Question 1

"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 2

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 3

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 4

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 5

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

Accepted Answer

All of the above factors can affect the demand and supply of a currency, which can lead to a change in its exchange rate. For example, higher real interest rates can increase demand for a currency, while political instability can decrease demand for a currency. Consumer preferences can also affect the demand for a country's exports, which can have an impact on its exchange rate.

Question 6

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 7

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

Accepted Answer

Exchanging currencies to pay a foreign supplier would occur in the foreign exchange market, where currencies are bought and sold. The Federal Reserve and European Central Bank are central banks that manage monetary policy and do not engage in currency exchange for individuals or businesses. The letter of credit market is a type of financial guarantee used in international trade transactions but does not involve currency exchange directly.

Question 8

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

Accepted Answer

A trade deficit means that the value of the goods and services imported from another country (in this case, China) exceeds the value of the goods and services exported to that country. Therefore, if the United States has a trade deficit with China, it means that China has a trade surplus with the United States.

Question 9

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

Accepted Answer

Exports of merchandise are not a deficit item in the balance of payments accounts. They are a credit item, as they represent income earned by U.S. residents from selling goods to foreign residents. Choices A, B, and D are deficit items, as they involve payments made by U.S. residents to foreign residents, without receiving a corresponding payment in return.

Question 10

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 11

Hypothetical Data for Nation "A" in Billions of Local Currency 
-Refer to the above table.The overall balance of payments of Nation "A" is

Accepted Answer

The overall balance of payments is calculated as the sum of the current account and capital account balances. In this table, the current account balance is 150 and the capital account balance is -150, which sums to zero overall balance of payments.

Question 12

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

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Question 13

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 14

The foreign exchange rate describes the

Accepted Answer

The foreign exchange rate describes the price of foreign currency in terms of domestic currency.

Question 15

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 16

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

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Question 17

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 18

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

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Question 19

Explain the three categories of balance of payments transactions.

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Question 20

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

The Japanese visitor would need to exchange ¥40,000 in order to have enough dollars to pay the $400 hotel bill. This can be found by multiplying the amount of dollars by the exchange rate: $400 x 100 = ¥40,000. Therefore, the answer is D.

Quiz 33: Exchange Rates and the Balance of Payments