Deck 6: International Currency Flows

Question 1

The devaluation (depreciation) of one currency implies the revaluation (appreciation) of other currencies.​

Answer 1

True

Question 2

If a nation has a surplus in its current account,​
1) it exports fewer goods than it imports
2) it exports more goods than it imports
3) the value of its currency should fall
4) the value of its currency should rise

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Answer 2

​2 and 4

Question 3

If a nation exports more goods than it imports, it has a surplus in the current account.​

Answer 3

True

Question 4

​The International Monetary Fund has the capacity to make loans to foreign governments.

Question 5

​From the viewpoint of international currency flows, foreign investments in plant and equipment are no different from investments in foreign securities.

Question 6

Which of the following causes a currency inflow?​

A) ​purchase of short-term foreign securities
B) ​dividends paid to foreign investors
C) ​a debit balance
D) ​dividends received from foreign investments

Question 7

​The International Monetary Fund is the global central bank that controls international interest rates.

Question 8

Which of the following causes a currency inflow?​
1) foreign travel and foreign investments
2) domestic travel by foreigners
3) dividend payments from foreign corporations
4) dividend payments to foreign investors

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 9

If a nation exports fewer goods than it imports, it​
1) experiences an outflow of currency
2) experiences an inflow of currency
3) has a surplus in its current account
4) has a deficit in its current account

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 10

What is a nation's cash inflow (outflow) on its current account and its capital account given the following information? Was there a net currency inflow or outflow?
​ $$\begin{array} { l l l } \text { imports } & \$ 145 \\\text { exports } & 211 & \\\text { direct investments abroad } & 72 & \\\text { foreign investments in the country } & 143 \\\text { foreign purchases of domestic securities } & 86 \\\text { purchases of foreign securities } & 29 \\\text { net income from foreign investments } & 37 \\\text { government spending abroad } & 22\end{array}$$ ​

Question 11

If the American dollar is devalued, American goods are cheaper to individuals holding dollars.

Question 12

If the price of the European euro is $1.26, how many euros are necessary to purchase $1.00?​

Question 13

The International Monetary Fund

A) ​buys foreign securities
B) ​can lend a country currencies to meet a surplus in its merchandise trade balance
C) ​holds a pool of currencies
D) ​developed to help the Federal Reserve control U.S. investments abroad

Question 14

​If the demand for a currency exceeds the supply, the currency will be devalued under a system of freely fluctuating exchange rates.

Question 15

​Under a system of fluctuating exchange rates, a currency will depreciate if supply exceeds the demand for the currency.