Deck 6: An Introduction to the Foreign Exchapterange Market and the Balance of Payments

Question 1

If the U.S. dollar price of the New Zealand dollar (NZD) is $0.5709, then the NZD price of one U.S. dollar will be:

A) 1.5709 NZD.
B) 1.75 NZD.
C) 1.6711 NZD.
D) 0.5709 NZD.

Answer 1

1.75 NZD.

Question 2

If the exchange rate between the Canadian dollar [C$] and the U.S. dollar [$] on January 6, 2010 is C$/$ = 1.03, then the exchange rate $/C$ will be:

A) 0.67.
B) 0.79.
C) 0.97.
D) 1.97.
E) 1.33.

Answer 2

0.97.

Question 3

If one U.S. dollar = 11.76 Mexican pesos [Ps], then the reciprocal exchange rate is:

A) 1 Ps = $11.76.
B) $1 = Ps 3.92.
C) $1 = Ps 0.008.
D) $1 = Ps 0.085.
E) 1 Ps = $0.085.

Answer 3

1 Ps = $0.085.

Question 4

If the price of a digital SLR camera in Japan is ¥55,000, and the exchange rate is 93 ¥/$, calculate the dollar price of the digital SLR camera in Japan.

A) $603.29
B) $397.48
C) $886.82
D) $591.40
E) $101

Question 5

_____ is a specific location in New York City where contracts to deliver agricultural and metal products are bought and sold.

A) The U.S. Department of Commerce
B) The New York Stock Exchange
C) The Commodity Exchange
D) The Barclays Bank
E) The U.S. Commodity Futures Trading Commission

Question 6

Currency and bank deposits that are denominated in foreign money are called:

A) traveler's checks.
B) international funds.
C) foreign exchange.
D) foreign remittances.
E) international bonds.

Question 7

If the current dollars/peso exchange rate is $0.10 per peso, so that 10 pesos buy you a dollar, then how many dollars do you need to buy something that costs 50 pesos?

A) $50
B) $5
C) $15
D) $0.50
E) $1.50

Question 8

An exchange rate can be described as:

A) the price of a foreign currency as determined by the World Bank.
B) the price of one country's currency in terms of another country's currency.
C) the dollar value of imports and exports undertaken in the world economy during a year.
D) the price of foreign currency as established by the relative amount of tourism.
E) the dollar value of U.S. international trade.

Question 9

Given an exchange rate of 120 yen = $1, what is the U.S. dollar price of 1 yen?

A) $0.025
B) $0.0083
C) $120
D) $0.0012
E) $1

Question 10

If the price in U.S. dollars for one Singapore dollar is 0.625 U.S. dollars, then the price in Singapore dollars for one U.S. dollar is:

A) 1.0 Singapore dollars.
B) 0.625 Singapore dollars.
C) 1.6 Singapore dollars.
D) 0.375 Singapore dollars.
E) 2.66 Singapore dollars.

Question 11

A majority of international transactions involve the buying and selling of _____.

A) bank deposits denominated in foreign currency
B) currency notes
C) traveler's checks
D) stocks denominated in domestic currency
E) bills of exchange

Question 12

The demand for foreign currency in the United States is based on the demand for:

A) domestic goods and services.
B) domestic exports.
C) gold.
D) foreign goods and services.
E) U.S. dollars.

Question 13

A rise in the value of a currency in relation to another currency in the international market is called:

A) appreciation.
B) depreciation.
C) devaluation.
D) conservation.
E) redenomination.

Question 14

Markets in which the currencies of different countries across the world are traded are called:

A) stock markets.
B) foreign exchange markets.
C) loanable funds markets.
D) commodity markets.
E) money markets.

Question 15

If the exchange rate between the Canadian dollar (C$) and the U.S. dollar ($) changes from 1C$ = $1.30 to 1C$ = $1.05 we can say that:

A) the U.S. dollar has depreciated with respect to all the currencies across the world.
B) the Canadian dollar has appreciated with respect to the U.S. dollar.
C) the U.S. dollar has appreciated with respect to the Canadian dollar.
D) the Canadian dollar has depreciated with respect to all the currencies across the world.
E) the Canadian dollar has appreciated with respect to all the currencies across the world.

Question 16

Which of the following correctly describes a foreign exchange market?

A) A place where foreign goods are bought and sold in any country
B) A market in which foreign tourists can buy domestic goods
C) A global market in which people exchange one currency for another
D) A place where contracts to deliver agricultural products across countries are exchanged
E) A market where the central banks of different countries exchange government bonds

Question 17

The Wall Street Journal publishes an exchange rate of US$/C$ = 0.714, where US$ represents the U.S. dollar and C$ represents the Canadian dollar. What does this mean?

A) The Canadian dollar price of one U.S. dollar is US$0.714.
B) The Canadian dollar price of one U.S. dollar is C$0.714.
C) The U.S. dollar price of one Canadian dollar is C$1.40.
D) The U.S. dollar price of one Canadian dollar is US$1.40
E) The U.S. dollar price of one Canadian dollar is US$0.714.

Question 18

On December 29th, the cost of a skiing trip to Finse, Norway, was 6,500 krone. Two weeks later, the American dollar appreciated against the Norwegian krone. If the price of the trip in Norway remains the same, _____.

A) an American skier living in Florida will now view this trip as cheaper compared to before
B) an American skier living in Florida will now view this trip as highly expensive compared to before
C) an American skier living in Florida will now view this trip as of the same value as before
D) an American skier living in Florida will now value this trip less as compared to before
E) an American skier living in Florida will no longer take this trip

Question 19

On a given day, the exchange rate for one U.S. dollar is 1.2 Canadian dollars and 0.5 British pounds. Exactly six months later, the exchange rate for one U.S. dollar is 1.1 Canadian dollars and 0.7 British pound. From the information given, we can say that:

A) the dollar has appreciated relative to Canadian dollars and depreciated relative to British pounds.
B) the dollar has appreciated relative to British pounds and depreciated relative to Canadian dollars.
C) the dollar has appreciated relative to both British pounds and Canadian dollars.
D) the dollar has depreciated relative to both British pounds and Canadian dollars.
E) there is no change in the relative value of the U.S. dollar.

Question 20

The domestic currency value of the foreign currency price of a product is equal to:

A) the reciprocal exchange rate between the domestic and foreign currency.
B) the reciprocal of the foreign currency price of the product.
C) the difference between the foreign currency price of the product and the exchange rate between the domestic and foreign currency.
D) the foreign currency price of the product multiplied by the exchange rate between the domestic and foreign currency.
E) the reciprocal exchange rate between the domestic and foreign currency divided by the foreign currency price of the product.

Question 21

Which of the following will increase the demand for U.S. products in the international market?

A) An increase in the average price level in the U.S.
B) A depreciation of foreign currency
C) A depreciation of the U.S. dollar
D) A tariff imposed by the U.S. on imported goods
E) A rise in the domestic demand for goods and services

Question 22

A hamburger costs $1.79 in New York and €2.54 in Paris. If the exchange rate is $0.93 per euro, what price difference exists in terms of the European currency?

A) The hamburger sells for €0.13 less in New York.
B) The hamburger sells for €0.13 more in New York.
C) The hamburger sells for €0.62 less in Paris.
D) The hamburger sells for €0.62 more in Paris.
E) The hamburger sells for the same price in both cities.

Question 23

When one country buys more from another country than it sells to the country, it is said to be experiencing:

A) economic dualism.
B) double counting.
C) symmetrical trade.
D) internationalization.
E) bilateral trade deficit.

Question 24

Which of the following is true of the balance of payments accounts?

A) It records only the trade in tangible assets between any two nations.
B) It is a record of a country's merchandise trade.
C) It records the total external debt used to finance government budget deficits.
D) It is recorded biannually in most developed countries.
E) It records a country's trade in goods, services, and financial assets with the rest of the world.

Question 25

An appreciation of the dollar against all currencies in the foreign exchange market would result in all of the following, except:

A) a decrease in the dollar prices paid by U.S. importers.
B) an increase in the cost of vacations in Florida for Japanese tourists.
C) foreign holidays for U.S. residents to be less expensive.
D) an increase in the foreign currency prices paid for U.S. exports.
E) an increase in the demand for U.S. exports.

Question 26

Which of the following will be recorded as a debit entry in the balance of trade in merchandise account?

A) A U.S. car manufacturer selling a car to a resident of India.
B) A pub owner in Liverpool importing vodka from a U.S. manufacturer.
C) A U.S. textile manufacturer buying rawmaterial from farmers in Indonesia.
D) A Chinese car manufacturer importing car engines and other spare parts from a U.S. manufacturer.
E) A fashion designer from Michigan exporting readymade garments to a dealer in Copenhagen.

Question 27

The balance of payments is an accounting statement known as a:

A) trial balance.
B) depreciation account.
C) balance sheet.
D) trade account.
E) reconciliation statement.

Question 28

The domestic currency of a country depreciates in value when:

A) there is an increase in the foreign currency price of the domestic currency.
B) its value falls in relation to another currency.
C) the government of the country revaluates the domestic currency.
D) its value rises in relation to another currency.
E) there is a fall in the domestic demand for foreign currency.

Question 29

The average household in Australia spends AUD 560 on groceries per month. What would this grocery bill amount to in U.S. dollars if the current exchange rate is AUD 1.55 per dollar?

A) $868.00
B) $560.00
C) $447.91
D) $361.29
E) $222.00

Question 30

An increase in the foreign price of the U.S. dollar is called:

A) depreciation of the U.S. dollar.
B) appreciation of the U.S. dollar.
C) appreciation of the foreign currency.
D) readjustment of the U.S. dollar.
E) readjustment of the foreign currency.

Question 31

Double-entry bookkeeping is a system of accounting in which:

A) it is ideal for credits to be greater than debits.
B) it is ideal for debits to be greater than credits.
C) each transaction is recorded in the same account twice.
D) only foreign and domestic accounts are used.
E) the debit total must equal the credit total for the transactions as a whole.

Question 32

If the dollar price of one South African rand (ZAR) increases from $0.076 in 1999 to $0.083 in 2003, we can say that the reciprocal exchange rate moved from:

A) $1 = ZAR 13.2 in 1999 to $1 = ZAR 12.0 in 2003.
B) $1 = ZAR 12.0 in 1999 to $1 = ZAR 13.2 in 2003.
C) $1 = ZAR 0.076 in 1999 to $1 = ZAR 0.083 in 2003.
D) ZAR 1 = $0.083 in 1999 to ZAR 1 = $0.076 in 2003.
E) $1 = ZAR 176 in 1999 to $1 = ZAR 183 in 2003.

Question 33

Which of the following will be recorded as a credit entry in the U.S. balance of trade in merchandise account?

A) A U.S. car manufacturer selling a car to a resident of India.
B) A French wine manufacturer selling wines to a distributor in Seattle.
C) A U.S. investor investing in Japanese stocks.
D) A U.S. steel manufacturer importing iron ore from Zambia.
E) A U.S. resident buying diamonds from a diamond manufacturer in Kenya.

Question 34

The balance of payments is:

A) the difference between the dollar value of exports and the dollar value of imports.
B) the same as the merchandise account.
C) a summary statement of all international trade transactions of one country with the rest of the world.
D) a summary statement of all domestic exchanges of goods and services between producers and buyers.
E) a record of the amount of U.S. dollars held abroad.

Question 35

Double-entry bookkeeping for the balance of payments requires that:

A) the current account always equal the balance of payments.
B) every transaction be recorded as a credit and a debit at the same time.
C) total credits always exceed total debits.
D) every transaction be recorded as either a credit or a debit.
E) total debits always exceed total credits.

Question 36

A computer sells for $800 in the United States and for 600 British pounds in England. Given an exchange rate of 0.65 British pounds = $1, how do the computer prices of these countries compare?

A) The computer sells for the same price in both countries.
B) The computer costs $923 more in the United States.
C) The computer costs $95 more in England.
D) The computer costs $124 less in the United States.
E) The computer costs $124 less in England.

Question 37

Assume that the exchange rate moves from $1 = €1.2 to $1 = €0.97. This change in exchange rate indicates that:

A) the euro has depreciated in value.
B) the price of a holiday in Europe has become less expensive for U.S. residents.
C) the U.S. dollar price of European chocolate has fallen.
D) the U.S. dollar has appreciated in value.
E) the euro has appreciated in value.

Question 38

Suppose a U.S. resident buys a car from a car maker in Japan. This transaction will:

A) have a negative effect on Japan's balance of trade in merchandise.
B) have a negative effect on the U.S. balance of trade in merchandise.
C) have a positive effect on the U.S. balance of trade in merchandise.
D) bring money into the United States.
E) have no effect on Japan's balance of trade in merchandise.

Question 39

A dress manufactured in Hagen, Germany, costs 195 euros. What is the U.S. dollar value of the same dress if the exchange rate is $0.89 per euro?

A) $173.55
B) $165.43
C) $219.10
D) $187.61
E) $195.00

Question 40

Assume that the Danish krone [DKK] price of one British pound is DKK 10.5. If it costs 45 pounds per day to rent a car in London and DKK 480.5 to do so in Copenhagen, which of the following is true?

A) The cost of renting a car is the same in both cities.
B) The cost of renting a car is DKK 8 less in London.
C) The cost of renting a car is DKK 45.76 less in London.
D) The cost of renting a car is DKK 10.67 more in Copenhagen.
E) The cost of renting a car is DKK 4.28 less in London.

Question 41

Which of the following would be entered as a credit in the financial account of the United States?

A) Purchase of U.S. Treasury bonds by Americans
B) Purchase of U.S. Treasury bonds by foreigners
C) Purchase of U.S. made cars by foreigners
D) Income earned by the U.S. from tourism
E) Purchase of foreign stocks by U.S. investors

Question 42

The statistical discrepancy account:

A) accounts for services.
B) accounts for gifts to foreigners.
C) is included to ensure a balance between debits and credits in the capital account.
D) estimates transactions that were omitted from the official reporting process.
E) causes the net balance in the balance of payments to be negative.

Question 43

Which of the following statements is incorrect with respect to the balance of payments?

A) It constitutes a record of transactions between residents within one country.
B) It consists of a current account, a capital account, and an account to record omissions and errors.
C) Transactions that result in a demand for domestic currency are always entered as a credit.
D) It must balance in the aggregate, but separate accounts can show deficits or surpluses.
E) It constitutes a record of a country's trade in goods and services and financial assets.

Question 44

A deficit in a country's current account means that:

A) the country is running a net deficit in its financial account.
B) the country is a net lender to the rest of the world.
C) the country is running a net surplus in its financial account.
D) the country will have a positive value of net exports.
E) the domestic production is in excess of domestic spending.

Question 45

Which of the following statements about the U.S. balance of payments in 2013 is true?

A) In the third quarter of 2013, the services account recorded a deficit of $25 million.
B) In the third quarter of 2013, the current account showed a surplus of $174,091 million.
C) In the third quarter of 2013, the merchandise account showed a surplus of $179,457 million.
D) In the third quarter of 2013, the merchandise account showed a deficit of $179,457 million.
E) In the third quarter of 2013, the services account recorded a deficit of $38,175 million.

Question 46

Which of the following would be included in the financial account of the U.S. balance of payments?

A) The U.S. government's foreign aid
B) The purchase of a stock in a U.S. corporation by a foreigner
C) The purchase of a Japanese computer by a U.S. corporation
D) The purchase of a plane ticket from Australian Airlines by a U.S. resident
E) The purchase of a German car by a U.S. resident

Question 47

A U.S. citizen's income from investment in foreign countries is _____ in the U.S. current account.

A) recorded as a deficit
B) recorded as a surplus
C) recorded as a debit
D) recorded as a credit
E) not recorded

Question 48

All of the following components add up to the current account, except:

A) unilateral transfers.
B) statistical discrepancies.
C) services.
D) merchandise.
E) investment income.

Question 49

A U.S. tourist travels to Italy and spends $900 during the trip. How is this activity recorded in the U.S. current account?

A) Unilateral transfers account is credited for $900.
B) Unilateral transfers account is debited for $900.
C) Merchandise account is credited for $900.
D) Services account is debited for $900.
E) Merchandise account is debited for $900.

Question 50

Which of the following transactions will be included in the financial account of the balance of payments of any country?

A) Travel and tourism expenses
B) Import of goods
C) Investment in stock
D) Export of services
E) Payment of insurance premium

Question 51

The statistical discrepancy account is also referred to as:

A) omissions and errors.
B) econometric discrepancy.
C) statistical influence.
D) human flaws.
E) arbitrary human discrepancy.

Question 52

The net balance on the balance of payments accounts:

A) always shows a surplus.
B) always shows a deficit.
C) is always zero.
D) is either positive or negative.
E) is arrived at without considering omissions and errors in transactions.

Question 53

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.?

Refer to Table 6.1. Compute the merchandise trade balance of Germany in 2011.

A) -€800
B) -€130
C) -€40
D) €40
E) €130

Question 54

Which of the following would not be a part of the merchandise trade balance?

A) Exports of consumer durables
B) Merchandise imports
C) International freight costs
D) Computer hardware exports
E) Sale of domestically produced cars to foreigners

Question 55

Which of the following will be included as a unilateral transfer in the balance of payments account of a country?

A) Transportation costs involved in traveling from a foreign country to the domestic country
B) A foreign worker in the domestic country sending money to his home country
C) Compensation earned by foreign workers in the domestic country
D) Royalties paid to residents working in a foreign country
E) Income paid on foreign-owned investments in the domestic country

Question 56

The purchase of French wine by U.S. consumers will be accounted as:

A) a deficit in the services account.
B) a credit in the merchandise account.
C) a debit in the services account.
D) a surplus in the services account.
E) a debit in the merchandise account.

Question 57

Which of the following is included in a nation's current account?

A) Purchases of foreign assets
B) Borrowings from abroad
C) Foreign purchases of U.S. financial assets
D) Investment income receipts
E) Purchases of foreign real property

Question 58

When economists talk about a balance of payments "deficit," they refer to:

A) a net balance in the balance of payments that is less than zero.
B) a condition in which total credits exceed total debits in the balance of payments.
C) a deficit in one of the sub-accounts of the balance of payments.
D) a disequilibrium in the foreign exchange market.
E) a net loss in the trade of international goods and services.

Question 59

Which of the following will be included in the services account of a country?

A) Imports of goods from a foreign country
B) Gifts to the residents of a foreign country
C) Exports of goods to a foreign country
D) Purchase of land in a foreign country
E) Transportation costs involved in international travel

Question 60

The four main components of the current account are:

A) services, financial assets, unilateral transfers, and debits.
B) net exports, unilateral transfers, services, and domestic bank deposits abroad.
C) government asset holdings abroad, foreign official assets, private bank deposits abroad, and merchandise.
D) unilateral transfers, merchandise, services, and investment income.
E) capital exports, services, merchandise, and royalties.

Question 61

Exchange rates allow for a comparison of the trade values of goods and services across countries.

Question 62

Suppose you are a U.S. importer purchasing coffee from Guatemala at a dollar price of $10,000. If the bank charges $0.12 per quetzal, you would have to buy 120,000 quetzals to settle the account with the Guatemalan exporter.

Question 63

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.?

Refer to Table 6.1. The statistical discrepancy in the balance of payments accounts for Germany in the year 2011 is:

A) €525.
B) -€800.
C) €250.
D) -€125.
E) €370.

Question 64

The euro is the common currency of all European countries.

Question 65

A country that is running a current account deficit will have:

A) zero net exports.
B) zero investments.
C) negative net investments.
D) positive net exports.
E) negative net exports.

Question 66

The euro began trading in January 1999.

Question 67

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.?

Refer to Table 6.1. Calculate the current account balance for Germany for the year 2011.

A) -€1,720
B) €500
C) -€870
D) €784
E) -€650

Question 68

Tourism requires the actual movement of currency notes while investment in international bank deposits does not.

Question 69

Which of the following is true of a net debtor nation?

A) It experiences a trade surplus for five consecutive years.
B) It experiences a trade deficit for five consecutive years.
C) It owes more to the rest of the world than it is owed.
D) It owes less to the rest of the world than it is owed.
E) It experiences persistent current account surplus.

Question 70

Suppose an economics professor receives a $10,000 royalty check from a foreign publishing company and deposits the amount in a local bank. This transaction would be recorded as:

A) a $10,000 credit entry in the domestic services account.
B) a $20,000 debit entry in the domestic capital account.
C) a $10,000 credit entry in the domestic capital account.
D) a $10,000 debit entry in the domestic services account.

Question 71

Identify the correct statement.

A) The United States was an international net debtor from the end of World War I until the mid-1980s.
B) The United States was an international net creditor from the end of World War I until the mid-1980s.
C) In 1945, the United States became an international net debtor for the first time in almost 70 years.
D) In 1985, the United States became an international net creditor for the first time in almost 70 years.
E) The net creditor status of the United States has grown steadily since 1985.

Question 72

The euro coins can be spent only in the countries where they are made, because one side of the coin has an image that is individualized for each of the countries of the European Union.

Question 73

The hours of trading of North American markets overlap with those of both the European markets and the Asian markets.

Question 74

Which of the following is true of a current account surplus?

A) A country that is running a current account surplus will have negative net exports.
B) A current account surplus is consistent with domestic spending being in excess of domestic production.
C) A current account surplus means that a country is also running a net surplus in its financial account.
D) A country can have a current account surplus only if it exports more services as compared to goods.
E) A country that is running a current account surplus buys more bonds from the rest of the world as compared to what it sells.

Question 75

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.?

Refer to Table 6.1. Compute the capital account balance for Germany.

A) -€430
B) -€800
C) €180
D) €500
E) -€550

Question 76

In the 1980s, the U.S. current account deficit was financed by:

A) large outflows of domestic capital to other countries.
B) large inflows of capital from private foreign investment in the United States.
C) loans made by U.S. residents to the government.
D) large inflows of foreign government capital.
E) the Tax Reform Act of 1986, which increased income taxes for the wealthy.

Question 77

All euro coins circulating in the different countries of the European Union have the same design.

Question 78

A gift from the British prime minister to the American president would be classified as a _____ in the balance of payments account.

A) capital transfer
B) capital receipt
C) universal receipt
D) unilateral transfer
E) foreign aid

Question 79

When the equation X = GDP - C- I - G yields a negative X, it represents a situation in which the country:

A) experiences runaway inflation.
B) experiences robust GDP growth.
C) experiences a huge budget deficit.
D) borrows to cover the difference between production and spending.
E) lends to cover the difference between production and spending.

Question 80

The _____ account reflects the movement of goods and services into and out of the country. The _____ account reflects the flow of financial assets into and out of the country.

A) universal transfer; financial
B) universal transfer; current
C) current; financial
D) capital; current
E) capital; financial