)
F) None of the above

Question 11

A U.S. family flies from Boston to Shanghai on a China Airlines plane. This transaction is

Accepted Answer

A)  considered an export of service in the U.S balance of payment accounts.
B)  a deficit item in the balance of payment accounts of China.
C)  Both of the above are correct.
D)  none of the aboveE) A) and D)
F) A) and C) D

Question 12

Which of the following is an advantage of fixing exchange rates?

Accepted Answer

A)  limiting foreign exchange risk
B)  making residents more mobile across countries
C)  eliminating trade deficits
D)  making the prices of foreign goods more flexible in the domestic marketE) A) and B)
F) A) and C) A

Question 13

What does it mean when the dollar appreciates? What does it mean when the dollar depreciates?

Accepted Answer

If the dollar appreciates with respect t...

Question 14

Suppose the U.S. inflation rate falls while the inflation rate among the members of the European Monetary Union (EMU)holds constant. Other things equal, what will happen in the balance of payments accounts?

Accepted Answer

The lower inflation rate in th...

Question 15

One source of the supply of dollars in the foreign exchange market is

Accepted Answer

A)  U.S. companies importing foreign goods.
B)  foreign citizens buying U.S. goods.
C)  SDRs being converted into dollars.
D)  the U.S. Mint buying dollars from the Bank of England.E) All of the above
F) C) and D)

Question 16

If there is an increase in the demand for U.S. automobiles, the

Accepted Answer

A)  demand for dollars will fall.
B)  demand for dollars will rise.
C)  supply of dollars will fall.
D)  supply of dollars will rise.E) B) and C)
F) B) and D)

Question 17

An increase in the U.S. interest rate will most likely

Accepted Answer

A)  reduce the attractiveness of investment in the United States.
B)  lead to a decrease in the value of the U.S. dollar.
C)  lead to an inflow of funds to the United States and an appreciation of the dollar.
D)  provide a stimulus to U.S. export industries.E) A) and D)
F) None of the above

Question 18

-In the above figure, the equilibrium exchange rate between U.S. dollars and British pounds is

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  W.E) All of the above
F) B) and D)

Question 19

When the supply and demand of currencies in the foreign exchange market determines their relative values, this is known as

Accepted Answer

A)  flexible exchange rates.
B)  depreciation.
C)  fixed exchange rates.
D)  appreciation.E) A) and C)
F) B) and D)

Question 20

In a fixed exchange rate system,

Accepted Answer

A)  market forces and the country's stock of gold determine its exchange rate.
B)  a central bank affects the value of a currency by changing its foreign exchange reserves.
C)  market forces play a role in determining the fixed value of a currency.
D)  the International Monetary Fund determines exchange rates.E) C) and D)
F) A) and D)

Exam 33: Exchange Rates and the Balance of Payments

If U.S. residents boycotts French goods, this will

Correct AnswerverifiedShow Answer

In the balance of payments, any transaction that leads to a receipt by a resident of a country is a

Correct AnswerverifiedShow Answer

Suppose there was a substantial increase in political instability in the rest of the world. What would be the effects on the U.S. current account? Explain.

Correct AnswerverifiedIncreased instability in the rest of the...View AnswerShow Answer

Current account transactions are payments and gifts that are related to the purchase or sale of

Correct AnswerverifiedShow Answer

An increase in the demand for the Brazilian real induces

Correct AnswerverifiedShow Answer

An increase in the value of a domestic currency in terms of other currencies is known as

Correct AnswerverifiedShow Answer

-Based on the transactions in the above table, what is the change in the U.S. balance of trade?

Correct AnswerverifiedB

Which of the following is included in both the balance of trade and the balance of payments?

Correct AnswerverifiedShow Answer

Every transaction concerning the importation of goods into the United States constitutes a

Correct AnswerverifiedShow Answer

In the balance of payments, the buying and selling of real and financial assets is represented in

Correct AnswerverifiedShow Answer

A U.S. family flies from Boston to Shanghai on a China Airlines plane. This transaction is

Correct AnswerverifiedD

Which of the following is an advantage of fixing exchange rates?

Correct AnswerverifiedA

What does it mean when the dollar appreciates? What does it mean when the dollar depreciates?

Correct AnswerverifiedIf the dollar appreciates with respect t...View AnswerShow Answer

Suppose the U.S. inflation rate falls while the inflation rate among the members of the European Monetary Union (EMU)holds constant. Other things equal, what will happen in the balance of payments accounts?

Correct AnswerverifiedThe lower inflation rate in th...View AnswerShow Answer

One source of the supply of dollars in the foreign exchange market is

Correct AnswerverifiedShow Answer

If there is an increase in the demand for U.S. automobiles, the

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate will most likely

Correct AnswerverifiedShow Answer

-In the above figure, the equilibrium exchange rate between U.S. dollars and British pounds is

Correct AnswerverifiedShow Answer

When the supply and demand of currencies in the foreign exchange market determines their relative values, this is known as

Correct AnswerverifiedShow Answer

In a fixed exchange rate system,

Correct AnswerverifiedShow Answer

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Increased instability in the rest of the...
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B

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D

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A

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If the dollar appreciates with respect t...
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The lower inflation rate in th...
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