Question 1

-Use the above figure. A leftward shift of the supply curve, ceteris paribus, would result in

Accepted Answer

A)   euro depreciation.
B)   dollar appreciation.
C)   dollar depreciation.
D)   increasing the equilibrium quantity of euros.

Question 2

The foreign exchange rate describes the

Accepted Answer

A)   balance of trade.
B)   balance of payments.
C)   law of comparative advantage.
D)   price of foreign currency in terms of domestic currency.

Question 3

If there are no interventions by finance ministers or control banks in the international market, then

Accepted Answer

A)   the current account and the capital account must sum to zero.
B)   the current account will be greater than the financial market.
C)   the capital market will be greater than the current account.
D)   the capital market will equal the current account.

Question 4

Every transaction concerning the exportation of U.S. goods constitutes a

Accepted Answer

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

Question 5

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 6

Under a flexible exchange rate system, an increase in the value of a domestic currency in terms of other currencies is referred to as

Accepted Answer

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

Question 7

A problem with the operation of the gold standard in the world economy was that

Accepted Answer

A)   it involved too much government intervention in the economy.
B)   the world economy was subject to too much inflation.
C)   a country did not have control of its domestic monetary policy.
D)   it caused the Great Depression.

Question 8

-In the above table, the trade balance on goods and services for Country X is ________ billion dollars.

Accepted Answer

A)   +25
B)   -100
C)   +100
D)   -25

Question 9

The United States dollar has NOT been officially convertible to gold by international traders since

Accepted Answer

A)   1930.
B)   1944.
C)   1971.
D)   1995.

Question 10

The demand curve for Japanese yen will shift to the right when

Accepted Answer

A)   there is a decrease in demand for Japanese-made goods in the United States.
B)   there is no change in the demand for Japanese-made goods in the United States.
C)   there is a decrease in the demand for U.S.-made goods in Japan.
D)   there is an increase in the demand for Japanese-made goods in the United States.

Question 11

Which of the following best describes exchanges rates that are determined by the demand and supply foreign exchange in the absence of official intervention?

Accepted Answer

A)   floating exchange rates
B)   the gold standard
C)   fixed exchange rates
D)   the Bretton Woods system

Question 12

In the balance of payments, which of the following is TRUE of the sum of the capital account balance, the current account balance, and the official reserve transactions account balance?

Accepted Answer

A)   This sum is either positive or negative, depending on whether the sum of all surplus and deficit items associated with cross-border transactions is positive or negative.
B)   This sum must always be zero, because the sum of all surplus and deficit items associated with cross-border transactions must equal zero.
C)   This sum is positive only if the U.S. government operates with a budget surplus.
D)   This sum is positive only if the U.S. government operates with a budget deficit.

Question 13

The United States was taken off the gold standard by

Accepted Answer

A)   President Lyndon Johnson.
B)   President Richard Nixon.
C)   President Ronald Reagan.
D)   President Jimmy Carter.

Question 14

Which of the following will lead to a depreciation of the U.S. dollar against the British pound?

Accepted Answer

A)   an increase in British demand for U.S. imports
B)   an increase in U.S. interest rates
C)   a decrease in British demand for U.S. assets
D)   a decrease in U.S. demand for British goods

Question 15

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 16

Explain how the gold standard operated.

Accepted Answer

Under the gold standard, each country de...

Question 17

Today, the most common exchange rate arrangement in the world is

Accepted Answer

A)   the fixed exchange rate system.
B)   the gold standard system.
C)   the managed floating system.
D)   the freely floating exchange rate system.

Question 18

Foreign exchange risk is

Accepted Answer

A)   a financial strategy that reduces the change of suffering losses arising from foreign exchange risk.
B)   an exchange rate arrangement in which a country pegs the value of its currency to the exchange value.
C)   the possibility that changes in the value of a nation's currency will result in variations in the market value of assets.
D)   active management of a floating exchange rate on the part of a country's government.

Question 19

Under flexible exchange rates, the exchange rate is set by

Accepted Answer

A)   the International Monetary Fund.
B)   the U.S. Federal Reserve's Board of Governors.
C)   the intersection of demand and supply curves in the currency markets.
D)   negotiations among central banks of the major industrial powers.

Question 20

An example of a transaction that will be a surplus item on the U.S. balance of payments is

Accepted Answer

A)   the purchase of General Motors stock by a German resident.
B)   the purchase of a Mercedes-Benz by an American.
C)   a Nissan plant in Tennessee buying parts from the main plant in Japan.
D)   a gift of wheat from the United States government to Egypt.

Exam 33: Exchange Rates and the Balance of Payments

The United States dollar has NOT been officially convertible to gold by international traders since

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An example of a transaction that will be a surplus item on the U.S. balance of payments is

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The United States was taken off the gold standard by

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If there are no interventions by finance ministers or control banks in the international market, then

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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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-In the above table, the trade balance on goods and services for Country X is ________ billion dollars.

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Every transaction concerning the exportation of U.S. goods constitutes a

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In the balance of payments, which of the following is TRUE of the sum of the capital account balance, the current account balance, and the official reserve transactions account balance?

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Today, the most common exchange rate arrangement in the world is

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Under a flexible exchange rate system, an increase in the value of a domestic currency in terms of other currencies is referred to as

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Foreign exchange risk is

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The demand curve for Japanese yen will shift to the right when

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

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-Use the above figure. A leftward shift of the supply curve, ceteris paribus, would result in

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Explain how the gold standard operated.

Correct AnswerverifiedUnder the gold standard, each country de...View AnswerShow Answer

Under flexible exchange rates, the exchange rate is set by

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A problem with the operation of the gold standard in the world economy was that

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Which of the following will lead to a depreciation of the U.S. dollar against the British pound?

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The foreign exchange rate describes the

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Which of the following best describes exchanges rates that are determined by the demand and supply foreign exchange in the absence of official intervention?

Correct AnswerverifiedShow Answer

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Under the gold standard, each country de...
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