Question 1

An exchange rate is

Accepted Answer

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 anotherF) All of the above
G) None of the above

Question 2

When supply and demand analysis is used to study the exchange rate,foreign exchange is treated just like

Accepted Answer

A)   a good or a service
B)   debt
C)   fiat money
D)   commodity money
E)   investmentF) A) and B)
G) A) and C)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The actions taken by arbitrageurs in the foreign exchange markets

Accepted Answer

A)   destabilize foreign exchange markets
B)   are highly risky
C)   have no effect on exchange rates
D)   help assure that exchange rates are equalized across all markets
E)   are the same as those undertaken by speculatorsF) None of the above
G) B) and D)

Question 5

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

Accepted Answer

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 increasedF) C) and D)
G) All of the above

Question 6

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

Accepted Answer

A)   credit
B)   debit
C)   payment
D)   investment
E)   unilateral transferF) A) and C)
G) D) and E)

Question 7

Which of the following best describes a graph showing the supply and demand for foreign exchange?

Accepted Answer

A)   The quantity of foreign exchange is on the horizontal axis and the quantity of the domestic currency is on the vertical axis.
B)   The quantity of the domestic currency is on the horizontal axis and the quantity of foreign exchange is on the vertical axis.
C)   The quantity of foreign exchange is on the horizontal axis and the price of foreign exchange in terms of the domestic currency is on the vertical axis.
D)   The quantity of foreign exchange is on the vertical axis and the price of foreign exchange in terms of the domestic currency is on the horizontal axis.
E)   The quantity of the domestic currency is on the horizontal axis and the price of foreign exchange in terms of dollars is on the vertical axis.F) C) and D)
G) A) and C)

Question 8

The Bretton Woods system

Accepted Answer

A)   fixed exchange rates in terms of U.S.dollars
B)   fixed exchange rates in terms of all major currencies
C)   fixed exchange rates in terms of gold
D)   established a system of flexible exchange rates
E)   established the European monetary systemF) B) and C)
G) A) and B)

Question 9

As the price of foreign exchange decreases relative to the U.S.dollar,

Accepted Answer

A)   U.S.products become cheaper for foreigners
B)   foreign goods become cheaper for Americans
C)   more foreign currency is required to purchase a U.S.dollar
D)   the U.S.demand curve for foreign exchange shifts to the right
E)   the supply curve of foreign exchange to U.S.markets decreasesF) C) and D)
G) B) and C)

Question 10

A net importer of assets must have a

Accepted Answer

A)   current account deficit
B)   capital account deficit
C)   current account surplus
D)   capital account surplus
E)   balance of deficit tradeF) None of the above
G) All of the above

Question 11

Last year 500 euros were worth $700;but this year 500 euros are worth $800.Which of the following s correct?

Accepted Answer

A)   Last year,$1 = 1 euro
B)   Last year,$1 = 0.7 euro
C)   Last year,$1 = 1.4 euro
D)   This year,$1 = 0.6 euro
E)   This year,$1 = 1.6 euroF) A) and C)
G) A) and E)

Question 12

Which of the following is not a reason why residents of other countries desire to acquire dollars?

Accepted Answer

A)   foreigners need dollars to purchase U.S.goods and services
B)   dollars can be used as a safe way of storing value when the foreigner's own currency is unstable
C)   dollars are accepted as an international medium of exchange
D)   dollars can be used for cash gifts from foreigners to U.S.friends and relatives
E)   dollars are the only currency accepted in international transactionsF) A) and D)
G) C) and D)

Question 13

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

Accepted Answer

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 decreaseF) B) and D)
G) A) and B)

Question 14

One difference between arbitrageurs and speculators is that

Accepted Answer

A)   arbitrageurs buy and sell foreign exchange;speculators do not
B)   speculators only buy foreign exchange but do not sell it
C)   arbitrageurs take more risks than do speculators
D)   speculators take more risks than do arbitrageurs
E)   arbitrageurs buy foreign exchange in the hope that its value will increaseF) B) and C)
G) B) and D)

Question 15

U.S.investment earnings from foreign assets minus foreigners' earnings from their U.S.assets is

Accepted Answer

A)   the merchandise trade balance
B)   net unilateral transfers abroad
C)   the balance on good and services
D)   net investment from abroad
E)   the financial accountF) None of the above
G) D) and E)

Question 16

When the international financial system operated under the gold standard,

Accepted Answer

A)   the currencies of most countries were convertible into gold
B)   all international transactions were financed with gold
C)   the price of gold was determined by the supply and demand for foreign exchange
D)   the quantity of money demanded was always the same
E)   there was very little inflationF) C) and D)
G) B) and C)

Question 17

President Nixon "closed the gold window"

Accepted Answer

A)   as a political expediency
B)   to force the allies to devalue their currencies
C)   to try to save the Bretton Woods exchange rate system
D)   to halt dramatic inflows of gold into the United States
E)   to cure the U.S.domestic deflationary spiralF) None of the above
G) A) and B)

Question 18

If the Irish pound declines in value against other major currencies,which of the following happens?

Accepted Answer

A)   The Irish trade deficit will increase.
B)   The Irish trade deficit will be unaffected.
C)   The Irish trade deficit will decrease.
D)   Irish products will become more expensive to foreigners.
E)   Foreign goods will become cheaper in Ireland.F) C) and E)
G) A) and B)

Question 19

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

Accepted Answer

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 investmentF) B) and E)
G) C) and D)

Question 20

A leftward shift of the Japanese demand curve for foreign exchange will

Accepted Answer

A)   increase the price of foreign exchange in Japan
B)   decrease the value of the yen
C)   make foreign goods more expensive in terms of yen
D)   make foreign goods less expensive in terms of yen
E)   make Japanese goods less expensive in terms of foreign exchangeF) B) and C)
G) C) and D)

Exam 20: International Finance

U.S.investment earnings from foreign assets minus foreigners' earnings from their U.S.assets is

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The actions taken by arbitrageurs in the foreign exchange markets

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

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An exchange rate is

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Last year 500 euros were worth $700;but this year 500 euros are worth $800.Which of the following s correct?

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A leftward shift of the Japanese demand curve for foreign exchange will

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The Bretton Woods system

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When the international financial system operated under the gold standard,

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

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When supply and demand analysis is used to study the exchange rate,foreign exchange is treated just like

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

As the price of foreign exchange decreases relative to the U.S.dollar,

Correct AnswerverifiedShow Answer

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

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Which of the following best describes a graph showing the supply and demand for foreign exchange?

Correct AnswerverifiedShow Answer

If the Irish pound declines in value against other major currencies,which of the following happens?

Correct AnswerverifiedShow Answer

President Nixon "closed the gold window"

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

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One difference between arbitrageurs and speculators is that

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A net importer of assets must have a

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Which of the following is not a reason why residents of other countries desire to acquire dollars?

Correct AnswerverifiedShow Answer

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