Deck 32: International Finance

Question 1

Statement I: We are currently on the gold standard. Statement II: Our current account deficit is about 3% of our GDP.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Answer 1

Statement II is true and statement I is false.

Question 2

During the 1980s, foreigners expanded their role in the United States as

A)both creditors and owners.
B)neither creditors nor owners.
C)as owners but not as creditors.
D)as creditors but not as owners.

Answer 2

both creditors and owners.

Question 3

In 2009, we had a current account ________ and a capital account ______.

A)surplus; surplus
B)deficit; deficit
C)deficit; surplus
D)surplus; deficit

Answer 3

deficit; surplus

Question 4

Which statement is true?

A)The U.S.is both the world's leading creditor nation and the leading debtor nation.
B)The U.S.is neither the world's leading creditor nation nor the world's leading debtor nation.
C)The U.S.is the world's leading creditor nation and not the world's leading debtor nation.
D)The U.S.is the world's leading debtor nation and not the world's leading creditor nation.

Question 5

As the dollar is devaluated

A)inflationary pressures are reduced and our standard of living is reduced.
B)inflationary pressures are increased and our standard of living is increased.
C)inflationary pressures are reduced and our standard of living is increased.
D)inflationary pressures are increased and our standard of living is reduced.

Question 6

We began running consecutive annual trade deficits

A)before we began running current account deficits.
B)at the same time we began running current account deficits.
C)after we began running current account deficits.

Question 7

Which statement is false?

A)Foreigners own a much greater percentage of the assets in the U.S.then they did in the early 1980s.
B)Americans have assets of over $1 trillion in foreign countries.
C)The dollar value of assets held by Americans in foreign countries has been declining since 1985.
D)None of the statements is false.

Question 8

Which statement is false?

A)Our balance of payments is the entire flow of U.S.dollars and foreign currencies into and out of the country.
B)Our trade balance is just the difference between our imports and our exports.
C)Our trade balance has been negative since the mid-1970s.
D)None of these statements is false

Question 9

Devaluation of a nation's currency is an attempt to

A)increase imports and decrease exports under the gold standard.
B)increase imports and decrease exports under freely floating exchange rates.
C)increase exports and decrease imports under the gold standard.
D)increase exports and decrease imports under freely floating exchange rates.

Question 10

The capital account of the balance of payments consists of

A)the long-term transactions that we conduct with foreigners.
B)all the goods and services produced during the current year, which we buy from or sell to foreigners.
C)the interest, dividends, and profits that the U.S.collected from foreign investments less what U.S.firms paid foreign investors.
D)None of the choices is true.

Question 11

Each of the following is a requirement of a gold standard except

A)a nation defines its currency in terms of gold.
B)a nation's money supply is made up of gold or gold certificates.
C)a nation must maintain a fixed ratio between its gold stock and its money supply.
D)there must be no barriers to the free flow of gold into and out of the country.

Question 12

In recent years

A)our current account and capital account were both negative.
B)our current account and capital account were both positive.
C)our current account was positive and our capital account was negative.
D)our current account was negative and our capital account was positive.

Question 13

Which statement is false?

A)Trade is the largest part of our international financial transactions.
B)Our capital account ran a surplus in 2009.
C)We have been on an international gold standard since 1933.
D)None of the statements is false.

Question 14

The main reason for our balance of payments deficits has been

A)military spending abroad.
B)spending by U.S.tourists abroad.
C)our negative balance of trade.
D)None of the choices are correct.

Question 15

Which statement is false?

A)Foreigners have reinvested most of the dollars they have earned trading with us in U.S.government and corporate securities, real estate, and direct investment in plant and equipment.
B)Until the early 1980s Americans were investing much more in foreign countries than foreigners were in the United States.
C)Our capital and current accounts add up to zero.
D)None of these statements is false.

Question 16

The demise of the gold standard led to

A)more international trade.
B)greater and greater devaluation.
C)freely floating exchange rates.

Question 17

Which statement is true?

A)In both the 19^th century and since the 1980s we borrowed from foreigners to finance both capital expansion and consumption.
B)In neither the 19^th century nor since the 1980s we borrowed from foreigners to finance both capital expansion and consumption.
C)In the 19^th century we borrowed from foreigners to finance capital expansion and since the 1980s we borrowed to finance consumption.
D)In the 19^th century, we borrowed from foreigners to finance consumption and since the 1980s we borrowed to finance capital expansion.

Question 18

Over the last decade, foreigners have been exercising

A)a declining influence over interest rates in the United States.
B)an increasing influence over interest rates in the United States.
C)about the same influence over interest rates in the United States.

Question 19

Which statement is true?

A)Foreigners are holding over $1 trillion in U.S.currency (which they have not invested in the U.S.).
B)If foreigners keep buying U.S.assets, we will run out of things to sell before the year 2025.
C)Within 10 years the United States will probably go bankrupt.
D)None of the statements is true.

Question 20

Our basic problem with respect to our balance of trade is that

A)we consume too much and save too much.
B)we consume too little and save too little.
C)we consume too much and save too little.
D)we consume too little and save too much.

Question 21

There must always be a balance of a nation's

A)merchandise exports and gold imports.
B)total international payments.
C)imports and exports of goods and services.
D)merchandise imports and exports.

Question 22

Statement I: Decisions affecting the U.S. economy are being made increasingly in London, Frankfurt, and Tokyo. Statement II: America is borrowing largely for today's consumption rather than for productive investments.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 23

Appreciation of the euro relative to the dollar means that the

A)dollar price of the euro has fallen.
B)euro price of gold has risen.
C)euro prices of U.S.goods exported to the nations that adopted the euro as its currency have fallen.
D)euro is cheaper for Americans.

Question 24

Statement I: Since 1985, for the first time in our history, we have run up huge international debt. Statement II: To finance our international consumer spending binge we have been selling off pieces of America.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 25

A nation can finance a deficit on its current account with

A)a surplus on its capital account.
B)a deficit on its capital account.
C)official purchases of foreign currencies with its own currency.
D)purchases of gold from foreign currencies with its own currency.

Question 26

U.S. exports, foreign travel in the U.S., and foreign capital inflow into the U.S. give rise to

A)a supply of foreign currencies.
B)a demand for foreign currencies.
C)a lower value of the U.S.dollar.
D)decreased foreign exchange reserves in the U.S.

Question 27

A reduction in the price of the dollar in terms of the euro, Germany's currency, will have the result of

A)increasing the supply of products purchased from Germany.
B)increasing the demand for U.S.products exported to Germany.
C)decreasing the price of products purchased from Germany.
D)decreasing the price of hotel rooms in Germany to U.S.tourists.

Question 28

The main reason our current account deficit is so large is that

A)we are running huge merchandise trade deficits.
B)we are running huge federal budget deficits.
C)we are allowing too much foreign investment in the United States.
D)we are investing too much abroad.

Question 29

If the exchange rate changes such that fewer euros, the French currency, are required to buy one dollar, then

A)Americans will buy fewer goods and services from France.
B)the French will buy fewer goods and services from the U.S.
C)the dollar has appreciated in value.
D)the euro has depreciated in value.
E)French investments in the U.S.will decline.

Question 30

The decrease in the value of the dollar relative to the Japanese yen

A)increased the yen price paid and decreased the dollar price received from U.S.goods exported to Japan.
B)decreased both the yen price paid and the dollar price received from U.S.goods exported to Japan.
C)increased both the yen price paid and the dollar price received from U.S.goods exported to Japan.
D)decreased the yen price paid and increased the dollar price received from U.S.goods exported to Japan.

Question 31

Freely floating exchange rates are determined by

A)the forces of supply and demand for currencies.
B)the government with a trade surplus.
C)the government with a trade deficit.
D)the IMF.
E)the Bretton Woods Agreement.

Question 32

Between the end of World War II and 1971, the United States dollar was

A)the only major currency in the world convertible into gold for purposes of international payments.
B)not used as an international currency.
C)the only major currency in the world not backed by gold.
D)not very important in the transfer of goods between countries.
E)undervalued, leading to consistent balance-of-payment deficits.

Question 33

Which statement is true?

A)International trade is part of international finance.
B)International finance is part of international trade.
C)International trade and international finance are identical.

Question 34

Statement I: A lower dollar makes American stocks, bonds, and real estate more expensive to foreigners. Statement II: As our net indebtedness to foreigners grows, the net outflow of factor payments will grow.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 35

Which of the following measures net exports for the year, including transactions involving services, investment income, and transfers?

A)Balance of trade
B)Balance on the current account
C)Budget balance
D)Balance of payments

Question 36

Statement I: The U.S. became a net debtor nation in 1991. Statement II: If the dollar falls, our trade deficit will probably fall.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 37

Floating exchange rates

A)float according to the laws of supply and demand.
B)are fixed by speculators in foreign exchange markets.
C)are rarely used in foreign exchange transactions.
D)All of the choices are true characteristics.

Question 38

Appreciation of the Canadian dollar will

A)intensify an existing disequilibrium in Canada's balance of payments.
B)make Canada's exports less expensive and its imports more expensive.
C)make Canada's exports more expensive and its imports less expensive.
D)make Canada's exports and imports both more expensive.

Question 39

Appreciation of the British pound will

A)make Britain's exports less expensive and her imports more expensive.
B)make Britain's exports more expensive and her imports less expensive.
C)make Britain's exports and imports both more expensive.
D)make Britain's exports and imports both less expensive.

Question 40

If U.S. demand for imports increases it would be expected that the value of the dollar in international currency markets would tend to

A)increase.
B)change in a manner that cannot be determined without additional information concerning the direction of the shifts in the demand for and supply of dollars.
C)decline.
D)remain unchanged.

Question 41

If the U.S. government were to impose a 20% tariff on all foreign imports, this would likely lead to ____ in demand for foreign currencies, causing the dollar to _____.

A)a decrease; depreciate
B)an increase; depreciate
C)a decrease; appreciate
D)an increase; appreciate

Question 42

Statement I: The U.S. and nearly all other industrial nations were on the gold standard until 1934. Statement II: The gold standard may be termed "a self-correcting mechanism."

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 43

Statement I: Foreigners have been recycling the dollars they have obtained from our trade deficit by investing them in the United States. Statement II: On an international basis, we have been consuming more than we have been producing.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 44

A depreciation of the dollar will

A)discourage foreigners from buying U.S.goods.
B)encourage Americans to invest in foreign assets.
C)increase the amounts of U.S.dollars demanded by foreigners.
D)throw the U.S.economy into a recession.
E)lower the U.S.prices of imports.

Question 45

Statement I: The U.S. and nearly all other industrial nations now operate on a system of fixed exchange rates. Statement II: In 1971, the U.S. abandoned the gold exchange standard.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 46

When the current account is in deficit, the capital account must

A)be balanced.
B)be zero.
C)not add to the deficit.
D)have an equal and offsetting surplus.

Question 47

The rate at which two currencies trade for each other is called the

A)exchange rate.
B)price.
C)cost.
D)revenue.
E)profit.

Question 48

Between 2006 and 2009, our current account deficit

A)increased.
B)decreased.
C)stayed the same.

Question 49

The foreign exchange rate refers to

A)the price at which purchases and sales of foreign goods take place.
B)exports minus imports.
C)the amount of one currency that must be paid to obtain one unit of another currency.
D)the ratio of exports to imports.

Question 50

If the rate of inflation in the U.S. falls relative to the rate of inflation in foreign nations, U.S. exports _______ and imports ______.

A)increase; decrease
B)decrease; increase
C)decrease; decrease
D)increase; increase

Question 51

Under a system of freely flexible (floating) exchange rates an American trade deficit with Mexico will tend to cause

A)the United States government to ration pesos to American importers.
B)a flow of gold from the United States to Mexico.
C)an increase in the peso price of dollars.
D)an increase in the dollar price of pesos.

Question 52

If a dollar is initially valued at 10 Swiss francs and its value changes to 12 Swiss francs, then the value of a Swiss franc (in terms of dollars) has

A)increased only if the demand for Swiss francs has increased.
B)remained the same.
C)increased.
D)decreased.
E)changed in a manner that cannot be determined without additional information concerning the demand for and supply of Swiss francs.

Question 53

The decrease in the value of the dollar relative to the Mexican peso

A)increased the dollar price paid and decreased the peso price received for Mexican goods imported into the U.S.
B)decreased both the dollar price paid and the peso price received for Mexican goods imported into the U.S.
C)increased both the dollar price paid and the peso price received for Mexican goods imported into the U.S.
D)decreased the dollar price paid and increased the peso price received for Mexican goods imported into the U.S.

Question 54

In order to finance the U.S. current account deficit, we must

A)increase the income tax rate.
B)increase government spending.
C)run a surplus in the capital account.
D)decrease the income tax rate.

Question 55

Nations which experience relatively high rates of inflation

A)cause inflation in other nations when they export their relatively high priced goods to these nations.
B)will experience a reduction in the value of their currencies in the foreign exchange markets.
C)will not be able to export products if their currencies depreciate in value.
D)will not be able to import products unless their currencies depreciate in value.

Question 56

Statement I: Rising interest rates in the U.S. push up the dollar. Statement II: The U.S. dollar is backed by gold.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 57

Depreciation of the dollar relative to the yen means that the

A)dollar price of the yen has fallen.
B)yen prices of Japanese goods have increased to the Japanese.
C)dollar prices of imported goods from Japan have increased.
D)yen are less expensive to Americans.

Question 58

When the Swiss franc appreciates relative to the dollar

A)it becomes less expensive in terms of the dollar.
B)it takes fewer dollars to buy a Swiss franc.
C)it takes more dollars to buy a Swiss franc.
D)None of the choices is true.

Question 59

Statement I: The U.S. is the world's largest creditor nation. Statement II: We became a creditor nation in 1914.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 60

Statement I: A de facto dollar standard exists in many parts of the world. Statement II: Adherence to the gold standard would render monetary policy utterly ineffective.

A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question 61

If 40 Russian rubles = $1 U.S.,

A)1 ruble = $.025
B)1 U.S.cent = 4 rubles
C)40 U.S.cents = 100 rubles
D)$4 = 120 rubles
E)25 rubles = 80 U.S.cents

Question 62

Suppose the exchange rate is initially set at 120 yen per dollar and increases to 140 yen per dollar. This would be expected to cause the price of Japanese goods in the U.S. economy to

A)decrease.
B)change in a manner that cannot be determined without additional information.
C)remain the same since domestic demand remains the same.
D)increase.

Question 63

If a U.S. importer has to write a $200 check to cover a 20,000 yen purchase from Japan, the exchange rate is

A)200 yen to a dollar.
B)100 yen to a dollar.
C)20 yen to a dollar.
D)10 yen to a dollar.
E)200 dollars to a yen.

Question 64

Foreign exchange rates are

A)price at which purchases and sales of foreign goods take place.
B)movement of goods and services from one country to another.
C)the price of one currency in terms of a second currency.
D)differences between exports and imports.

Question 65

Between the summer of 2005 and April 2008, the Chinese yuan ___ against the U.S. dollar

A)appreciated by 5%.
B)appreciated by 21%.
C)depreciated by 5%.
D)depreciated by 20%.

Question 66

The summary of the flows of goods, services, assets, and currency in and out of a country in a particular year is

A)the balance of income statement.
B)the balance of payments.
C)the balance of trade.
D)the trade deficit.
E)the capital account.

Question 67

If a Vulcan importer has to write a 4,000 Vulcan bucks check to cover a $200 purchase from the United States, the exchange rate is

A)200 Vulcan bucks to a dollar.
B)100 Vulcan bucks to a dollar.
C)20 Vulcan bucks to a dollar.
D)10 Vulcan bucks to a dollar.
E)20 dollars to a Vulcan buck.

Question 68

If $.80 U.S. = $1.00 Canadian,

A)a U.S.nickel is worth four Canadian cents.
B)a U.S.quarter is worth 40 Canadian cents.
C)40 Canadian cents are worth 50 U.S.cents.
D)$.04 U.S.is worth 5 Canadian cents.
E)$1.15 U.S.= $1.35 Canadian.

Question 69

Our net investment income from foreign countries is

A)greater than foreign investor's income from U.S.investments.
B)less than foreign investor's income from U.S.investments.
C)about the same as foreign investor's income from U.S.investments.
D)less than half foreign investor's income from U.S.investments.

Question 70

From 2007 to 2009 our current account deficit

A)has been cut in half.
B)stayed about the same.
C)almost doubled.
D)more than tripled.

Question 71

Suppose the exchange rate is initially set at 120 yen per dollar and increases to 140 yen per dollar. In the U.S. economy this would be expected to

A)increase the U.S.trade deficit (or decrease the trade surplus).
B)decrease the U.S.trade deficit (or increase the trade surplus).
C)increase the U.S.trade deficit only if exports change by more than imports.
D)leave the U.S.trade deficit unchanged.
E)decrease the U.S.trade deficit only if exports change by more than imports.

Question 72

If the exchange rate changes so that more Swiss francs are required to buy a dollar, then

A)the franc has appreciated in value.
B)Americans will buy more Swiss goods and services.
C)more American goods and services will be demanded by the Swiss.
D)the dollar has depreciated in value.

Question 73

Which of the following summarizes the transactions involving the international exchange of goods and services, investment income, and other miscellaneous transactions?

A)Balance of trade
B)Statistical discrepancy
C)Current account
D)Capital account

Question 74

Which of the following would contribute to a United States current account surplus?

A)The United States makes a unilateral tariff reduction on imported goods.
B)General Motors pays a dividend to a Swiss stockholder.
C)The United States cuts back on American military personnel stationed in Germany.
D)Russian vodka becomes increasingly popular in the United States.

Question 75

The exchange rate is the

A)price of one currency in terms of another.
B)price of imports in terms of exports.
C)nominal price of a currency in terms of gold.
D)reciprocal of the terms of trade.

Question 76

If the rate of exchange for a pound is $4, the rate of exchange for the dollar,

A)is 1/4 pound.
B)is 4 pounds.
C)is $.25.
D)cannot be determined from the information given.

Question 77

Currency appreciation would occur in a nation if

A)the demand for the nation's exports increases.
B)the demand for the nation's imports increases.
C)real interest rates in the nation decrease relative to the rest of the world.
D)the inflation rate is higher within the nation than in the rest of the world.

Question 78

If the foreign exchange rate is $1 is equivalent to 5 Swiss francs, then 1 Swiss franc is worth

A)$5.
B)50 cents.
C)20 cents.
D)5 cents.

Question 79

When a currency depreciates relative to other currencies as a result of government action,

A)it has appreciated.
B)it has been devalued.
C)it has been debased.
D)it has become worthless.
E)it has been subject to runaway inflation.

Question 80

If a nation's exports are $55 billion, while its imports are $50 billion, we can conclude with certainty that this nation is experiencing a

A)balance of trade surplus.
B)balance of payments surplus.
C)positive balance on current account.
D)positive balance on capital account.