Deck 12: International Markets

Question 1

A deficit in the trade balance of payments puts downward pressure on the exchange rate.

Answer 1

True

Question 2

If interest rates are higher in Japan than in the United States, the cost of a yen per U.S. dollar in the spot market will typically be higher than in the forward market.

Answer 2

True

Question 3

The demand for foreign exchange by an importer is a demand derived from a pending economic transaction.

Answer 3

True

Question 4

A weak U. S. dollar will lead to increased foreign demand for U.S goods.

Question 5

A country's forward exchange rate will represent a higher home currency value relative to its spot exchange rate when people expect it to have more inflation than other countries.

Question 6

If a U.S. exporter agrees to receive payment in 60 days in pounds, the British importer has assumed the exchange rate risk in the transaction.

Question 7

Exports grow when foreign currencies depreciate relative to the dollar.

Question 8

In balance of payments accounting, a deficit in the current account may be offset by a surplus in the financial accounts.

Question 9

When the foreign demand for a country's goods and services increases, the demand for the foreign country's currency also increases.

Question 10

In the balance of payments, the difference between current account flows, capital and financial account flows is shown as a statistical discrepancy.

Question 11

If a government buys its domestic currency from foreigners, its exchange rate will rise allelse equal.

Question 12

If an investor can obtain more euros for a dollar in the forward market than in the spot market, then the euro is said to be selling at a discount to its spot rate.

Question 13

Governments whose country imports a lot encourage long-term foreign investment in their countries because it helps balance their balance of payments.

Question 14

Eurobonds are bearer bonds and do not have to be registered and often pay interest annually rather than semiannually.

Question 15

Capital flight from a country tends to reduce the value of the country's currency relative to other countries.

Question 16

A strong dollar would make imports cheaper, and may eventually force domestic producers of goods with import substitutes to lower prices.

Question 17

A Canadian dollar cost $0.84 in U.S. dollars and later costs $0.86. The U.S. dollar has depreciated relative to the Canadian dollar.

Question 18

If a Canadian dollar costs $0.83 in U.S. dollars, a U.S. dollar costs a Canadian $1.17 in Canadian dollars.

Question 19

A foreign currency will, on average over the long term, appreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceedsthat of the United States if purchasing power parity holds.

Question 20

If merchandise imports exceed merchandise exports, the trade balance is in a surplus position.

Question 21

Increased U.S. inflation, relative to other trading partner nations, should have what impact on the value of the U.S. dollar? Explain in terms of purchasing power parity.

Question 22

Under what conditions could a country have a sizable deficit in its trade balance and still have an appreciating currency?

Question 23

Explain how and why the U.S. forward exchange rates against the Euro are related to short-term interest rates in the United States and Germany.

Question 24

Explain why a decline in a country's exchange rate will generally increase the demand for its goods and reduce its demand for foreign goods.