Question 1

An example of a deficit item on the U.S. balance of payments is

Accepted Answer

A)  the sale of a spark plug made by a U.S. firm in Michigan to a Nissan plant in Tennessee.
B)  the purchase of Japanese yen by a U.S. firm.
C)  a deposit in a bank in Chicago by the government of Saudi Arabia.
D)  the payment of a dividend by a British firm to a U.S. family.

Question 2

For the United States, suppose the value of exported goods is greater than the value of imported goods. This implies that

Accepted Answer

A)  the domestic currency will depreciate.
B)  the dollar price of foreign currency will increase.
C)  the country is running a deficit in its balance of trade.
D)  the country is running a surplus in its balance of trade.

Question 3

Under the Bretton Woods Agreement, the goal of the IMF was to

Accepted Answer

A)  finance international transactions in gold.
B)  lend to countries experiencing balance of payment deficits.
C)  help less developed countries advertise their goods in the developed countries.
D)  provide oversight to the functioning of central banks in the member countries.

Question 4

-Use the above figure. At equilibrium, the exchange rate is

Accepted Answer

A)  1 euro = $1.25.
B)  $0.80 = 1.25 euro.
C)  $1 = 1.25 euro.
D)  $1 = 8 euros.

Question 5

Ahmed is working and is spending more than he is earning by using his savings to make up the difference. Which of the following statements is true?

Accepted Answer

A)  Ahmed is in equilibrium since he pays all of his bills.
B)  Ahmed is in disequilibrium.
C)  By using savings Ahmed is using special drawing rights.
D)  By using savings Ahmed has caused the balance of payments to go into a deficit situation.

Question 6

An appreciation of a nation's currency is

Accepted Answer

A)  a situation in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand.
B)  the increase in the exchange value of one nation's currency in terms of an other nation.
C)  a nation in which households, firms, and governments buy and sell national currencies.
D)  the decrease in the exchange value of one nation's currency in terms of another nation.

Question 7

The capital account is

Accepted Answer

A)  the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations.
B)  the price of one nation's currency in term of the currency of another country.
C)  a category of the balance of payments transactions that measures flows of real and financial assets.
D)  a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.

Question 8

If the United States has a trade deficit with China, then China must have

Accepted Answer

A)  a trade surplus with countries other than the United States.
B)  a trade surplus with the United States.
C)  a trade deficit with countries other than the United States.
D)  a trade deficit with the United States.

Question 9

At the Bretton Woods conference, all currencies were given

Accepted Answer

A)  a fixed value.
B)  a variable value.
C)  a par value.
D)  a floating value.

Question 10

In foreign exchange markets, who demands dollars and who supplies dollars?

Accepted Answer

Foreign residents buying U.S. goods, ser...

Question 11

-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by

Accepted Answer

A)  an increase in the demand for yen as both imports and exports increase.
B)  a decrease in the demand for yen as the U.S. balance of payments improves.
C)  an increase in the supply of yen as Japan tries to buy more U.S. goods.
D)  a decrease in the supply of yen as Japan is able to pay less for U.S. goods.

Question 12

As the dollar price of a euro falls,

Accepted Answer

A)  U.S. residents will purchase fewer French imports.
B)  the quantity of euros supplied will increase.
C)  French goods will be less expensive to U.S. residents.
D)  French residents will increase their purchases of U.S. assets.

Question 13

All of the following are market determinants of exchange rates EXCEPT

Accepted Answer

A)  changes in productivity in one country relative to another.
B)  changes in real interest rates in one country relative to another.
C)  changes in product preferences between countries.
D)  changes in the relative prices of goods and services within a country.

Question 14

-Refer to the above table. Suppose the transactions in the table are added to a balance of payments account that is already in balance. What will have to take place to keep the balance of payments in balance?

Accepted Answer

A)  Nothing will have to be done as the accounts are in balance.
B)  Nothing will have to be done as the accounts are in equilibrium.
C)  The U.S. government will have to make official reserve transactions equal to $11,000.
D)  Foreign governments will have to make official reserve transactions equal to -$11,000.

Question 15

When the balance of trade is in balance, we know with certainty that

Accepted Answer

A)  the value of all debit transactions equals the value of all credit transactions.
B)  the value of exports of goods equals the value of imports of goods.
C)  the value of capital exports equals the value of capital imports.
D)  the value of exports of goods and services equals the value of imports of goods and services.

Question 16

Jane has just sent a gift that was made in the U.S. to her relatives in Italy. As far as the balance of payments is concerned this gift will

Accepted Answer

A)  have no influence on the balance of payments since it was made in the U.S.
B)  be part of the capital account since the gift is a physical item.
C)  be considered an export since it has left the U.S.
D)  be part of the current account as a unilateral transfer.

Question 17

Under a flexible exchange rate system, one factor that does NOT directly affect rates of exchange is

Accepted Answer

A)  changes in the inflation rate in each country.
B)  changes in productivity in each country.
C)  changes in gold holdings in each country.
D)  changes in economic stability in each country.

Question 18

"When the balance of payments sums to zero is the only situation in which there is an equilibrium." Do you agree or disagree? Why?

Accepted Answer

Disagree. The balance of payments are al...

Question 19

An increase in the inflation rate of one country relative to another country will probably cause

Accepted Answer

A)  an increase in exports for the inflating country.
B)  a balance of trade deficit for the inflating country.
C)  a current account surplus for the inflating country.
D)  an increase in the amount of official reserves held by the inflating country's central bank.

Question 20

A decrease in the market clearing exchange value of the home nation's currency in terms of the currency of another nation is a home currency

Accepted Answer

A)  appreciation.
B)  revaluation.
C)  depreciation.
D)  devaluation.

Exam 33: Exchange Rates and the Balance of Payments

If the United States has a trade deficit with China, then China must have

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"When the balance of payments sums to zero is the only situation in which there is an equilibrium." Do you agree or disagree? Why?

Correct AnswerverifiedDisagree. The balance of payments are al...View AnswerShow Answer

An example of a deficit item on the U.S. balance of payments is

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When the balance of trade is in balance, we know with certainty that

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An appreciation of a nation's currency is

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In foreign exchange markets, who demands dollars and who supplies dollars?

Correct AnswerverifiedForeign residents buying U.S. goods, ser...View AnswerShow Answer

The capital account is

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All of the following are market determinants of exchange rates EXCEPT

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For the United States, suppose the value of exported goods is greater than the value of imported goods. This implies that

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-Refer to the above table. Suppose the transactions in the table are added to a balance of payments account that is already in balance. What will have to take place to keep the balance of payments in balance?

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-Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for dollars will be reflected in this figure by

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Ahmed is working and is spending more than he is earning by using his savings to make up the difference. Which of the following statements is true?

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A decrease in the market clearing exchange value of the home nation's currency in terms of the currency of another nation is a home currency

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Under the Bretton Woods Agreement, the goal of the IMF was to

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-Use the above figure. At equilibrium, the exchange rate is

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As the dollar price of a euro falls,

Correct AnswerverifiedShow Answer

An increase in the inflation rate of one country relative to another country will probably cause

Correct AnswerverifiedShow Answer

At the Bretton Woods conference, all currencies were given

Correct AnswerverifiedShow Answer

Jane has just sent a gift that was made in the U.S. to her relatives in Italy. As far as the balance of payments is concerned this gift will

Correct AnswerverifiedShow Answer

Under a flexible exchange rate system, one factor that does NOT directly affect rates of exchange is

Correct AnswerverifiedShow Answer

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Disagree. The balance of payments are al...
View Answer

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Foreign residents buying U.S. goods, ser...
View Answer

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