Question 1

If the U.S.national income grows much faster than that of Canada, this would tend to make the U.S.dollar

Accepted Answer

A)  appreciate against the Canadian dollar.
B)  depreciate against the Canadian dollar.
C)  become worth more in terms of Canadian dollars.
D)  become a fixed-rate against the Canadian dollar.

Question 2

In the U.S.balance of payments account for a certain year, a positive number in the financial account means a

Accepted Answer

A)  net buildup of assets held by the U.S.
B)  net reduction in the ownership of assets by U.S.interests.
C)  buildup of total foreign debt.
D)  reduction of total foreign debt.

Question 3

If the United States and France are both on the international gold standard and U.S.exports to France exceed United States imports from France, gold will flow from the United States to France.

Accepted Answer

A) True 
 B)False

Question 4

An inflow of investment funds into the United States from overseas is likely to result from a(n)

Accepted Answer

A)  decline in expectations for economic growth in the United States.
B)  growing belief among investors that the U.S.dollar ($)  is overvalued.
C)  rise in U.S.interest rates relative to world interest rates.
D)  increase in the U.S.inflation rate.

Question 5

In terms of individual nations, the largest U.S.trade deficit is with

Accepted Answer

A)  Japan.
B)  Mexico.
C)  China.
D)  Canada.

Question 6

The financial account balance is a nation's

Accepted Answer

A)  net investment income minus its net transfers.
B)  exports of goods and services minus its imports of goods and services.
C)  sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners.
D)  domestic investment spending minus domestic saving.

Question 7

In international financial transactions, what are the only two things that individuals and firms can exchange?

Accepted Answer

A)  currency and real assets
B)  services and manufactured goods
C)  assets and currently produced goods and services
D)  currency and currently produced goods and services

Question 8

People will have to exchange their currency for another only when they do exporting or importing.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the balance on the current account is +$100 billion and the balance on the capital account is −$1 billion.The balance on the financial account is

Accepted Answer

A)  +$101 billion.
B)  −$100 billion.
C)  −$99 billion.
D)  −$101 billion.

Question 10

Which of the following combinations is plausible, as it relates to a nation's balance of payments?

Accepted Answer

A)  Current account = +$40 billion; capital account = +$20 billion; financial account = −$50 billion.
B)  Current account = −$50 billion; capital account = +$20 billion; financial account = +$30 billion.
C)  Current account = +$10 billion; capital account = +$40 billion; financial account = +$50 billion.
D)  Current account = +$30 billion; capital account = −$20 billion; financial account = −$50 billion.

Question 11

Assume that Japan and South Korea have flexible exchange rates.Other things equal, if economic growth is more rapid in Japan than in South Korea,

Accepted Answer

A)  gold bullion will flow out of Japan.
B)  the Japanese yen will depreciate.
C)  the South Korean won will depreciate.
D)  the yen and won exchange rate will stay constant.

Question 12

In recent years, the United States has had large

Accepted Answer

A)  current account surpluses.
B)  current account deficits.
C)  balance of trade surpluses.
D)  balance of payments surpluses.

Question 13

Which of the following statements about the financing of international trade is correct?

Accepted Answer

A)  International trade means the trading of financial assets for foreign exchange.
B)  Most international transactions are made with gold.
C)  Imports are more important than exports to the economy of a nation.
D)  Exports provide the foreign currencies needed to pay for imports.

Question 14

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

Accepted Answer

A)  encourage foreign investment inflows, and restrict foreign investment outflows.
B)  encourage imports, and discourage exports.
C)  impose exchange controls or capital controls.
D)  use monetary or fiscal policies to reduce domestic spending.

Question 15

Under freely flexible (floating) exchange rates, a U.S.trade deficit with Japan will eventually cause the dollar price of yen to rise.

Accepted Answer

A) True 
 B)False

Question 16

If the United States decided to fix its exchange rate with Japan, this would

Accepted Answer

A)  require the U.S.to fix its exchange rate with all other currencies.
B)  ensure that the U.S.dollar would always appreciate against the yen.
C)  prevent the U.S.from having a trade deficit with Japan.
D)  cause the U.S.government to become the dollar-yen foreign exchange market.

Question 17

Suppose that the United States fixes the dollar-pound exchange rate.In the process of maintaining the fixed exchange rate, if the U.S.central bank starts to realize reduced reserves of pounds, this suggests that

Accepted Answer

A)  the quantity supplied of pounds has exceeded the quantity demanded of pounds.
B)  the quantity demanded of pounds has exceeded the quantity supplied of pounds.
C)  the exchange rate will rise.
D)  the U.S.supply of dollars has increased.

Question 18

Suppose that the United States decides to fix the dollar-euro exchange rate.If the U.S.central bank observes that the quantity supplied of euros exceeds the quantity demanded of euros at the fixed exchange rate, to maintain the exchange rate, the U.S.central bank will

Accepted Answer

A)  need to reduce the domestic supply of dollars.
B)  need to appreciate the dollar.
C)  realize an increase in its reserves of euros.
D)  realize a decrease in its reserves of euros.

Question 19

Which of the following is not included in the current account of a nation's balance of payments?

Accepted Answer

A)  its goods exports
B)  its goods imports
C)  its net investment income
D)  its purchases of real assets abroad.

Question 20

When the nation's FX reserves are rising, some would call it a "balance of payments surplus." This could happen as a result of any of the following except

Accepted Answer

A)  the nation giving up assets to other nations.
B)  the nation sending more products abroad than it brought in.
C)  the economy becoming tremendously fortunate and strong.
D)  other nations investing more in this nation than this nation is investing in others.

Exam 41: The Balance of Payments, Exchange Rates, and Trade Deficits

Which of the following is not included in the current account of a nation's balance of payments?

Correct AnswerverifiedShow Answer

If the United States decided to fix its exchange rate with Japan, this would

Correct AnswerverifiedShow Answer

If the United States and France are both on the international gold standard and U.S.exports to France exceed United States imports from France, gold will flow from the United States to France.

Correct AnswerverifiedShow Answer

An inflow of investment funds into the United States from overseas is likely to result from a(n)

Correct AnswerverifiedShow Answer

People will have to exchange their currency for another only when they do exporting or importing.

Correct AnswerverifiedShow Answer

Suppose the balance on the current account is +$100 billion and the balance on the capital account is −$1 billion.The balance on the financial account is

Correct AnswerverifiedShow Answer

In international financial transactions, what are the only two things that individuals and firms can exchange?

Correct AnswerverifiedShow Answer

Which of the following statements about the financing of international trade is correct?

Correct AnswerverifiedShow Answer

Under freely flexible (floating) exchange rates, a U.S.trade deficit with Japan will eventually cause the dollar price of yen to rise.

Correct AnswerverifiedShow Answer

Assume that Japan and South Korea have flexible exchange rates.Other things equal, if economic growth is more rapid in Japan than in South Korea,

Correct AnswerverifiedShow Answer

In terms of individual nations, the largest U.S.trade deficit is with

Correct AnswerverifiedShow Answer

In recent years, the United States has had large

Correct AnswerverifiedShow Answer

If the U.S.national income grows much faster than that of Canada, this would tend to make the U.S.dollar

Correct AnswerverifiedShow Answer

Which of the following combinations is plausible, as it relates to a nation's balance of payments?

Correct AnswerverifiedShow Answer

Suppose that the United States fixes the dollar-pound exchange rate.In the process of maintaining the fixed exchange rate, if the U.S.central bank starts to realize reduced reserves of pounds, this suggests that

Correct AnswerverifiedShow Answer

The financial account balance is a nation's

Correct AnswerverifiedShow Answer

To maintain a fixed exchange rate under a shortage of FX reserves, the government has the following options, except

Correct AnswerverifiedShow Answer

In the U.S.balance of payments account for a certain year, a positive number in the financial account means a

Correct AnswerverifiedShow Answer

When the nation's FX reserves are rising, some would call it a "balance of payments surplus." This could happen as a result of any of the following except

Correct AnswerverifiedShow Answer

Suppose that the United States decides to fix the dollar-euro exchange rate.If the U.S.central bank observes that the quantity supplied of euros exceeds the quantity demanded of euros at the fixed exchange rate, to maintain the exchange rate, the U.S.central bank will

Correct AnswerverifiedShow Answer

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