Question 1

If the U.S. dollar appreciates, it means that

Accepted Answer

C

Question 2

Under a system of flexible exchange rates, an increase in demand for a nation's currency in the foreign exchange market will

Accepted Answer

An increase in demand for a nation's currency in the foreign exchange market causes the currency to appreciate (increase in value). This happens because there are more buyers of the currency, which increases its price relative to other currencies.

Question 3

As domestic income rises, net exports will tend to

Accepted Answer

As domestic income rises, people tend to consume more, including imported goods, which causes imports to increase. However, exports remain the same. Therefore, the trade deficit widens, and net exports fall.

Question 4

If the exchange rate has been $2.00 per British pound but now falls to $1.60 per British pound, there will be

Accepted Answer

When the exchange rate of British pound to US dollar falls from $2.00 to $1.60, it means that British pounds are now cheaper for US buyers. Hence, US imports from Great Britain are likely to increase as it is now more affordable for US buyers to purchase British goods.

Question 5

Under a system of flexible exchange rates, which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market?

Accepted Answer

The answer of Under a system of flexible exchange rates,...

Question 6

If the exchange rate changes from 1 euro per U.S. dollar to 1.2 euros per U.S. dollar, the Euro has

Accepted Answer

The answer of If the exchange rate changes from 1...

Question 7

An increase in incomes in other countries, other things equal, would tend to cause U.S.

Accepted Answer

The answer of An increase in incomes in other countries,...

Question 8

If a country fixes the exchange-rate value of its currency, it will have to

Accepted Answer

By fixing the exchange-rate value of its currency, a country gives up its monetary independence. This means that the country cannot independently set its own monetary policy, and must instead adjust its policy to maintain the fixed exchange rate. This often requires the country to engage in interventions in the foreign exchange market, which can be expensive and limit the ability of the central bank to pursue other policy objectives.

Question 9

A nation's trade deficit will tend to expand when

Accepted Answer

The answer of A nation's trade deficit will tend to...

Question 10

If real interest rates in the United States are higher than those of our trading partners, what will tend to happen to the foreign exchange value of the dollar and the U.S. current account deficit or surplus?

Accepted Answer

The answer of If real interest rates in the United...

Question 11

A depreciation in the value of the U.S. dollar would

Accepted Answer

The answer of A depreciation in the value of the...

Question 12

If the dollar price of the euro goes from $1 to 90 cents, the euro has

Accepted Answer

The answer of If the dollar price of the euro...

Question 13

If the U.S. dollar appreciates in the foreign exchange market,

Accepted Answer

When the U.S. dollar appreciates in the foreign exchange market, it means that the value of the dollar has increased relative to other currencies. As a result, American goods become more expensive for foreign buyers because they need to exchange more of their own currency to buy the same amount of U.S. dollars. On the other hand, foreign goods become cheaper for Americans because they need to exchange fewer dollars to buy the same amount of the foreign currency needed to purchase those goods.

Question 14

An increase in the U.S. demand for foreign exchange will cause

Accepted Answer

An increase in the U.S. demand for foreign exchange means that Americans are trying to buy more foreign goods or invest more in foreign countries. This increased demand for foreign exchange will drive up the price of foreign exchange, leading to a depreciation of the U.S. dollar. A depreciated U.S. dollar makes foreign goods more expensive to American consumers, as each dollar can purchase fewer units of foreign currency. Therefore, Option B is the correct answer.

Question 15

Suppose a German-produced car becomes very popular in the United States. This would tend to

Accepted Answer

If a German-produced car becomes very popular in the United States, it would increase the demand for imports from Germany (the source of the car), which would increase the United States' imports and therefore increase its balance of trade deficit.

Question 16

If the U.S. dollar depreciates, it means that

Accepted Answer

If the U.S. dollar depreciates, it means that more U.S. dollars are required to purchase foreign exchange. This is because the value of the U.S. dollar has decreased relative to other currencies, making it less valuable in international trade. This can make exports cheaper and more competitive, but can also lead to inflation and higher import costs for domestic consumers.

Question 17

Which one of the following would be recorded as a credit in the U.S. balance of payments accounts?

Accepted Answer

The answer of Which one of the following would be...

Question 18

If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar,

Accepted Answer

The answer of If on Tuesday you can buy 125...

Question 19

The U.S. dollar will appreciate if

Accepted Answer

The answer of The U.S. dollar will appreciate if
...

Question 20

Under a flexible exchange rate system, the rate that equates demand and supply in the exchange rate market also equates the

Accepted Answer

In a flexible exchange rate system, the exchange rate is determined by the demand and supply of currencies in the foreign exchange market. This means that the rate not only equates the value of a nation's purchases of goods, services, and assets from foreigners with the value of the nation's sales of these items to foreigners, but also reflects the overall international transactions between the two countries. Therefore, choice B is the correct option. The exchange rate does not necessarily equate the value of the nation's merchandise exports with the value of its merchandise imports (choice A), or the debit and credit items on current account transactions (choice C), or capital account transactions (choice D).

Quiz 19: International Finance and the Foreign Exchange Market