Deck 29: International Finance

Question 1

Differences among nations in real economic growth rates,real interest rates,and inflation rates will each affect the exchange rates among their currencies.

Answer 1

True

Question 2

If incomes decrease in the United States,Americans will buy more goods,including foreign goods.This increase in demand for foreign goods will cause an increase in the demand for euros.

Answer 2

False

Question 3

Deflation in the United States would tend to make the exchange value of the dollar depreciate.

Answer 3

False

Question 4

Margaret,who lives in Des Moines,has been saving for years in order to take a trip to England this summer.She would be happy if the dollar suddenly depreciates in value against the pound.

Question 5

The dollar appreciates when U.S.demands for foreign currencies decrease.

Question 6

In recent years the United States has run persistent deficits in its balance on the current account.

Question 7

If interest rates rise in the United States relative to those in the rest of the world,the exchange value of the dollar will tend to appreciate.

Question 8

The current exchange rate system is effectively a dirty float system.

Question 9

Stock in a German corporation can be purchased directly with currency from any other country.

Question 10

Since the advent of flexible exchange rates,world trade has not only continued but also expanded.

Question 11

An exchange rate is the price of one currency in terms of a second currency.

Question 12

If as a result of NAFTA the demand for American exports rises,it would tend to increase the exchange value of the U.S.dollar as a result.

Question 13

In 2011 the U.S.current account balance was zero.

Question 14

Prior to 1973,the world operated on a system of fixed exchange rates called the Bretton Woods system.

Question 15

All exports of U.S.goods are considered credit items in the U.S.balance of payments.

Question 16

With flexible exchange rates,the imbalance between debits and credits arising from shifts in currency demand and/or supply is accommodated through special financial borrowings or reserve movements.

Question 17

The balance on goods and services is the same as the balance on the current account.

Question 18

Fixed exchange rates give countries too much freedom over their monetary policies,thereby threatening higher rates of inflation.

Question 19

It is possible for the dollar to appreciate against the Japanese yen while depreciating against the British pound.

Question 20

The exchange rate of a currency will increase if the quantity demanded exceeds quantity supplied at the current exchange rate.

Question 21

Suppose a video craze in the United States makes a particular Japanese-produced video game very popular.This would tend to:

A) affect the U.S. balance of payments but not the balance of trade.
B) reduce any existing balance of trade deficit in the United States.
C) increase the balance of trade deficit of the United States.
D) increase the balance of trade surplus of the United States.

Question 22

Which of the following is a credit in the U.S.current account?

A) A U.S. consumer buys a TV made in Malaysia.
B) Singapore Airlines buys a jumbo jet made in the United States.
C) British investors purchase U.S. government bonds.
D) An American citizen flies to Lithuania on the Lithuanian Airlines.

Question 23

Whenever there is a surplus in the current account,the capital account:

A) will be negative.
B) will be positive.
C) will be zero.
D) could be negative, positive, or zero.

Question 24

What would be the statistical discrepancy for a current account balance of -$85 billion and a capital account balance of $80 billion?

A) -$165 billion
B) -$5 billion
C) $5 billion
D) $165 billion

Question 25

Which of the following would be a credit in the U.S.balance of payments?

A) the purchase of a German car by an American
B) the purchase of insurance from Lloyds of London by a U.S. resident
C) a trip to Japan by an American student
D) a short-term loan extended to a South American country by the United States government

Question 26

Exhibit 29-1 Refer to Exhibit 29-1.For Nation Z,the balance of trade for the year 2011 equals:

A) -$97 billion.
B) -$96 billion.
C) $97 billion.
D) -$87 billion.

Question 27

Which of the following is true?

A) Items that supply the nation's currency to the foreign exchange market are recorded as credits in the nation's balance of payments accounts.
B) Items that create a demand for the nation's currency in the foreign exchange market are recorded as debits in the nation's balance of payments accounts.
C) The purchase of a BMW from a German automaker by a U.S. college professor would be recorded as a debit in the U.S. balance of payments accounts.
D) Both a. and b. are correct.

Question 28

The record of all international financial transactions in which a nation has engaged over a year is known as the:

A) current account.
B) capital account.
C) balance of payments.
D) the unilateral transfers balance.

Question 29

Exhibit 29-1 Refer to Exhibit 29-1.For Nation Z,the statistical discrepancy for the year 2011 equals:

A) -$7 billion.
B) -$8 billion.
C) $90 billion.
D) $7 billion.

Question 30

Which of the following would increase the demand for U.S.dollars in the foreign exchange market?

A) the spending of U.S. tourists in France
B) the purchase of Japanese automobiles by American consumers
C) the sale of U.S. computer equipment to a Canadian buyer
D) the purchase of a Mexican shoe factory by a U.S. investor

Question 31

The balance of trade records information about:

A) purchases of U.S. merchandise exports by foreigners.
B) purchases of foreign financial assets by Americans.
C) American purchases of foreign services while traveling abroad.
D) errors and omissions.

Question 32

The U.S.balance of trade:

A) typically is positive since the United States exports far more goods than it imports.
B) is the difference between merchandise exports and merchandise imports.
C) includes net military transactions.
D) Both b. and c. are correct.

Question 33

Which of the following would be included in the capital account section of the balance of payments?

A) government bond purchases by people in other countries
B) net investment income
C) imports and exports of goods
D) imports and exports of services

Question 34

Whenever there is a deficit in the current account,the capital account:

A) will be negative.
B) will be positive.
C) will be zero.
D) could be negative, positive, or zero.

Question 35

Exhibit 29-1 Refer to Exhibit 29-1.For Nation Z,the capital account balance for the year 2011 equals:

A) -$87 billion.
B) -$96 billion.
C) $90 billion.
D) $97 billion.

Question 36

Exhibit 29-1 Refer to Exhibit 29-1.For Nation Z,the current account balance for the year 2011 equals:

A) -$97 billion.
B) -$96 billion.
C) $96 billion.
D) -$87 billion.

Question 37

The difference between the value of a country's merchandise exports and merchandise imports is known as the balance:

A) of payments.
B) of trade.
C) on current account.
D) on capital account.

Question 38

Which of the following would be a debit in the U.S.balance of payments?

A) the purchase of a Japanese car by an American
B) the purchase of air service from a U.S. airline by a Japanese traveler
C) a short-term loan extended to a Japanese manufacturer by a U.S. bank
D) the purchase of U.S. grain by a Japanese bakery

Question 39

The balance on current account records information about:

A) purchases of U.S. financial assets by foreigners.
B) purchases of foreign financial assets by Americans.
C) the levels of imports and exports of goods and services for a country.
D) foreign investments in U.S. bonds, stocks, and other items.

Question 40

The record of all transactions with foreign nations that involve the exchange of merchandise goods and services or unilateral gifts is called the:

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

Question 41

On January 12,2011,one U.S.dollar was worth 0.78 euros.How many U.S.dollars did it take to buy one euro?

A) 0.78
B) 1.28
C) 1.43
D) 1.70

Question 42

Can the U.S.dollar and the euro both appreciate relative to each other?

A) Yes, both countries can gain in this manner.
B) Yes, provided the central banks agree to permit it.
C) No, if one currency appreciates relative to another, the other depreciates.
D) No, the citizens of the countries would not agree to it.

Question 43

If the United States purchases oil from Kuwait,what is the effect in the exchange market?

A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.

Question 44

Which of the following examples would lead to a demand for German marks?

A) Judy Potter, an American, wants to purchase a German automobile.
B) Jim Potter, Judy's husband, wants to purchase German stocks.
C) IBM, Judy's employer, wants to buy a small computer firm in Germany.
D) All of the above.

Question 45

If your aunt in Italy lends you $5,000 to complete your American education,this will be entered on the U.S.balance of payments account as a:

A) debit (-).
B) credit (+).
C) non-entry, since it will affect Italy's payments but not those of the United States.
D) devaluation, since the net value of the American capital stock will be reduced by the amount of your debt.

Question 46

At any given moment there is one exchange rate:

A) for all the world's currencies.
B) for currencies in the free world.
C) between every pair of currencies.
D) established by the Federal Reserve System.

Question 47

If a Japanese pension fund decides to purchase U.S.government bonds,what is the effect in the exchange market?

A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.

Question 48

Under a system of flexible exchange rates,an increase in the foreign demand for the U.S.dollar in the foreign exchange market will cause the:

A) dollar to appreciate
B) dollar to depreciate.
C) U.S. trade deficit to decrease.
D) U.S. inflation rate to increase.

Question 49

Suppose that the dollar value rises from 100 to 125 yen.As a result,

A) exports to Japan will likely increase.
B) Japanese tourists will more likely visit the United States.
C) U.S. businesses will be less likely to use Japanese shipping lines to transport their products.
D) U.S. consumers will more likely buy Japanese-made automobiles.

Question 50

If the United States exports military hardware,what is the effect in the exchange market?

A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.

Question 51

Is it possible for a currency to appreciate relative to another currency,and depreciate relative to a third?

A) No, this is not theoretically possible; a currency rises or falls against all others.
B) No, although this could occur under a strict gold standard.
C) Yes, this is possible in a world of floating exchange rates.
D) Yes, in theory, but it does not happen in reality.

Question 52

The exchange rate:

A) states the price of one currency in terms of another currency.
B) is the rate at which one country's money is flowing to a second country.
C) is closely related to the concept of comparative advantage.
D) is closely related to the concept of absolute advantage.

Question 53

If Americans decide to buy more South African diamonds,what is the effect in the exchange market?

A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.

Question 54

If more French tourists visit the Grand Canyon,what is the effect in the exchange market?

A) It will increase the supply of U.S. dollars.
B) It will decrease the supply of U.S. dollars.
C) It will increase the demand for U.S. dollars.
D) It will decrease the demand for U.S. dollars.

Question 55

If a British student pays her way to attend Harvard University,her actions will:

A) create a supply of dollars and a demand for pounds in the foreign currency market.
B) create a supply of pounds and a demand for dollars in the foreign currency market.
C) cause the British pound to appreciate.
D) cause the U.S. dollar to depreciate.

Question 56

Exchange rates determined by the laws of supply and demand are called:

A) equilibrium exchange rates.
B) fixed exchange rates.
C) dirty exchange rates.
D) floating exchange rates.

Question 57

Which of the following will create a demand for or a supply of currencies?

A) Trade in goods
B) Trade in services
C) Trade in financial instruments
D) Any of the above.

Question 58

If the dollar depreciates relative to other currencies,which of the following is true?

A) It takes more of the other currency to buy a dollar.
B) It takes less of the other currency to buy a dollar.
C) There is no change in the amount of the currency needed to buy a dollar.
D) Not enough information to determine.

Question 59

On January 12,2011,the U.S.dollar was worth 76.89 Japanese yen.Roughly how many U.S.dollars did it take to buy 50 yen?

A) 0.01
B) 0.65
C) 1.86
D) 3845

Question 60

If the dollar appreciates,it can be said that:

A) foreigners respect the United States more.
B) other currencies depreciate.
C) it increases in value within the United States.
D) other currencies also appreciate.

Question 61

If the exchange rate between euros and dollars were 2 euros per dollar,when a French tourist buys a good valued at $80,its cost in euros would be:

A) 160 euros.
B) 80 euros.
C) 78 euros.
D) 40 euros.

Question 62

In foreign exchange markets,the demand for dollars is determined:

A) solely by the level of U.S. merchandise exports.
B) solely by the level of U.S. merchandise imports.
C) by the level of U.S. imports and the demand for foreign assets by U.S. citizens and the U.S. government.
D) by the level of U.S. exports and the demand for U.S. assets by foreigners.

Question 63

Suppose that the exchange rate between Japanese yen and U.S.dollars is originally 130 yen to the dollar.If it then changes to 150 yen to the dollar,imports of Japanese goods into the United States will tend to:

A) rise.
B) fall.
C) stay the same.
D) change in an indeterminate direction.

Question 64

Ceteris paribus,if the U.S.dollar depreciated in relation to the Canadian dollar,which of the following would be true?

A) U.S. goods would become less expensive to Canadian consumers.
B) Canadian goods would become more expensive to Canadian consumers.
C) U.S. goods would become less expensive to European consumers.
D) all of the above

Question 65

A decrease in foreign demand for U.S.exports will ____ the demand for U.S.dollars and cause the U.S.dollar to ____ in value.

A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate

Question 66

Which of the following would most likely cause a nation's currency to depreciate?

A) an increase in domestic real interest rates
B) an increase in exports coupled with a decline in imports
C) an increase in the nation's inflation rate
D) a balance of trade surplus

Question 67

If the exchange rate between yen and dollars were 120 yen per dollar,when a Japanese tourist buys a good valued at $600,its cost in yen would be:

A) 5 yen.
B) 600 yen.
C) 72,000 yen.
D) 120 yen

Question 68

Suppose that the exchange rate between British pounds and U.S.dollars is originally $2.50 per pound.If it then changes to $3 for 1 pound,imports of British goods into the U.S.tend to:

A) rise.
B) fall.
C) stay the same.
D) change in an indeterminate direction.

Question 69

Suppose that the exchange rate between Japanese yen and U.S.dollars is originally 130 yen to the dollar.If it then changes to 150 yen to the dollar,the price of U.S.goods to Japanese importers will:

A) rise.
B) fall.
C) stay the same.
D) change in an indeterminate direction.

Question 70

Which of the following would increase the demand for U.S.dollars in the foreign exchange market?

A) the spending of U.S. tourists in France
B) the purchase of Japanese automobiles by American consumers
C) the sale of U.S. automobiles to French consumers
D) provision of bilateral trade agreements

Question 71

Suppose that the exchange rate between British pounds and U.S.dollars is originally $2.50 per pound.If it then changes to $3 for 1 pound,exports of U.S.goods to Britain will tend to:

A) rise.
B) fall.
C) stay the same.
D) change in an indeterminate direction.

Question 72

If the exchange rate between yen and dollars were 120 yen per dollar,when an American purchases a good valued at 600 yen,its cost in dollars would be:

A) $5.
B) $600.
C) $72,000.
D) $120

Question 73

In foreign exchange markets,the effect of an increase in the supply of dollars on the value of the dollar is the same as that of:

A) an increase in the supply of foreign currencies.
B) a decrease in the supply of foreign currencies.
C) a decrease in the demand for dollars.
D) either (b) or (c)

Question 74

Suppose that the exchange rate between British pounds and U.S.dollars is originally $2.50 per pound.If it then changes to $3 for 1 pound,the price of U.S.goods to British importers will:

A) rise.
B) fall.
C) stay the same.
D) change in an indeterminate direction.

Question 75

Suppose that the exchange rate between Mexican pesos and dollars is 8 pesos per dollar.If the exchange rate goes to 6 pesos per dollar,it would tend to:

A) increase U.S. exports to Mexico.
B) decrease U.S. exports to Mexico.
C) increase Mexican exports to the rest of the world.
D) decrease Mexican exports to the rest of the world.

Question 76

Suppose that the exchange rate between Japanese yen and U.S.dollars is originally 130 yen to the dollar.If it then changes to 150 yen to the dollar,exports of U.S.goods to Japan will tend to:

A) rise.
B) fall.
C) stay the same.
D) change in an indeterminate direction.

Question 77

An increase in foreign demand for U.S.exports will ____ the demand for U.S.dollars and cause the U.S.dollar to ____ in value.

A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate

Question 78

Suppose that the exchange rate between Mexican pesos and dollars is 8 pesos per dollar.If the exchange rate goes to 6 pesos per dollar,it would tend to:

A) decrease U.S. exports to Mexico.
B) increase U.S. exports to Mexico.
C) increase Mexican exports to the United States.
D) both (a) and (c)

Question 79

If a dollar is more expensive in terms of a foreign currency than the equilibrium exchange rate,a ____ exists at the current exchange rate that will put ____ pressure on the exchange value of a dollar.

A) surplus of dollars; downward
B) surplus of dollars; upward
C) shortage of dollars; downward
D) shortage of dollars; upward

Question 80

Suppose that the exchange rate between Canadian dollars and U.S.dollars is $0.60 U.S.dollars per Canadian dollar.If the exchange rate goes to $0.50 U.S.dollars per Canadian dollar,it would tend to:

A) increase U.S. exports to Canada.
B) decrease U.S. exports to Canada.
C) increase Canadian exports to the United States.
D) both (b) and (c)