Question 1

Which of the following would be entered into the U.S.current account?

Accepted Answer

Only the purchase of the bottle of wine from Portugal by a U.S. citizen would be entered into the U.S. current account as it represents a transaction between a resident and a foreign entity. The other options involve either a transaction between two domestic entities (A, B, and E) or a foreign entity purchasing from a domestic entity (C).

Question 2

Suppose an American citizen purchases a TV from Sony (a Japanese company).Sony then uses the dollars to purchases U.S.Treasury bonds.How will this transaction impact the U.S.trade deficit?

Accepted Answer

The purchase of the TV from Sony is an import and will be recorded as such in the current account. When Sony uses the dollars to purchase U.S. Treasury bonds, this will be recorded as a financial transaction in the capital account and will not impact the current account. Therefore, the trade deficit will increase due to the initial import of the TV.

Question 3

An increase in imports,ceteris paribus,indicates:

Accepted Answer

The answer of An increase in imports,ceteris paribus,indicates:
...

Question 4

Assuming the theory of purchasing power parity holds,if the exchange rate between the United States and Japan is $0.011 per yen (¥),then how much does a $400 Microsoft Xbox cost in Japanese yen?

Accepted Answer

According to the theory of purchasing power parity, the exchange rate between two currencies should reflect the relative price levels of the two countries. In other words, if the exchange rate between the US dollar and Japanese yen is $0.011 per yen, it means that one US dollar can buy 0.011 yen in Japan.
To find out how much a $400 Xbox would cost in yen, we need to convert $400 into yen using the exchange rate:
$400 * 1 / 0.011 yen/dollar = ¥36,363.64
Therefore, the cost of a $400 Microsoft Xbox in Japanese yen would be ¥36,364, which is option C.

Question 5

Assuming the theory of purchasing power parity holds,what is the exchange rate between the United States and Mexico if the price of an Under Armour shirt costs $25 in the United States and 350 pesos in Mexico? (The shirts are identical in each country.)

Accepted Answer

The answer of Assuming the theory of purchasing power parity...

Question 6

Suppose an earthquake occurs in Dhaka,Bangladesh,and inflicts massive damages on the city.You raise money to send to aid the victims of the tragedy.How would this transaction be recorded?

Accepted Answer

When money is sent to aid the victims of a tragedy, it represents a transfer of resources from one country to another without an exchange of goods or services. As such, it is recorded as a capital transfer and would result in a decrease in the US current account.

Question 7

Suppose that a Sony Playstation (manufactured in Japan) sells for a lower price in China than in the United States.What is the most likely reason for the difference in prices in the two locations?

Accepted Answer

Shipping the Playstation to the United States is more expensive than shipping it to China.

Question 8

Which of the following goods/services is considered non-tradable?

Accepted Answer

Non-tradable goods/services are those that cannot be easily traded or transported over long distances. An oil change for your automobile is a service that must be performed locally and cannot be traded internationally.

Question 9

Suppose that sugar produced in Cuba sells for a lower price in Mexico than it does in the United States.What is the most likely reason for the difference in prices in the two locations?

Accepted Answer

The United States has historically had more stringent trade restrictions on Cuba, which could lead to higher prices due to tariffs or limited supply.

Question 10

Assuming the theory of purchasing power parity holds,if the exchange rate between the United States and Europe is $1.33 per euro,then how much does a €35 bottle of French champagne cost in U.S.dollars?

Accepted Answer

To find the cost in U.S. dollars, multiply the euro price by the exchange rate: €35 * $1.33/€ = $46.55.

Question 11

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé decides to hold on to the Chinese currency.How will this transaction enter into the U.S.balance of payments?

Accepted Answer

The answer of Suppose a Chinese citizen buys a box...

Question 12

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé uses the currency to buy Chinese-produced machinery.How will this transaction enter into the U.S.balance of payments?

Accepted Answer

The answer of Suppose a Chinese citizen buys a box...

Question 13

Suppose an American citizen purchases a TV from Sony (a Japanese company).Sony then uses the dollars to purchases U.S.Treasury bonds.How will this transaction enter into the U.S.balance of payments?

Accepted Answer

The answer of Suppose an American citizen purchases a TV...

Question 14

If the theory of purchasing power parity holds,then how much does an oil change for a Toyota Prius cost in Japan if the same oil change for the same Toyota Prius costs $29.95 in the United States and the exchange rate is $0.011 per Japanese yen?

Accepted Answer

The answer of If the theory of purchasing power parity...

Question 15

What is the key identity of the balance of payments?

Accepted Answer

The balance of payments is a record of all financial transactions between a country and the rest of the world over a period of time. It comprises the current account and capital account balances. The key identity of the balance of payments is that the sum of the current account balance and the capital account balance must equal zero. This is because every international transaction involves the exchange of one currency for another, and every purchase or sale of an asset in one country requires an offsetting purchase or sale in another country. Therefore, the balance of payments must balance out.

Question 16

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé uses the currency to purchase Chinese-manufactured televisions.How will this transaction enter into the U.S.balance of payments?

Accepted Answer

The answer of Suppose a Chinese citizen buys a box...

Question 17

Suppose an American citizen purchases a TV from Sony (a Japanese company).Sony then uses the dollars to purchases U.S.Treasury bonds.How will this transaction enter into the Japanese balance of payments?

Accepted Answer

The answer of Suppose an American citizen purchases a TV...

Question 18

Assuming the theory of purchasing power parity holds,what is the exchange rate between the United States and Mexico if the price of an identical Under Armour shirt costs $25 in the United States and 350 pesos in Mexico (rounded to the nearest penny)?

Accepted Answer

The answer of Assuming the theory of purchasing power parity...

Question 19

Suppose a Portuguese citizen travels to Tanzania to go on a safari and uses euros for the transaction.Tanzania then uses the euros to purchase wine from Portugal.How will this transaction affect Portugal's trade deficit?

Accepted Answer

The first transaction is recorded as an import in the current account, as the Portuguese citizen is purchasing a service (going on a safari) from Tanzania. The second transaction is recorded as an export in the current account, as Tanzania is importing a good (wine) from Portugal. As the imports and exports cancel each other out, the trade deficit will not change.

Question 20

Which of the following would be entered into the U.S.capital account?

Accepted Answer

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

Quiz 20: International Finance

Which of the following would be entered into the U.S.current account?

Suppose an American citizen purchases a TV from Sony (a Japanese company) .Sony then uses the dollars to purchases U.S.Treasury bonds.How will this transaction impact the U.S.trade deficit?

An increase in imports,ceteris paribus,indicates:

Assuming the theory of purchasing power parity holds,if the exchange rate between the United States and Japan is $0.011 per yen (¥) ,then how much does a $400 Microsoft Xbox cost in Japanese yen?

Assuming the theory of purchasing power parity holds,what is the exchange rate between the United States and Mexico if the price of an Under Armour shirt costs $25 in the United States and 350 pesos in Mexico? (The shirts are identical in each country.)

Suppose an earthquake occurs in Dhaka,Bangladesh,and inflicts massive damages on the city.You raise money to send to aid the victims of the tragedy.How would this transaction be recorded?

Suppose that a Sony Playstation (manufactured in Japan) sells for a lower price in China than in the United States.What is the most likely reason for the difference in prices in the two locations?

Which of the following goods/services is considered non-tradable?

Suppose that sugar produced in Cuba sells for a lower price in Mexico than it does in the United States.What is the most likely reason for the difference in prices in the two locations?

Assuming the theory of purchasing power parity holds,if the exchange rate between the United States and Europe is $1.33 per euro,then how much does a €35 bottle of French champagne cost in U.S.dollars?

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé decides to hold on to the Chinese currency.How will this transaction enter into the U.S.balance of payments?

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé uses the currency to buy Chinese-produced machinery.How will this transaction enter into the U.S.balance of payments?

Suppose an American citizen purchases a TV from Sony (a Japanese company) .Sony then uses the dollars to purchases U.S.Treasury bonds.How will this transaction enter into the U.S.balance of payments?

If the theory of purchasing power parity holds,then how much does an oil change for a Toyota Prius cost in Japan if the same oil change for the same Toyota Prius costs $29.95 in the United States and the exchange rate is $0.011 per Japanese yen?

What is the key identity of the balance of payments?

Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé uses the currency to purchase Chinese-manufactured televisions.How will this transaction enter into the U.S.balance of payments?

Suppose an American citizen purchases a TV from Sony (a Japanese company) .Sony then uses the dollars to purchases U.S.Treasury bonds.How will this transaction enter into the Japanese balance of payments?

Assuming the theory of purchasing power parity holds,what is the exchange rate between the United States and Mexico if the price of an identical Under Armour shirt costs $25 in the United States and 350 pesos in Mexico (rounded to the nearest penny) ?

Suppose a Portuguese citizen travels to Tanzania to go on a safari and uses euros for the transaction.Tanzania then uses the euros to purchase wine from Portugal.How will this transaction affect Portugal's trade deficit?

Which of the following would be entered into the U.S.capital account?