Deck 20: International Finance

Question 1

Use the following to answer questions: Table: Four Countries $$\begin{array} { l l l l l l l l } \hline { \text { Country A } } && { \text { Country } B } && { \text { Country C } } && { \text { Country } D } \\\hline \text { Item } & \text { Dollar } & & \text { Dollar } & & \text { Dollar } & & \text { Dollar } \\& \text { Values } & \text { Item } & \text { Values } & \text { Item } & \text { Values } & \text { Item } & \text { Values } \\\hline \text { Exports } & \$ 287 \mathrm {~m} & \text { Exports } & \$ 451 \mathrm {~m} & \text { Exports } & \$ 717 \mathrm {~m} & \text { Exports } & \$ 132 \mathrm {~m} \\\text { Imports } & \$ 287 \mathrm {~m} & \text { Imports } & \$ 412 \mathrm {~m} & \text { Imports } & \$ 909 \mathrm {~m} & \text { Imports } & \$ 121 \mathrm {~m} \\\hline\end{array}$$

-(Table: Four Countries) Refer to the table. Which of these countries has a trade surplus?

A) country A
B) country C
C) country A and country C
D) country B and country D

Answer 1

country B and country D

Question 2

A trade _____ occurs when the value of a country's exports exceeds the value of its imports.

A) balance
B) shortage
C) surplus
D) deficit

Answer 2

surplus

Question 3

What occurs when the value of a country's exports exceeds the value of its imports?

A) a trade deficit
B) a trade surplus
C) a payment imbalance
D) a capital surplus

Answer 3

a trade surplus

Question 4

A trade _____ occurs when the value of a country's imports exceeds the value of its exports.

A) balance
B) shortage
C) surplus
D) deficit

Question 5

A trade surplus occurs when:

A) a government spends more than it receives in tax revenue.
B) a government spends less than it receives in tax revenue.
C) the value of a country's imports exceeds the value of its exports.
D) the value of a country's exports exceeds the value of its imports.

Question 6

If country A exports $10 billion worth of goods to country B and imports $8 billion worth of goods from country B, then country A has a(n):

A) $2 billion trade deficit with country B
B) $2 billion trade surplus with country B
C) $18 billion trade deficit with country B
D) $18 billion trade surplus with country B

Question 7

When a country's exports exceed its imports, that country experiences a:

A) balance of payments.
B) trade deficit.
C) trade surplus.
D) current account balance.

Question 8

A country's balance of trade is the difference between its:

A) nominal and real exchange rates.
B) monetary and fiscal policy.
C) exports and imports.
D) capital inflow and capital outflow.

Question 9

Use the following to answer questions: Table: Balance of Payments Accounts $$\begin{array} { l c } \hline \text { ITEM } & \text { DOLLAR VALUE } \\\hline \text { Exports } & \$ 300 \mathrm {~m} \\\text { Imports } & \$ 620 \mathrm {~m} \\\text { Net income on capital held abroad } & \$ 35 \mathrm {~m} \\\text { Foreign aid received } & \$ 100 \mathrm {~m} \\\text { Foreign direct investment } & \$ 120 \mathrm {~m} \\\text { Portfolio investment } & \$ 50 \mathrm {~m} \\\text { Other investment } & \$ 50 \mathrm {~m} \\\hline\end{array}$$

-(Table: Balance of Payment Accounts) According to the data in this table, what is the current account balance for this country?

A) -$320 million
B) -$185 million
C) $135 million
D) $1,055 million

Question 10

A trade surplus occurs when the value of a country's:

A) imports exceeds the value of its exports.
B) exports exceeds the value of its imports.
C) capital inflow exceeds the value of its outflow.
D) capital outflow exceeds the value of its inflow.

Question 11

A trade deficit occurs when the value of a country's:

A) imports exceeds the value of its exports.
B) exports exceeds the values of its imports.
C) exports equal the values of its imports.
D) imports exceeds the values of its total consumption.

Question 12

A trade deficit occurs when:

A) the total value of exports exceeds the total value of imports.
B) the total value of imports exceeds the total value of exports.
C) the total money payment to other countries exceeds the total money payment from other countries.
D) the total money payment from other countries exceeds the total money payment to other countries.

Question 13

A trade deficit occurs when the value of a country's:

A) imports exceeds the value of its exports.
B) exports exceeds the value of its imports.
C) inflow of foreign capital exceeds the outflow of domestic capital.
D) outflow of domestic capital exceeds its inflow of foreign capital.

Question 14

A situation in which the value of a country's exports exceeds the value of its imports is called a(n):

A) trade surplus.
B) capital surplus.
C) balance of payments surplus.
D) exchange rate surplus.

Question 15

Most people run a private:

A) trade deficit with their employer and a trade surplus with the rest of the economy.
B) trade surplus with their employer and a trade deficit with the rest of the economy.
C) trade deficit with all players in the economy.
D) trade surplus with all players in the economy.

Question 16

When you shop at Old Navy, you run a private _____ with Old Navy.

A) trade deficit
B) trade surplus
C) payment imbalance
D) capital surplus

Question 17

Use the following to answer questions: Table: Four Countries $$\begin{array} { l l l l l l l l } \hline { \text { Country A } } && { \text { Country } B } && { \text { Country C } } && { \text { Country } D } \\\hline \text { Item } & \text { Dollar } & & \text { Dollar } & & \text { Dollar } & & \text { Dollar } \\& \text { Values } & \text { Item } & \text { Values } & \text { Item } & \text { Values } & \text { Item } & \text { Values } \\\hline \text { Exports } & \$ 287 \mathrm {~m} & \text { Exports } & \$ 451 \mathrm {~m} & \text { Exports } & \$ 717 \mathrm {~m} & \text { Exports } & \$ 132 \mathrm {~m} \\\text { Imports } & \$ 287 \mathrm {~m} & \text { Imports } & \$ 412 \mathrm {~m} & \text { Imports } & \$ 909 \mathrm {~m} & \text { Imports } & \$ 121 \mathrm {~m} \\\hline\end{array}$$

-(Table: Four Countries) Refer to the table. Which of these countries has a trade deficit?

A) country A
B) country B
C) country C
D) country D

Question 18

A trade deficit occurs when:

A) a government spends more than it receives in tax revenue.
B) a government spends less than it receives in tax revenue.
C) the value of a country's imports exceeds the value of its exports.
D) the value of a country's exports exceeds the value of its imports.

Question 19

The United States currently has a net _____ with the rest of the world.

A) trade deficit
B) capital deficit
C) balance of payments deficit
D) exchange rate deficit

Question 20

If the United States imports $100 billion worth of goods and services from Mexico and exports $75 billion worth of goods and services to Mexico, then:

A) the United States has a $25 billion trade surplus with Mexico.
B) the United States has a $25 billion trade deficit with Mexico.
C) the United States has a $175 billion trade surplus with Mexico.
D) the United States has a $175 billion trade deficit with Mexico.

Question 21

If a country has a trade surplus of $100 million, then it has a capital _____ so that the balance of payments is _____.

A) surplus; -$100 million
B) surplus; $100 million
C) deficit; -$100 million
D) deficit; balanced.

Question 22

When a country's inflow of foreign capital is less than its outflow of domestic capital to other countries, then the country runs a:

A) trade deficit.
B) capital surplus.
C) capital deficit.
D) balance of payments.

Question 23

The balance of payments is:

A) a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.
B) the sum of the balance of trade, net income on capital held abroad, and net transfer payments.
C) the price of one currency in another currency.
D) a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

Question 24

Use the following to answer questions: Table: Balance of Payments Accounts $$\begin{array} { l c } \hline \text { ITEM } & \text { DOLLAR VALUE } \\\hline \text { Exports } & \$ 300 \mathrm {~m} \\\text { Imports } & \$ 620 \mathrm {~m} \\\text { Net income on capital held abroad } & \$ 35 \mathrm {~m} \\\text { Foreign aid received } & \$ 100 \mathrm {~m} \\\text { Foreign direct investment } & \$ 120 \mathrm {~m} \\\text { Portfolio investment } & \$ 50 \mathrm {~m} \\\text { Other investment } & \$ 50 \mathrm {~m} \\\hline\end{array}$$

-(Table: Balance of Payment Accounts) According to the data in this table, what is the capital account balance for this country?

A) $220 million
B) -$185 million
C) $1,055 million
D) $170 million

Question 25

If foreign reserves are fixed, the balance of payments requires that a:

A) country must have a capital deficit when it has a trade deficit.
B) country must have a capital surplus when it has a trade deficit.
C) country's capital account and trade account must be balanced individually.
D) country must have a trade deficit the year after it has a trade surplus.

Question 26

If this year's current account balance is -$100 billion and the capital account balance is $150 billion, then the amount of official reserves will:

A) increase by $50 billion.
B) decrease by $50 billion.
C) increase by $250 billion.
D) decrease by $250 billion.

Question 27

When Koreans buy stock on the NYSE:

A) this immediately create new investment in the United States.
B) portfolio investment in the United States increases.
C) the U.S. capital account decreases.
D) foreign direct investment in the United States increases.

Question 28

When Koreans buy stock on the NYSE:

A) the U.S. balance of trade increases.
B) the Korean capital account increases.
C) the U.S. capital account decreases.
D) the U.S. capital account increases.

Question 29

A situation where foreign capital inflow exceeds domestic capital outflow to other nations is called a(n):

A) trade surplus.
B) capital surplus.
C) balance of payments surplus.
D) exchange rate surplus.

Question 30

Use the following to answer questions: Table: Balance of Payments Accounts $$\begin{array} { l c } \hline \text { ITEM } & \text { DOLLAR VALUE } \\\hline \text { Exports } & \$ 300 \mathrm {~m} \\\text { Imports } & \$ 620 \mathrm {~m} \\\text { Net income on capital held abroad } & \$ 35 \mathrm {~m} \\\text { Foreign aid received } & \$ 100 \mathrm {~m} \\\text { Foreign direct investment } & \$ 120 \mathrm {~m} \\\text { Portfolio investment } & \$ 50 \mathrm {~m} \\\text { Other investment } & \$ 50 \mathrm {~m} \\\hline\end{array}$$

-(Table: Balance of Payment Accounts) According to the data in this table, which of the following statements is TRUE for this country?

A) This country has a balance of trade surplus of $620 million.
B) This country has a balance of trade deficit of $320 million.
C) This country has a current account deficit of $320 million.
D) This country has a current account surplus of $185 million.

Question 31

When the inflow of foreign capital is greater than the outflow of domestic capital to other nations, a country runs a:

A) dirty float.
B) fixed exchange rate.
C) capital surplus.
D) capital deficit.

Question 32

The trade deficit and the _____ surplus essentially balance out and offset each other.

A) capital
B) trade
C) saving
D) reserve

Question 33

If a country is running a capital surplus, then the inflow of foreign:

A) capital is less than the outflow of domestic capital abroad.
B) capital is greater than the outflow of domestic capital abroad.
C) goods and services is greater than the outflow of goods and services abroad.
D) goods and services is less than the outflow of goods and services abroad.

Question 34

If there are no changes in official reserves, the current account deficit must be:

A) greater than the capital account deficit.
B) equal to the capital account deficit.
C) equal to the capital account surplus.
D) greater than the capital account surplus.

Question 35

We call the yearly summary of all the economic transactions between residents of one country and the rest of the world the:

A) trade deficit.
B) trade surplus.
C) balance of payments.
D) capital account.

Question 36

Transactions included in the balance of payments are:

A) foreign direct investment.
B) exports.
C) imports.
D) foreign direct investment, exports, and imports.

Question 37

The balance of payments is:

A) a summary record of a country's economic transactions with the rest of the world.
B) a summary record of a country's purchases and sales of goods and services in the world market.
C) the difference between a country's imports and its exports of goods and services.
D) the total value of merchandise goods bought from the rest of the world.

Question 38

Which of the following is NOT a way that a country can finance a trade deficit?

A) increased borrowing
B) sale of assets
C) decreased exports
D) reduction in cash reserves

Question 39

If in a given year Rivendell invests 500 silver coins in the Shire, the Shire invests 300 silver coins in Rivendell, and neither invests in any other land, the Shire runs a capital:

A) surplus of 200 silver coins.
B) deficit of 200 silver coins.
C) surplus of 800 silver coins.
D) deficit of 800 silver coins.

Question 40

Which of the following is a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world?

A) the balance of trade
B) the balance of the capital account
C) the balance of the current account
D) the balance of payments

Question 41

Which of the following is a U.S. current account transaction?

A) Selling a computer chip to a resident in Europe.
B) Buying stock shares of a Canadian company.
C) Selling U.S. dollars in exchange for euros.
D) A foreign investor's purchase of a manufacturing plant in the United States.

Question 42

The current account includes:

A) the balance of trade.
B) net income of capital held abroad.
C) foreign aid.
D) the balance of trade, net income of capital held abroad, and foreign aid.

Question 43

The current account:

A) is the sum of the balance of trade, net income on capital held abroad, and net transfer payments.
B) is the difference between exports and imports.
C) measures changes in foreign ownership of domestic assets, including financial assets like stocks and bonds, as well as physical assets.
D) is a summary of all of the economic transactions between residents of one country and residents of the rest of the world.

Question 44

Which of the following is NOT a component of the current account?

A) the trade balance
B) the balance of foreign direct investment flows
C) income on capital held abroad
D) foreign aid

Question 45

A country is running a _____ when the inflow of foreign capital is greater than the outflow of domestic capital to other nations.

A) trade surplus
B) trade deficit
C) capital surplus
D) capital deficit

Question 46

The _____ is the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

A) capital account
B) current account
C) national account
D) balance of payment

Question 47

All else held constant, an increase in U.S. imports will cause the U.S. current account to:

A) move in a positive direction.
B) move in a negative direction.
C) remain unchanged.
D) become more volatile.

Question 48

Adding up the _____ and the _____ will net out the balance of payments to zero.

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

Question 49

Which of the following would be recorded as a credit in the U.S. current account?

A) United States imports $1 worth of tobacco from Mexico.
B) British financial investments in the United States pay higher dividends.
C) United States sends $10 million in foreign aid to Somalia.
D) United States exports $5 million in corn to Canada.

Question 50

The current account is:

A) a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.
B) the sum of the balance of trade, net income on capital held abroad, and net transfer payments.
C) the price of one currency in another currency.
D) a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

Question 51

The most important and volatile component of the current account in the U.S. balance of payments is:

A) transfer payments abroad, such as foreign aid.
B) net income on capital held abroad.
C) net exports.
D) foreign direct investment.

Question 52

A current account deficit in Kazakhstan could mean that:

A) Kazakhstan is a terrible place to invest.
B) Kazakhstan is a good place to invest.
C) Kazakhs are saving too much.
D) the rest of the world is saving too little.

Question 53

If the current account deficit indicates a problem with savings, a good way to deal with it is to:

A) raise tariffs and other barriers to trade.
B) tax foreign investment.
C) ignore the problem.
D) decrease the government's budget deficit.

Question 54

A capital surplus occurs when the value of a country's:

A) imports exceeds the value of its domestic consumption.
B) exports exceeds the value of its imports.
C) inflow of foreign capital exceeds the outflow of its domestic capital.
D) outflow of domestic capital exceeds its inflow of foreign capital.

Question 55

Which of the following would be recorded as a debit in the U.S. current account?

A) The United States buys $1 million in British government bonds.
B) British financial investments in the United States pay higher dividends.
C) American citizens go to sub-Saharan Africa to teach reading to young students.
D) United States exports $5 million in corn to Canada.

Question 56

A country's balance of payments is:

A) the difference between its exports and imports.
B) the difference between its capital inflow and capital outflow.
C) a summary of all of the economic transactions between residents of one country and residents of the rest of the world.
D) the difference between its nominal and real exchange rates.

Question 57

All else held constant, an increase in U.S. exports will cause the U.S. current account to:

A) move in a positive direction.
B) move in a negative direction.
C) remain unchanged.
D) become more volatile.

Question 58

If a country has $55 billion of net capital outflow and a $5 billion increase in its cash reserves and ownership of assets, then the country must be running a trade:

A) deficit of $50 billion.
B) deficit of $60 billion.
C) surplus of $50 billion.
D) surplus of $60 billion.

Question 59

Which of the following is NOT included in a country's current account?

A) transfer payments abroad, such as foreign aid
B) net income on capital held abroad
C) net exports
D) foreign direct investment

Question 60

A capital deficit occurs when the value of a country's:

A) imports exceeds the value of its exports.
B) exports exceeds the value of its domestic consumption.
C) foreign capital inflow exceeds the value of its domestic capital outflow.
D) domestic capital outflow exceeds the value of its foreign capital inflow.

Question 61

Foreign direct investment takes place in the United States when foreigners:

A) construct a new business plant in the United States.
B) buy U.S. stocks and bonds.
C) shift bank deposits into the United States from other countries.
D) buy U.S. exports.

Question 62

Which of the following includes the activity of a foreign firm constructing a new manufacturing plant in the United States?

A) foreign transfer payment
B) current account surplus
C) foreign direct investment
D) foreign portfolio investment

Question 63

If the Chinese government purchases an additional $10 million worth of U.S. government bonds, this transaction is recorded as a _____ in the U.S. balance of payments.

A) credit in the capital account
B) credit in the current account
C) debit in the capital account
D) debit in the current account

Question 64

Which transactions cause the U.S. capital account to increase?

A) Japanese citizens purchase U.S. exports.
B) American citizens purchase Japanese imports.
C) Japanese citizens purchase real estate in the United States.
D) Japan receives U.S. foreign aid.

Question 65

Which of the following would be recorded as a debit (negative) in the U.S. capital account?

A) The United States buys $1 million in British government bonds.
B) British financial investments in the United States pay higher dividends.
C) American citizens go to sub-Saharan Africa to teach reading to young students.
D) The Chinese government increases its reserve holdings of U.S. dollars.

Question 66

Which of the following is NOT a category of the capital account?

A) foreign direct investment inflow
B) portfolio investment outflow
C) bank deposit inflow
D) exports of goods and services

Question 67

The difference between foreign direct investment (FDI) and foreign aid is:

A) not significant because both items are counted as part of the current account.
B) FDI refers to foreign businesses opening factories or operations, while foreign aid is monetary assistance.
C) FDI earns interest while foreign aid is a gift of money with no interest component.
D) FDI is monetary aid while foreign aid is the establishment of operations by foreign-owned businesses.

Question 68

Which of the following would lead to a capital account deficit?

A) purchase of foreign capital by domestic residents
B) sale of domestic capital to foreign residents
C) an increase in imports
D) an increase in official reserves

Question 69

Which of the following is included in the current account?

A) the capital account
B) foreign direct investment
C) net income on capital held abroad
D) portfolio investment

Question 70

"Other investment" takes place in the United States when foreigners:

A) construct new business plants in the United States.
B) buy U.S. stocks and bonds.
C) shift bank deposits into the United States from other countries.
D) buy U.S. exports.

Question 71

Transactions in the current account include:

A) changes in official reserves.
B) net income on capital held abroad.
C) imports.
D) foreign direct investment.

Question 72

Which of the following is a transaction in the capital account?

A) export of medical services
B) import of foreign-made vehicles
C) increase in foreign reserves
D) purchase of a piece of land in a foreign country

Question 73

Which of the following transactions can be classified as foreign direct investment for the United States?

A) A Beijing antique dealer opens a store in downtown New York City.
B) The purchase of a Maserati GranTurismo from a Maserati dealer in New Jersey.
C) A Korean businessman, living in South Korea, purchases stock on the NYSE.
D) A Bangladeshi-American purchases a home in Dhaka, Bangladesh.

Question 74

Which of the following is a capital account transaction?

A) foreign purchases of U.S. stocks
B) foreign purchases of U.S. bonds
C) foreign purchases of U.S. buildings
D) foreign purchases of U.S. stocks, bonds, and buildings

Question 75

When Chinese investors purchase U.S. commercial real estate, the _____ increases in the United States.

A) trade deficit
B) balance of payments
C) capital account
D) current account

Question 76

Foreign portfolio investment is included in the _____ account.

A) current
B) trade
C) direct investment
D) capital

Question 77

The U.S. capital account measures the:

A) change in foreign ownership of domestic assets.
B) net capital stock in the United States.
C) size of the trade deficit in the United States.
D) net income on capital held abroad.

Question 78

All current account transactions take place in:

A) future periods only.
B) the current period only.
C) the current and future periods.
D) the current and past periods.

Question 79

Portfolio investment takes place in the United States when foreigners:

A) construct new business plants in the United States.
B) buy U.S. stocks and bonds.
C) shift bank deposits into the United States. from other countries.
D) buy U.S. exports.

Question 80

Foreign direct investment includes:

A) the purchase of U.S. stocks by foreigners.
B) the purchase of U.S. bonds by foreigners.
C) spending on construction of a new plant by foreigners in the United States.
D) spending on U.S.-produced goods by foreigners.