Question 1

In the foreign exchange markets:
A)those who wish to sell one currency to buy another interact with others who would like to do exactly the opposite.
B)the buyers and sellers of a product engage in barter trade.
C)both buyers and sellers of a product can exchange their currencies with gold.
D)only the buyers of a product can exchange their currencies with a financial asset.

Accepted Answer

In the foreign exchange markets, individuals and institutions who wish to sell one currency and buy another interact with others who have the opposite goal. For example, a person who wants to sell US dollars to buy euros will find someone who wants to sell euros to buy US dollars, allowing both parties to transact and exchange currencies.

Question 2

International financial transactions mostly fall into two broad categories:
A)international asset transactions and international gold transactions.
B)international asset transactions and transactions in the stock market.
C)international trade and international development.
D)international trade and international asset transactions.

Accepted Answer

International financial transactions can be broadly categorized into two types, i.e., international trade and international asset transactions. International trade includes transactions involving the exchange of goods and services across borders, whereas international asset transactions involve the purchase or sale of assets such as stocks, bonds, currencies, and real estate across borders.

Question 3

If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound, the rate of exchange between the two currencies:
A)is $.5 = 1 pound.
B)is $2 = 1 pound.
C)is $1 = 2 pounds.
D)is $1.5 = 1 Pound.

Accepted Answer

The exchange rate can be calculated as:
Exchange rate = Canadian Dollar / British Pound
Exchange rate = 12,000 / 8,000
Exchange rate = 1.5
Therefore, 1 pound is equal to 1.5 Canadian dollars. Hence, the answer is D.

Question 4

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Accepted Answer

Under the international gold standard, exchange rates were fixed, not fluctuating, as countries agreed to convert their currencies into a specific amount of gold, which limited the flexibility in correcting international disequilibria through exchange rate adjustments.

Question 5

Which of the following would call for a payment to Canada?
A)gold flows into Canada
B)Canadian firms sell insurance to Brazilian shippers
C)Canadian unilateral foreign aid to less developed countries
D)Canadian imports of German automobiles

Accepted Answer

The answer of Which of the following would call for...

Question 6

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?
A)merchandise imports
B)changes in foreign currency reserves
C)capital outflows
D)exports of services

Accepted Answer

Exports of services are always recorded as a positive entry because they bring money into the home country. Imports of goods, capital outflows, and changes in foreign currency reserves are all recorded as negative entries because they involve the outflow of money from the home country.

Question 7

Which of the following would contribute to a Canadian balance of payments surplus?
A)Canada makes a unilateral tariff reduction on imported goods
B)Canadian Pacific pays a dividend to a Swiss stockholder
C)Canada cuts back on Canadian military personnel stationed in Germany
D)Russian vodka becomes increasingly popular in Canada

Accepted Answer

C) Cutting back on Canadian military personnel stationed in Germany would reduce the amount of Canadian dollars flowing out of the country to support these personnel abroad, thereby contributing to a balance of payments surplus.

Question 8

Which of the following would contribute to a Canadian balance of payments deficit?
A)Kawasaki builds a motorcycle manufacturing plant in Vancouver
B)Canadian tourists travel in large numbers to Europe
C)a wealthy Iranian builds a mansion in Montreal
D)Zaire pays interest on its debt to Canada

Accepted Answer

Canadian tourists traveling in large numbers to Europe would result in a deficit in the balance of payments as money is flowing out of Canada to another country. In this case, the money spent by Canadian tourists in Europe would be recorded as a debit in the current account of the balance of payments. The other options would either result in inflows of funds into Canada or would not affect the balance of payments.

Question 9

When the people involved in an exchange are from countries that use different currencies, an intermediate asset transaction has to take place:
A)the seller must convert her currency into the currency that the buyer uses and accepts.
B)the buyer must convert her currency into the currency that the seller uses and accepts.
C)the buyer and seller should engage in barter trade.
D)both buyer and seller should exchange their currencies to gold.

Accepted Answer

When people from different countries engage in a transaction, it typically involves the buyer converting their currency into the currency that the seller uses and accepts. This is because the seller would want to receive payment in a currency that is legal tender in their country or is preferable for their accounting purposes.

Question 10

The current exchange-rate system is an "almost" flexible exchange-rate system.

Accepted Answer

The current exchange-rate system is commonly known as a "managed float" or "dirty float" system, where central banks intervene in the currency markets to manage or stabilize exchange rates. While the exchange rates are allowed to fluctuate to some extent, they are not fully determined by market forces and therefore not completely flexible.

Question 11

Which one of the following, other things equal, will directly alter Canada's balance of trade?
A)an increase in official international reserves
B)a decrease in merchandise exports
C)an increase in net transfers
D)a decrease in capital outflows

Accepted Answer

A decrease in merchandise exports will directly alter Canada's balance of trade by reducing the amount of goods being exported and therefore decreasing the value of exports. This will result in a trade deficit, as imports will exceed exports. The other options (A, C, and D) do not directly impact the balance of trade.

Question 12

A country's annual balance of payments statement must always balance because:
A)a nation's imports are limited to the value of its exports.
B)a trade deficit must be matched by an equal surplus of investment income.
C)all international transactions must be settled in one way or another.
D)a nation's exports will be limited by the dollar value of its imports.

Accepted Answer

A country's annual balance of payments statement must always balance because all international transactions must be settled in one way or another. This means that there can be no excess deficit or surplus in the overall balance of payments. Any deficit in one category of transactions must be offset by a surplus in another category. The balance of payments includes transactions in goods and services trade, income flows, and transfers. The balance of payments statement is a record of all international transactions between a country and its trading partners over a specific period of time, typically a year. It provides important information on a country's economic performance and policies.

Question 13

Which of the following creates a supply of Euro in foreign exchange markets?
A)a Frenchman redeems a bond issued by an Italian manufacturer.
B)an Italian importer buys insurance from a Canadian firm.
C)a Canadian student takes a summer trip to Rome.
D)a Canadian importer buys 500 cases of Italian table wine.

Accepted Answer

The answer of Which of the following creates a supply...

Question 14

In the balance of payments of Canada, Canadian merchandise imports are recorded as a:
A)positive entry.
B)capital account entry.
C)current account entry.
D)official reserves entry.

Accepted Answer

Canadian merchandise imports are recorded as a current account entry in the balance of payments since they represent a transaction in the current account, which records trade in goods and services. A positive entry would be a record of an inflow of funds into Canada, which is not the case with merchandise imports. Capital account entries record transactions in assets and liabilities, and official reserves entries record changes in foreign exchange reserves.

Question 15

There must always be a balance of a nation's:
A)merchandise exports and gold imports.
B)total international payments.
C)imports and exports of goods and services.
D)merchandise imports and exports.

Accepted Answer

The answer of There must always be a balance of...

Question 16

If a Canadian importer can purchase 10,000 pounds for $20,000, the rate of exchange:
A)is $1 = 2 pounds in Canada.
B)is $2 = 1 pound in Canada.
C)is $1 = 2 pounds in Great Britain.
D)is $.5 = 1 pound in Great Britain.

Accepted Answer

If the importer is purchasing 10,000 pounds for $20,000, then the rate of exchange would be $2 for every 1 pound. This means that option B is correct: the rate of exchange is $2 = 1 pound in Canada. Option A is incorrect, because it implies that the Canadian dollar is stronger than the pound, which is not the case. Option C is also incorrect, because it refers to the exchange rate between pounds and another currency, not the Canadian dollar. Option D is incorrect, because it implies that the pound is stronger than the Canadian dollar, which is not the case.

Question 17

A nation's merchandise balance of trade is equal to its exports less its imports of:
A)goods.
B)goods and services.
C)financial assets.
D)official reserves.

Accepted Answer

A nation's merchandise balance of trade only includes goods, not services, financial assets, or official reserves.

Question 18

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars.  Refer to the information above.Canada had a merchandise trade:
A)surplus of $137 billion.
B)surplus of $9 billion.
C)deficit of $9 billion.
D)deficit of $128 billion

Accepted Answer

The answer of The following table shows the trade between...

Question 19

A system of fixed exchange rates is more likely to give rise to exchange controls than is a system of flexible exchange rates.

Accepted Answer

In a system of fixed exchange rates, the authorities may find it necessary to impose exchange controls to maintain the fixed rate, whereas in a flexible exchange rate system, the exchange rate is determined by market forces and there is less need for such controls.

Question 20

Which one of the following will directly affect Canada's balance on goods and services, but not affect its balance of trade?
A)an increase in merchandise exports
B)a decrease in exports of services
C)an increase in official reserves
D)an increase in net transfers

Accepted Answer

Balance of trade refers to the balance of goods traded between countries, while balance of goods and services includes both goods and services. Therefore, a decrease in exports of services would affect Canada's balance on goods and services but not its balance of trade. Choices A, C, and D would all directly affect both Canada's balance of goods and services and its balance of trade.

Quiz 18: Part A: The Balance of Payments and Exchange Rates

In the foreign exchange markets:

International financial transactions mostly fall into two broad categories:

If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound, the rate of exchange between the two currencies:

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Which of the following would call for a payment to Canada?

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Which of the following would contribute to a Canadian balance of payments surplus?

Which of the following would contribute to a Canadian balance of payments deficit?

When the people involved in an exchange are from countries that use different currencies, an intermediate asset transaction has to take place:

The current exchange-rate system is an "almost" flexible exchange-rate system.

Which one of the following, other things equal, will directly alter Canada's balance of trade?

A country's annual balance of payments statement must always balance because:

Which of the following creates a supply of Euro in foreign exchange markets?

In the balance of payments of Canada, Canadian merchandise imports are recorded as a:

There must always be a balance of a nation's:

If a Canadian importer can purchase 10,000 pounds for $20,000, the rate of exchange:

A nation's merchandise balance of trade is equal to its exports less its imports of:

The following table shows the trade between Canada and Transylvania for the year 2012.All figures are in billions of dollars. Refer to the information above.Canada had a merchandise trade:

A system of fixed exchange rates is more likely to give rise to exchange controls than is a system of flexible exchange rates.

Which one of the following will directly affect Canada's balance on goods and services, but not affect its balance of trade?