Deck 18: International Finance and Exchange Rates

Question 1

In the market for a foreign currency, the curve that represents the "willingness of those who have foreign currency to trade them for the U.S. dollar" is the

A)price curve.
B)equilibrium curve.
C)supply curve.
D)demand curve.

Answer 1

C

Question 2

The two fundamental sections of the Balance of Payments accounting system are:

A)the physical and monetary direct transfers among individuals.
B)physical investment and ephemeral investment.
C)aggregate consumption and government spending.
D)the current account and the capital account.

Answer 2

D

Question 3

Aside from a statistical discrepancy, any deficit in the current account is matched by

A)a deficit in the capital account.
B)a surplus in the capital account.
C)a surplus in the merchandise trade balance.
D)the excess of exports over imports.

Answer 3

B

Question 4

Anything that makes it more difficult to exchange one currency for another tends to

A)decrease the price of exports.
B)decrease the price of imports.
C)increase the price of imports.
D)all of the options are correct.

Question 5

In 2014, foreign purchases of U.S. assets as a percentage of GDP was approximately

A)5%.
B)14%.
C)0%.
D)-4.

Question 6

In the market for a foreign currency, a "weakening" of the dollar corresponds to a

A)higher dollar price of foreign currency.
B)lower dollar price of foreign currency.
C)smaller demand for the foreign currency.
D)larger supply of the foreign currency.

Question 7

In the market for a foreign currency, the curve that represents the "willingness of those who have U.S. dollars to trade them for the foreign currency" is the

A)equilibrium curve.
B)price curve.
C)supply curve.
D)demand curve.

Question 8

Anything that makes it more difficult to exchange one currency for another tends to

A)increase exports.
B)decrease imports.
C)increase imports.
D)all of the options are correct.

Question 9

The massive deficit in the U.S. current account primarily reflects the

A)excess of foreign investment in the U.S. over domestic private investment.
B)excess of U.S. exports over U.S. imports.
C)excess of U.S. imports over U.S. exports.
D)transfers of money home by U.S. citizens working in other countries.

Question 10

What "balances" in the Balance of Payments accounting system are:

A)the physical and monetary direct transfers among individuals.
B)physical investment and ephemeral investment.
C)aggregate consumption and government spending.
D)the current account and the capital account.

Question 11

Borrowing from other nations is necessary to finance

A)more imports than exports.
B)more exports than imports.
C)a foreign trade surplus.
D)a surplus in the current account.

Question 12

In the market for a foreign currency, a "strengthening" of the dollar corresponds to a

A)higher dollar price of foreign currency.
B)lower dollar price of foreign currency.
C)larger demand for the foreign currency.
D)smaller supply of the foreign currency.

Question 13

Since 1970, U.S. investment in other countries has

A)increased by more than foreign investment in the U.S.
B)increased by less than foreign investment in the U.S.
C)necessarily increased by exactly the same as foreign investment in the U.S.
D)increased more than twenty-fold.

Question 14

Any restriction on the ease of exchanging on currency for another tends to harm

A)only the prospective purchaser of imported goods.
B)only the prospective manufacturer of goods for export.
C)both the prospective import purchaser and the prospective export manufacturer.
D)no one.

Question 15

Changes in U.S. citizens' holdings of long-term financial and physical assets in another country are reported in

A)the trade balance.
B)the current account.
C)total exports of goods and services.
D)the capital account.

Question 16

"Net transfers of private money" most often represent

A)money sent home by foreign workers in the U.S.
B)purchases by foreigners of physical capital in the U.S.
C)purchases by foreigners of U.S. export goods.
D)purchases of foreign-produced goods and services by U.S. citizens.

Question 17

Over time, the U.S. current account balance has primarily reflected

A)the U.S. balance of trade.
B)the volume of U.S. exports.
C)the extent of U.S. investment in other countries.
D)transfers of money home by U.S. citizens working in other countries.

Question 18

In 2014, the U. S. current account balance as a percentage of GDP was approximately

A)20%.
B)2%.
C)0%.
D)-3%.

Question 19

Since roughly 1970, the U.S. has moved from being a

A)net importer of goods and services to being a net exporter of goods and services.
B)net debtor nation to being a net creditor nation.
C)net creditor nation to being a net debtor nation.
D)small net creditor nation to a much larger net creditor nation.

Question 20

The difference between imports and exports of merchandise goods and services is reported

A)in the capital account.
B)in the current account.
C)nowhere in the Balance of Payments accounting system.
D)as the sum of the current account and the capital account.

Question 21

In the market for euros, a decrease in the relative safety of U.S. investments tends to

A)increase equilibrium price.
B)increase excess supply.
C)decrease equilibrium price.
D)cause no change in equilibrium price.

Question 22

Between 2007 and mid-2009, the value of the U.S. dollar expressed in Chinese yuan

A)increased sharply.
B)decreased precipitously.
C)remained essentially constant.
D)was zero because it was illegal to sell yuan.

Question 23

Continuous government intervention in markets for foreign currency is typical of a

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

Question 24

To offset an increased demand for its currency, a government fixing its exchange rate

A)must sell gold or some other precious metal.
B)must increase the supply of the foreign currency.
C)must increase the supply of its currency.
D)must make it illegal to sell its currency.

Question 25

In the market for yen, an increase in the relative safety of U.S. investments tends to

A)cause no change in equilibrium price.
B)increase excess demand.
C)decrease demand.
D)increase equilibrium price.

Question 26

In the market for euros, an increase in U.S. imports from Europe tends to

A)decrease equilibrium price.
B)increase excess supply.
C)increase equilibrium price.
D)cause no change in equilibrium price.

Question 27

In the market for euros, a decrease in U.S. real interest rates tends to

A)cause no change in equilibrium price.
B)increase excess supply.
C)increase equilibrium price.
D)decrease equilibrium price.

Question 28

In late 2008, the value of the U.S. dollar expressed in British Pounds

A)increased sharply.
B)decreased precipitously.
C)remained essentially constant.
D)was zero because it was almost impossible to sell dollars.

Question 29

No government intervention in active markets for foreign currency is typical of a

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

Question 30

In the market for euros, a decrease in U.S. imports from Europe tends to

A)increase demand.
B)decrease demand.
C)cause no change in the market demand for euros.
D)decrease supply.

Question 31

In the market for euros, an increase in U.S. real interest rates tends to

A)cause no change in equilibrium price.
B)increase excess demand.
C)increase equilibrium price.
D)decrease equilibrium price.

Question 32

In the market for yen, a decrease in the relative safety of U.S. investments tends to

A)increase demand.
B)increase excess supply.
C)decrease equilibrium price.
D)cause no change in equilibrium price.

Question 33

Occasional government intervention in markets for foreign currency is typical of a

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

Question 34

In the market for euros, an increase in U.S. imports from Europe tends to

A)increase demand.
B)increase supply.
C)decrease demand.
D)cause no change in the market demand for euros.

Question 35

In the market for euros, an increase in the relative safety of U.S. investments tends to

A)cause no change in equilibrium price.
B)increase excess demand.
C)decrease equilibrium price.
D)increase equilibrium price.

Question 36

In the market for yen, a decrease in U.S. real interest rates tends to

A)cause no change in equilibrium price.
B)increase excess supply.
C)increase demand.
D)decrease equilibrium price.

Question 37

Between 2000 and mid-2005, the value of the U.S. dollar expressed in Chinese yuan

A)increased sharply.
B)decreased precipitously.
C)remained essentially constant.
D)was zero because it was illegal to sell yuan.

Question 38

To offset an decreased demand for its currency, a government fixing its exchange rate

A)must buy gold or some other precious metal.
B)must decrease the supply of its currency.
C)must decrease the supply of the foreign currency.
D)must make it illegal to buy its currency.

Question 39

In the market for euros, a decrease in U.S. imports from Europe tends to

A)decrease equilibrium price.
B)increase excess demand.
C)increase equilibrium price.
D)cause no change in equilibrium price.

Question 40

In the market for yen, an increase in U.S. real interest rates tends to

A)cause no change in equilibrium price.
B)increase excess demand.
C)increase equilibrium price.
D)decrease demand.

Question 41

If the exports are $1.5 trillion, imports are $2 trillion, short-term investment to and from the US exactly balances, and taxes and private payments to and from the US also exactly balance, the capital account balance is a

A)surplus of $3.5 trillion.
B)deficit of $.5 trillion.
C)surplus of $.5 trillion.
D)deficit of $3.5 trillion.

Question 42

If the exchange rate of dollars for yuan is 6 yuan to $1 then the exchange rate of yuan for dollars is

A))166 (1/6)dollars per yuan.
B)5 (6-1)dollars per yuan.
C)-5 (1-6)dollars per yuan.
D)not knowable from this data.

Question 43

When a good is exported from one country to another, the exporting company gets

A)the currency of the importing country and can only buy goods from the importing country with it.
B)its own currency from buyers in importing country that those buyers have been holding for this circumstance.
C)its own currency because the importer has arranged to get that currency through the foreign exchange market.
D)a combination that is half its own currency and half in the currency of the importing buyers.

Question 44

If no one is holding cash, a US trade deficit with China likely means

A)the Chinese are buying more US assets than Americans are buying Chinese assets.
B)the Chinese are selling more US assets than Americans are selling Chinese assets.
C)the Chinese are buying fewer US assets than Americans are buying Chinese assets.
D)that next year the US will run a trade surplus with China.

Question 45

Suppose an event occurs that causes people to gain faith in the ability of Europeans to pay their euro-denominated debt. Suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

A)rise to (perhaps).9 euros/dollar.
B)fall to (perhaps).6 euros/dollar.
C)cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense).
D)remain unchanged.

Question 46

What balances in balance of payment calculations

A)exports and imports.
B)exports and short term income balances.
C)the capital and current accounts.
D)exports minus imports (plus a statistical discrepancy)with short term income movements.

Question 47

Suppose an event occurs that causes people to lose faith in the ability of Europeans to pay their euro-denominated debt. Suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

A)rise to (perhaps).9 euros/dollar.
B)fall to (perhaps).6 euros/dollar.
C)cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense).
D)remain unchanged.

Question 48

If the exchange rate of dollars for euros is .75 euro to $1 then the exchange rate of euros for dollars is

A)1)33 (1/.75)dollars per euros.
B))25 (1-.75)dollars per euros.
C)-)25 (.75-1)dollars per euros.
D)not knowable from this data.

Question 49

If the exchange rate of US dollars for Canadian dollars is 1.1 Canadian dollars to $1 (U.S.)then the exchange rate of Canadian dollars for U.S. dollars is

A))909 (1/1.1)US dollars per Canadian dollars.
B))1 (1.1-1)US dollars per Canadian dollars.
C)-)1 (1-1.1)US dollars per Canadian dollars.
D)not knowable from this data.

Question 50

If there is a trade deficit that creates a current account deficit

A)there must be a capital account deficit too.
B)there must be a capital account surplus.
C)there must be greater exports than imports.
D)a currency must ultimately decrease in value.

Question 51

The major determinant of the current account is the

A)balance of trade.
B)exports.
C)imports.
D)exchange rates.

Question 52

The United States current account typically runs as a

A)deficit of about $1 billion.
B)surplus of about $1 billion.
C)deficit of around $750 billion.
D)surplus of around $750 billion.

Question 53

If the exports are $1.5 trillion, imports are $2 trillion, short-term investment to and from the US exactly balances, and taxes and private payments to and from the US also exactly balance, the current account balance is a

A)surplus of $3.5 trillion.
B)deficit of $.5 trillion.
C)surplus of $.5 trillion.
D)deficit of $3.5 trillion.

Question 54

Over the last 50 years, as a percentage of GDP, the current account deficit has been

A)trending larger.
B)trending smaller.
C)roughly constant.
D)has been fixed at zero

Question 55

Suppose, for whatever reason, real interest rates in the United States are projected to grow and real interest rates in Europe are projected to remain flat and suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

A)rise to (perhaps).9 euros/dollar.
B)fall to (perhaps).6 euros/dollar.
C)cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense).
D)remain unchanged.

Question 56

If the exchange rate of U.S. dollars for yen is 100.yen to $1 (U.S.)then the exchange rate of yen for U.S. dollars is

A))01 (1/100)dollars per yen.
B)99 (100-1)dollars per yen.
C)-)1 (1-1.1)dollars per yen.
D)not knowable from this data.

Question 57

In order to buy goods from another country the importer must pay with

A)its own currency.
B)a combination of its own currency and the currency of the country from which it is buying the goods.
C)the currency of the country from which it is buying the goods and they must have been holding the currency from a previous transaction.
D)the currency of the country from which it is buying the goods that it has arranged to get through the foreign exchange market.

Question 58

If the market exchange rate of yen per dollar falls this means the

A)dollar has strengthened and the yen has weakened.
B)yen has strengthened and the dollar has weakened.
C)dollar has strengthened but the yen has not changed.
D)dollar has weakened but the yen has not changed.

Question 59

If the market exchange rate of yen per dollar rises this means the

A)dollar has strengthened and the yen has weakened.
B)yen has strengthened and the dollar has weakened.
C)dollar has strengthened but the yen has not changed.
D)dollar has weakened but the yen has not changed.

Question 60

Over the last 50, as a percentage of GDP, foreign investment in the U.S. has

A)grown faster than US investment abroad.
B)decreased.
C)grown more slowly than US investment abroad.
D)as the result of an accounting identity, grown at exactly the same rate as U.S. investment abroad.

Question 61

Which of the following countries engages in a fixed exchange rate policy?

A)China
B)The U.S.
C)The United Kingdom
D)Japan

Question 62

Which system is the most difficult to maintain if you are running a trade deficit?

A)The fixed exchange rate system
B)The managed float exchange rate system
C)The floating exchange rate system
D)The free market exchange rate system

Question 63

Which system is the least difficult to maintain if you are running a trade deficit?

A)The fixed exchange rate system
B)The managed float exchange rate system
C)The floating exchange rate system
D)The free market exchange rate system

Question 64

Which exchange rate system requires an immediate response by a government to counter all market forces on exchange rates?

A)The fixed exchange rate system
B)The managed float exchange rate system
C)The floating exchange rate system
D)The Bretton-Woods exchange rate system

Question 65

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency A needed to get Currency B. A strengthening of Currency A would show up as

A)an increase in the exchange rate.
B)a decrease in the exchange rate.
C)an increase in the interest rate
D)a decrease in the interest rate

Question 66

Suppose, for whatever reason, the trade deficit of the United States with Europe is projected to fall and suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

A)rise to (perhaps).9 euros/dollar.
B)fall to (perhaps).6 euros/dollar.
C)cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense).
D)remain unchanged.

Question 67

If a country tries to maintain a flexible exchange rate it must be willing to

A)sell gold and hard currency to weaken its currency, if needed.
B)print and sell its own currency to weaken it, if needed.
C)print and sell its own currency to strengthen it, if needed.
D)accept a large fluctuation in the exchange rate.

Question 68

If a country tries to maintain a managed floating exchange rate system it must be

A)willing to sell gold and hard currency to weaken its currency, if needed.
B)willing to print and sell its own currency to weaken it, if needed.
C)willing to print and sell its own currency to strengthen it, if needed.
D)a communist nation to accomplish it.

Question 69

The gold standard is

A)the only way to achieve a fixed exchange rate system
B)one way of achieving a fixed exchange rate system
C)one way of achieving a floating exchange rate system
D)the only way of achieving a floating exchange rate system

Question 70

Which exchange rate system requires an immediate response by a government to counter market forces on exchange rates but it need not completely negate all of those forces?

A)The fixed exchange rate system
B)The managed float exchange rate system
C)The floating exchange rate system
D)The free market exchange rate system

Question 71

Which system allows a country to print its currency and buy hard currencies or gold when it is running a trade surplus?

A)The fixed exchange rate system
B)The managed float exchange rate system
C)The floating exchange rate system
D)The free market exchange rate system

Question 72

If a country tries to maintain a fixed exchange rate it must be

A)willing to sell gold and hard currency to weaken its currency, if needed.
B)willing to print and sell its own currency to weaken it, if needed.
C)willing to print and sell its own currency to strengthen it, if needed.
D)a communist nation to accomplish it.

Question 73

Suppose, for whatever reason, real interest rates in the United States are projected to fall and real interest rates in Europe are projected to remain flat and suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

A)rise to (perhaps).9 euros/dollar.
B)fall to (perhaps).6 euros/dollar.
C)cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense).
D)remain unchanged.

Question 74

Suppose, for whatever reason, the trade deficit of the United States with Europe is projected to grow and suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

A)rise to (perhaps).9 euros/dollar.
B)fall to (perhaps).6 euros/dollar.
C)cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense).
D)remain unchanged.

Question 75

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency B needed to get Currency A. A weakening of Currency A would show up as

A)an increase in the exchange rate.
B)a decrease in the exchange rate.
C)an increase in the interest rate
D)a decrease in the interest rate

Question 76

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency A needed to get Currency B. A weakening of Currency A would show up as

A)an increase in the exchange rate.
B)a decrease in the exchange rate.
C)an increase in the interest rate
D)a decrease in the interest rate

Question 77

Suppose there are two countries (country A and country B)each with its own currency (Currency A and Currency B). Suppose the exchange rate is expressed in terms of amount of Currency B needed to get Currency A. A strengthening of Currency A would show up as

A)an increase in the exchange rate.
B)a decrease in the exchange rate.
C)an increase in the interest rate
D)a decrease in the interest rate