Question 1

If the exchange rate between the U.S. dollar and the Japanese yen were such that one U.S. dollar equals 100 yen, what would be the price in dollars of a Japanese automobile that cost 2,000,000 yen?

Accepted Answer

If one U.S. dollar equals 100 yen, then 2,000,000 yen would be equivalent to $20,000 (since 2,000,000 divided by 100 equals 20,000). Therefore, the price of the Japanese automobile in dollars would be $20,000.

Question 2

During recent times, the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services). Which of the following is true regarding these trade deficits?

Accepted Answer

Trade deficits are caused by a combination of factors, including rapid economic growth stimulating imports and the attractiveness of the United States as a place to invest causing a capital inflow. Option B is incorrect as trade deficits do not necessarily put a country in debt to foreign economies. Option C is incorrect as trade deficits can occur even under fair trade practices, and it is not necessarily evidence of unfair trade. Option D is incorrect as option A is the correct answer.

Question 3

For a country to successfully maintain a fixed exchange rate value of its currency relative to another currency (for example, as is done when currencies are unified or pegged), it must

Accepted Answer

In order to maintain a fixed exchange rate value of its currency, a country must give up the independence of its monetary policy. This means that the country must be willing to adjust its interest rates and money supply based on the policies of the country to which its currency is pegged. Maintaining a fixed exchange rate also often involves significant intervention in the foreign exchange market, which can be expensive and require large foreign currency reserves. Maintaining a high rate of inflation, balancing the government budget, and running a trade deficit are not necessarily requirements for maintaining a fixed exchange rate.

Question 4

If the exchange rate value of one U.S. dollar changes from 120 Japanese yen to 140 yen,

Accepted Answer

The answer of If the exchange rate value of one...

Question 5

Figure 18-3  
-Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The supply curve in graph (A) is comprised of

Accepted Answer

The supply curve in graph (A) represents U.S. citizens attempting to purchase Japanese-made goods, as they need to supply dollars to obtain yen for these transactions.

Question 6

An appreciation in the value of the U.S. dollar would

Accepted Answer

The answer of An appreciation in the value of the...

Question 7

Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound)?

Accepted Answer

If real interest rates in the United States fall lower than real interest rates in England, investors will move their money out of the U.S. and into other countries because they can get higher returns. This increased supply of dollars for sale on the foreign exchange market will decrease the value of the dollar relative to other currencies such as the English pound.

Question 8

Figure 18-3  
-Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The supply curve in graph (B) is comprised of

Accepted Answer

The supply curve in graph (B) represents the supply of dollars in exchange for yen, which is driven by Japanese attempting to purchase U.S.-made goods, as they need to exchange yen for dollars to make these purchases.

Question 9

Use the figure below to answer the following question(s). Figure 18-2 -In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D₁ to D₂?

Accepted Answer

An increased level of vacation travel to Britain by Americans would increase the demand for pounds as more Americans need to exchange dollars for pounds to spend in Britain.

Question 10

Which one of the following would supply dollars to the foreign exchange market?

Accepted Answer

The spending of U.S. tourists in Europe would supply dollars to the foreign exchange market. This is because the tourists would need to exchange their dollars for the local European currency, which would increase the supply of dollars in the market. The other choices involve the purchase or sale of goods or assets, which may or may not involve currency exchanges but would not necessarily increase the supply of dollars in the foreign exchange market.

Question 11

If the value of a nation's merchandise imports exceeds merchandise exports, the nation is running a

Accepted Answer

A merchandise trade deficit occurs when a nation's imports of goods exceed its exports of goods. This is different from a balance of payments deficit, which includes not only goods but also services and financial transactions. A balance of payments surplus occurs when a nation's total exports (both goods and services) exceed its total imports. A merchandise trade surplus occurs when a nation's exports of goods exceed its imports of goods.

Question 12

(I) The U.S. trade deficit is a financial obligation of the federal government, and if it is not paid off, foreigners will be reluctant to loan money to the U.S. government. (II) When a nation runs a current account deficit due to a merchandise trade deficit, it must also be true that the nation has a surplus on its capital account due to an inflow of foreign capital.

Accepted Answer

The answer of (I) The U.S. trade deficit is a...

Question 13

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Accepted Answer

The exchange rate is a crucial determinant of both current and capital account transactions. A flexible exchange rate system, where the exchange rate is determined by demand and supply, will lead to a balance of both current and capital account transactions, in addition to balancing merchandise exports and imports. Therefore, option D is the correct answer.

Question 14

Figure 18-3  
-Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph (A) is comprised of

Accepted Answer

The demand curve in graph (A) represents U.S. citizens attempting to purchase Japanese-made goods, which requires them to demand yen in exchange for dollars.

Question 15

Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?

Accepted Answer

The answer of Other things constant, which of the following...

Question 16

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

Accepted Answer

When foreign interest rates are higher, foreign investors are more likely to invest in that country, leading to an increased demand for the foreign currency and a decreased demand for the nation's currency, causing depreciation.

Question 17

Use the figure below to answer the following question(s). Figure 18-2 -Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D₁ to D₂?

Accepted Answer

An increase in the real interest rate in Britain relative to the United States would make British assets more attractive, increasing the demand for pounds as investors seek to invest in Britain.

Question 18

An increase in the dollar price of the Mexican peso (an appreciation of the peso) would cause

Accepted Answer

The answer of An increase in the dollar price of...

Question 19

If the U.S. dollar depreciates, then U.S. exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S. citizens.

Accepted Answer

When the U.S. dollar depreciates, it takes more dollars to buy the same amount of foreign currency. This means that U.S. exports become less expensive to foreigners because they can buy more with their own currency. On the other hand, foreign goods become more expensive to U.S. citizens because they now have to spend more U.S. dollars to buy the same amount of foreign goods.

Question 20

Under a system of flexible exchange rates, transactions that increase the supply of the nation's currency to the foreign exchange market will cause the nation's

Accepted Answer

Under a system of flexible exchange rates, if the supply of a nation's currency increases, its value will decrease relative to other currencies. This depreciation will make the nation's products cheaper for foreign buyers, which may increase exports and reduce imports, potentially improving the trade balance.

Quiz 19: International Finance and the Foreign Exchange Market

If the exchange rate between the U.S. dollar and the Japanese yen were such that one U.S. dollar equals 100 yen, what would be the price in dollars of a Japanese automobile that cost 2,000,000 yen?

During recent times, the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services) . Which of the following is true regarding these trade deficits?

For a country to successfully maintain a fixed exchange rate value of its currency relative to another currency (for example, as is done when currencies are unified or pegged) , it must

If the exchange rate value of one U.S. dollar changes from 120 Japanese yen to 140 yen,

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The supply curve in graph (A) is comprised of

An appreciation in the value of the U.S. dollar would

Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound) ?

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The supply curve in graph (B) is comprised of

Use the figure below to answer the following question(s) . Figure 18-2 -In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D₁ to D₂?

Which one of the following would supply dollars to the foreign exchange market?

If the value of a nation's merchandise imports exceeds merchandise exports, the nation is running a

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph (A) is comprised of

Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?

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

Use the figure below to answer the following question(s) . Figure 18-2 -Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D₁ to D₂?

An increase in the dollar price of the Mexican peso (an appreciation of the peso) would cause

If the U.S. dollar depreciates, then U.S. exports become expensive to foreigners and foreign goods become expensive to U.S. citizens.

Under a system of flexible exchange rates, transactions that increase the supply of the nation's currency to the foreign exchange market will cause the nation's

Quiz 19: International Finance and the Foreign Exchange Market

If the exchange rate between the U.S. dollar and the Japanese yen were such that one U.S. dollar equals 100 yen, what would be the price in dollars of a Japanese automobile that cost 2,000,000 yen?

During recent times, the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services) . Which of the following is true regarding these trade deficits?

For a country to successfully maintain a fixed exchange rate value of its currency relative to another currency (for example, as is done when currencies are unified or pegged) , it must

If the exchange rate value of one U.S. dollar changes from 120 Japanese yen to 140 yen,

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The supply curve in graph (A) is comprised of

An appreciation in the value of the U.S. dollar would

Under a flexible exchange rate system, which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound) ?

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The supply curve in graph (B) is comprised of

Use the figure below to answer the following question(s) . Figure 18-2 -In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D1 to D2?

Which one of the following would supply dollars to the foreign exchange market?

If the value of a nation's merchandise imports exceeds merchandise exports, the nation is running a

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Figure 18-3 -Figure 18-3 displays the international currency market for yen in terms of dollars and dollars in terms of yen. The demand curve in graph (A) is comprised of

Other things constant, which of the following will most likely cause the dollar to appreciate on the exchange rate market?

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

Use the figure below to answer the following question(s) . Figure 18-2 -Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D1 to D2?

An increase in the dollar price of the Mexican peso (an appreciation of the peso) would cause

If the U.S. dollar depreciates, then U.S. exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S. citizens.

Under a system of flexible exchange rates, transactions that increase the supply of the nation's currency to the foreign exchange market will cause the nation's

Use the figure below to answer the following question(s) . Figure 18-2 -In Figure 18-2, which of the following would cause the American demand for foreign exchange (pounds) to shift from D₁ to D₂?

Use the figure below to answer the following question(s) . Figure 18-2 -Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. Which of the following would cause the demand for foreign exchange (pounds) to shift from D₁ to D₂?

If the U.S. dollar depreciates, then U.S. exports become expensive to foreigners and foreign goods become expensive to U.S. citizens.