Question 1

How are deficit and surplus items determined in the balance of payments?

Accepted Answer

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Question 2

Assume that $1 equals 100 yen (¥).A Japanese visitor to the United States wants to pay her $400 hotel bill.How many yen should she exchange in order to have enough dollars to pay the bill?

Accepted Answer

Since $1 = ¥100, then $400 = ¥40,000. Therefore, the Japanese visitor should exchange ¥40,000 to pay her $400 hotel bill.

Question 3

Hypothetical Data for Nation "A" in Billions of Local Currency $$\begin{array} { l r } 
\hline\text { Exports of goods } & 50 \
\text { Imports of goods } & - 100 \
\text { Exports of services } & 80 \
\text { Imports of services } & - 20 \
\text { Net unilateral transfers } & - 25 \
\text { Capital account } & 100 \
\text { Official reserve transaction accounts } & - 85\\hline
\end{array}$$
-Refer to the above table.The overall balance of payments of Nation "A" is

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Question 4

All of the following are deficit items in the balance of payments accounts EXCEPT

Accepted Answer

Exports of merchandise are a credit item in the balance of payments accounts, not a deficit item. A is a deficit item as it is a purchase of a non-produced, non-financial asset. B is a deficit item as it represents U.S. residents' spending on foreign goods and services. D is a deficit item as it represents a purchase of foreign financial assets.

Question 5

The foreign exchange rate describes the

Accepted Answer

The foreign exchange rate represents the price of one country's currency in terms of another country's currency. It is the rate at which a currency can be exchanged for another currency. Therefore, the correct option is D.

Question 6

If the exchange rate is such that $1 equals 5 Indian rupees,then the price of a rupee is

Accepted Answer

The price of a rupee is the reciprocal of the exchange rate, which is $1/5=0.20. Therefore, the correct answer is D.

Question 7

Suppose that there is a current account deficit of $255 billion and a capital account surplus of $245 billion.It may be concluded that the

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Question 8

Suppose the U.S.inflation rate falls while the inflation rate among the members of the European Monetary Union (EMU)holds constant.Other things equal,what will happen in the balance of payments accounts?

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Question 9

Checking exchange rates,you find $1 equals 0.75 euros.Then the price of 1 euro is

Accepted Answer

If $1 equals 0.75 euros, then we can see that 1 euro is worth more than $1. To find the price of 1 euro in dollars, we need to divide $1 by 0.75. Using a calculator, we get that 1 euro is equal to about $1.33. Therefore, the correct answer is C.

Question 10

If the United States has a trade deficit with China,then China must have

Accepted Answer

If the United States has a trade deficit with China, it means that the United States is importing more goods and services from China than it is exporting to China. Therefore, China would have a trade surplus with the United States.

Question 11

Suppose that the current exchange rate between the dollar and peso is $1 equals 10 pesos.If a firm in Mexico wanted to purchase $100,000 worth of U.S.televisions,how many pesos must they exchange?

Accepted Answer

To purchase $100,000 worth of U.S. televisions, the Mexican firm would need to exchange $100,000 / $1 = 100,000 dollars. Since $1 equals 10 pesos, the Mexican firm would need to exchange 100,000 dollars x 10 pesos/dollar = 1,000,000 pesos. Therefore, the correct answer is choice C.

Question 12

Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur

Accepted Answer

Exchanging currency from one country to another occurs in the foreign exchange market.

Question 13

Explain the three categories of balance of payments transactions.

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Question 14

Distinguish between the balance of payments and the balance of trade.

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Question 15

Suppose U.S.interest rates fall.This reduction in U.S.interest rates will cause which of the following to occur?

Accepted Answer

When U.S. interest rates fall, investors look for higher returns elsewhere, leading to an outflow of capital from the United States as they seek better investment opportunities in other countries.

Question 16

All of the following are surplus items on the balance of payments accounts EXCEPT

Accepted Answer

Purchases of gold from foreign residents by U.S. residents are considered a use of funds or a deficit item in the balance of payments, as it involves money flowing out of the country to purchase foreign goods (in this case, gold). Options B, C, and D are all sources of funds or surplus items, as they involve money flowing into the country.

Question 17

Suppose there was a substantial increase in political instability in the rest of the world.What would be the effects on the U.S.current account? Explain.

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Question 18

"When the balance of payments sums to zero is the only situation in which there is an equilibrium." Do you agree or disagree? Why?

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Question 19

Suppose that the current exchange rate between the dollar and peso is $1 equals 10 pesos.If the exchange rate changes to $1 equals 8 pesos,which of the following is true?

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Question 20

Changes in which of the following will cause a change in exchange rates?

Accepted Answer

All of the given factors (real interest rates, consumer preferences, and perceptions of economic and political stability) can impact the demand and supply of currencies in international markets, which ultimately affects exchange rates. For example, if a country has high real interest rates, its currency becomes more attractive to investors, leading to an increase in demand and appreciation in value. Similarly, consumer preferences for imported goods can increase demand for a country's currency, while concerns over economic or political stability can decrease demand and lead to a depreciation in its currency.

Quiz 20: Exchange Rates and the Balance of Payments