Question 1

A country's international trade flows are affected by which of the following factors:
A) inflation.
B) national income.
C) government restrictions.
D) all of the above.

Accepted Answer

All of the mentioned factors—inflation, national income, and government restrictions—can influence a country's international trade flows.

Question 2

Over time, international trade (exports plus imports) as a percentage of GDP has:
A) increased for most major countries.
B) decreased for most major countries.
C) stayed about constant for most major countries.
D) increased for about half the major countries and decreased for the others.

Accepted Answer

International trade as a percentage of GDP has increased for most major countries over time, as globalization and advancements in technology have made it easier for countries to trade with each other.

Question 3

'Dumping' is used in the text to represent the:
A) exporting of goods that do not meet quality standards.
B) sales of junk bonds to foreign countries.
C) removal of foreign subsidiaries by the host government.
D) exporting of goods at prices below cost.

Accepted Answer

'Dumping' refers to the exporting of goods at prices lower than the cost of production which can create unfair competition in other markets.

Question 4

Like the International Monetary Fund (IMF), the ____ is composed of a collection of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.
A) World Bank
B) International Financial Corporation (IFC)
C) World Trade Organization (WTO)
D) International Development Association (IDA)
E) Bank for International Settlements (BIS)

Accepted Answer

The International Financial Corporation (IFC) is the only option that fits the description of using the private sector to achieve its objectives. The World Bank, International Development Association (IDA), and Bank for International Settlements (BIS) are all international organizations that work with governments, while the World Trade Organization (WTO) is primarily focused on regulating international trade.

Question 5

As a result of the European Union, restrictions on exports between ____ were reduced or eliminated.
A) member countries and the US
B) member countries
C) member countries and European non-members
D) none of the above

Accepted Answer

The European Union is a free trade area where member countries have eliminated barriers to trade between themselves. Therefore, restrictions on exports between member countries have been reduced or eliminated. However, this does not apply to exports between member countries and non-members or the US.

Question 6

If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).
A) decrease
B) increase
C) remain unaffected
D) Either A or C are possible.

Accepted Answer

A tariff on imported goods makes them more expensive, reducing imports and potentially increasing the current account balance by improving the trade balance.

Question 7

Which of the following would likely have the least direct influence on a country's current account?
A) Inflation
B) National income
C) Exchange rates
D) Tariffs
E) A tax on income earned from foreign stocks

Accepted Answer

A tax on income earned from foreign stocks primarily affects the financial account, not the current account, which deals with trade in goods and services, income, and current transfers.

Question 8

The International Development Association was established to:
A) enhance development solely in Asia through grants.
B) enhance economic development through non-subsidized loans (at market interest rates).
C) enhance economic development through low-interest rate loans (below-market rates).
D) enhance economic development of the private sector through investment in stock of corporations.

Accepted Answer

The International Development Association was established to enhance economic development through low-interest rate loans (below-market rates) for low-income countries. Its purpose is to provide funding to these countries to support sustainable and equitable economic growth, reduce poverty and improve living conditions for their people.

Question 9

The World Bank frequently enters into cofinancing agreements. Under these agreements, financing is provided by the World Bank and/or official aid agencies, export credit agencies, or commercial banks.

Accepted Answer

This statement is true. The World Bank often engages in cofinancing arrangements where it collaborates with other entities, such as official aid agencies, export credit agencies, and commercial banks, to provide financing for development projects.

Question 10

A weakening of the US dollar with respect to the British pound would likely reduce the US exports to Britain and increase US imports from Britain.

Accepted Answer

A weakening of the US dollar with respect to the British pound would make US exports cheaper and more attractive to British buyers, potentially increasing US exports to Britain. It would also make British imports more expensive for US buyers, potentially reducing US imports from Britain.

Question 11

The direct foreign investment positions by UK firms have generally ____ over time; the direct foreign investment positions in the UK by non-UK firms have generally ____ over time.
A) increased; increased
B) increased; decreased
C) decreased; decreased
D) decreased; increased

Accepted Answer

Over time, both the direct foreign investment positions by UK firms abroad and the direct foreign investment positions in the UK by non-UK firms have generally increased, reflecting globalization and the interconnectedness of economies.

Question 12

Also known as the 'central banks' central bank', the ____ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis.
A) World Bank
B) International Financial Corporation (IFC)
C) World Trade Organization
D) International Development Association (IDA)
E) Bank for International Settlements (BIS)

Accepted Answer

The Bank for International Settlements (BIS) is often referred to as the 'central banks' central bank' because it acts as a forum for central banks to cooperate on international financial policy issues. The BIS also provides financial and technical assistance to countries experiencing financial difficulties, making it the best choice for the given question. The World Bank (A), International Financial Corporation (IFC) (B), World Trade Organization (C), and International Development Association (IDA) (D) do not have the same role as the BIS in facilitating cooperation among central banks and providing assistance to countries in financial crisis.

Question 13

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

Accepted Answer

The statement is false. The World Bank also extends loans to developing nations through its International Bank for Reconstruction and Development (IBRD), while the IDA provides grants and interest-free loans to the world's poorest countries.

Question 14

The balance of payments is a measurement of all transactions between domestic and foreign residents over a specified period of time.

Accepted Answer

The balance of payments is indeed a measurement of all transactions between domestic and foreign residents over a specified period of time.

Question 15

Which of the following statement is correct?
A) The BIS attempts to facilitate cooperation among countries with regard to international transactions.
B) The BIS provides assistance to countries experiencing a financial crisis.
C) The BIS is sometimes referred to as the 'central banks' central bank' or the 'lender of last resort'.
D) All of the above.

Accepted Answer

The BIS is an international organization that fosters cooperation among central banks and other financial institutions. It provides assistance to countries experiencing a financial crisis and is often referred to as the 'central banks' central bank' or the 'lender of last resort'.

Question 16

The recent BRICS alliance is a representative group of the Canada, Brazil, India, Russia and South Africa.

Accepted Answer

The BRICS alliance consists of Brazil, Russia, India, China, and South Africa, not Canada.

Question 17

The 'J curve' effect describes:
A) the continuous long-term inverse relationship between a country's current account balance and the country's growth in gross national product.
B) the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating.
C) the tendency for exporters to initially reduce the price of goods when their own currency appreciates.
D) the reaction of a country's currency to initially depreciate after the country's inflation rate declines.

Accepted Answer

The 'J curve' effect describes the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating. This is because initially, the higher price of imports due to depreciation outweighs the increased demand for exports, leading to a temporary worsening of the trade balance before the long-term benefits of currency depreciation are realized.

Question 18

The primary component of the current account is the:
A) balance of trade.
B) balance of money market flows.
C) balance of capital market flows.
D) unilateral transfers.

Accepted Answer

The primary component of the current account is the balance of trade, which measures the value of a country's exports compared to its imports. This includes goods and services traded with other countries. The other options listed are components of the capital account, which measures investment flows and transfers of assets between a country and the rest of the world.

Question 19

The demand for UK exports tends to increase when:
A) economic growth in foreign countries decreases.
B) the currencies of foreign countries strengthen against the pound.
C) UK inflation rises.
D) none of the above

Accepted Answer

When foreign currencies strengthen against the pound, UK exports become cheaper for foreign buyers, increasing demand.

Question 20

Exporting of products by one country to other countries at prices below cost is called elasticity.

Accepted Answer

Exporting of products by one country to other countries at prices below cost is called dumping, not elasticity. Elasticity refers to the responsiveness of demand or supply to changes in price or income.

Quiz 2: International Flow of Funds

A country's international trade flows are affected by which of the following factors:

Over time, international trade (exports plus imports) as a percentage of GDP has:

'Dumping' is used in the text to represent the:

Like the International Monetary Fund (IMF) , the ____ is composed of a collection of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.

As a result of the European Union, restrictions on exports between ____ were reduced or eliminated.

If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments) .

Which of the following would likely have the least direct influence on a country's current account?

The International Development Association was established to:

The World Bank frequently enters into cofinancing agreements. Under these agreements, financing is provided by the World Bank and/or official aid agencies, export credit agencies, or commercial banks.

A weakening of the US dollar with respect to the British pound would likely reduce the US exports to Britain and increase US imports from Britain.

The direct foreign investment positions by UK firms have generally over time; the direct foreign investment positions in the UK by non-UK firms have generally over time.

Also known as the 'central banks' central bank', the ____ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis.

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

The balance of payments is a measurement of all transactions between domestic and foreign residents over a specified period of time.

Which of the following statement is correct?

The recent BRICS alliance is a representative group of the Canada, Brazil, India, Russia and South Africa.

The 'J curve' effect describes:

The primary component of the current account is the:

The demand for UK exports tends to increase when:

Exporting of products by one country to other countries at prices below cost is called elasticity.