Deck 33: Exchange Rates and the Balance of Payments

Question 1

The balance of payments is

A) the value of goods and services bought and sold in the world market.
B) a summary record of a country's economic transactions with foreign residents and governments.
C) a summary record of a country's purchases and sales of goods and services in the world market.
D) the value of merchandise goods bought and sold in the world market.

Answer 1

B

Question 2

A country's balance of payments shows a

A) detailed record of the import and export of services for the country.
B) detailed record of the country's imports.
C) summary record of international financial assistance received by the country.
D) summary record of a country's economic transactions with foreign residents and governments over a year.

Answer 2

D

Question 3

In the balance of payments, any transaction that leads to a receipt by a resident of a country is a

A) minus item.
B) debit item.
C) surplus item.
D) deficit item.

Answer 3

C

Question 4

An example of a transaction that will be a surplus item on the U.S. balance of payments is

A) a U.S. resident purchasing French wine.
B) a French subsidiary's plant in New Jersey purchasing parts from the main plant in Paris.
C) a gift of wheat from the U.S. government to India.
D) a tourist from Germany buying a ticket to fly from New York to Chicago on American Airlines.

Question 5

In the above table, the balance on the financial account for Country X is ________ billion dollars.

A) -80
B) +35
C) +80
D) -35

Question 6

Which of the following is NOT a deficit item on a country's balance of payments?

A) gold sales to foreigners
B) imports
C) a personal gift to a foreign individual
D) none of the above

Question 7

The largest portion of any nation's current account is typically

A) imports and exports.
B) gold sales.
C) the sale of U.S. assets.
D) foreign currency reserves.

Question 8

In the above table, the merchandise trade balance for Country X is ________ billion dollars.

A) +100
B) -150
C) +150
D) -100

Question 9

Which of the following is a deficit item on the U.S. balance of payments accounts?

A) A U.S. firm sells a product to a Mexican firm.
B) An Italian tourist in Miami purchases a beach ball.
C) A Spaniard buys 100 shares of Ford stock.
D) A U.S. resident buys a smartphone in Japan.

Question 10

The balance of trade is defined as

A) the difference between the value of goods and services exported and the value of goods and services imported.
B) the difference between the value of goods exported and the value of goods imported.
C) the difference between the value of services exported and the value of services imported.
D) none of the above.

Question 11

Which of the following is a deficit item on the balance of payments?

A) exports of merchandise
B) foreign tourist dollars spent domestically
C) sales of gold to foreigners
D) purchases of foreign assets

Question 12

In the above table, the balance on the current account for Country X is ________ billion dollars.

A) -35
B) -75
C) +75
D) -200

Question 13

Suppose a country has a current account surplus and that there is no intervention by finance ministries or central banks. This current account surplus indicates that the country has

A) a deficit in its financial account.
B) a surplus in its financial account.
C) the official reserve transactions balance is positive.
D) the official reserve transactions balance is negative.

Question 14

An example of a deficit item on the U.S. balance of payments is

A) the sale of a spark plug made by a U.S. firm in Michigan to a Nissan plant in Tennessee.
B) the purchase of Japanese yen by a U.S. firm.
C) a deposit in a bank in Chicago by the government of Saudi Arabia.
D) the payment of a dividend by a British firm to a U.S. family.

Question 15

In the balance of payments, which of the following is TRUE of the sum of the capital account balance, the current account balance, and the official reserve transactions account balance?

A) This sum is either positive or negative, depending on whether the sum of all surplus and deficit items associated with cross-border transactions is positive or negative.
B) This sum must always be zero, because the sum of all surplus and deficit items associated with cross-border transactions must equal zero.
C) This sum is positive only if the U.S. government operates with a budget surplus.
D) This sum is positive only if the U.S. government operates with a budget deficit.

Question 16

In the above table, the trade balance on goods and services for Country X is ________ billion dollars.

A) +25
B) -100
C) +100
D) -25

Question 17

In the above table, the fact that there is a minus sign before the number for unilateral transfers means that

A) Country X has significant inflation.
B) Country X imported more goods than it exported.
C) Country X received more in foreign aid than it gave in foreign aid.
D) Country X gave more to foreign residents than foreign residents gave to Country X.

Question 18

A system of accounts that measures the transactions of goods, services, income, and financial assets between domestic households, businesses, and governments and residents of the rest of the world during a specific time period is the

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

Question 19

Net unilateral transfers would appear in a nation's

A) current account.
B) capital account.
C) official reserve transaction account.
D) financial account.

Question 20

Which of the following is an example of a surplus item on the balance of payments?

A) private gifts to foreign residents
B) public gifts to foreign residents
C) interest receipts from foreign residents
D) purchases of gold from foreign residents

Question 21

Which of the following would contribute to a positive trade balance for a country?

A) having tourists visit the country
B) importing textiles
C) having foreign residents buy the government bonds of the country
D) importing financial services

Question 22

The major factor affecting a nation's balance of payments is

A) an increase in its rate of unemployment.
B) its rate of inflation relative to the rate of inflation of its trading partners.
C) a change in the productivity of its labor.
D) its stock market movements.

Question 23

Which of the following transactions leads to an inflow of funds on the U.S. financial account?

A) A U.S. resident purchases a share of stock on the Hong Kong exchange.
B) A U.S. resident sells wheat to an African nation.
C) A resident of China purchases U.S. government bonds.
D) A resident of Mexico visits the United States.

Question 24

For the United States, suppose the value of exported goods is greater than the value of imported goods. This implies that

A) the domestic currency will depreciate.
B) the dollar price of foreign currency will increase.
C) the country is running a deficit in its balance of trade.
D) the country is running a surplus in its balance of trade.

Question 25

A nation's balance of payments can be affected by

A) the country's inflation rate relative to other nations' inflation rates.
B) the country's population increases relative to other nations' populations.
C) per capita GDP relative to other nations' per capita GDP.
D) none of the above.

Question 26

If the current account is in deficit, we know that

A) the merchandise trade balance is also in deficit.
B) the merchandise trade balance is in surplus.
C) the financial account is in surplus.
D) there is a statistical discrepancy in the surplus.

Question 27

An increase in a country's rate of inflation is apt to

A) reduce its imports and improve its trade balance.
B) lower its nominal rate of interest and encourage an inflow of capital.
C) worsen its balance of trade and balance of payments.
D) decrease demand for the country's currency.

Question 28

Current account transactions are payments that are related to the purchase or sale of

A) financial instruments only.
B) both goods and services.
C) goods only.
D) services only.

Question 29

All of the following would be considered a current account transaction EXCEPT the

A) importing of services.
B) exporting of goods.
C) importing of capital.
D) importing of goods.

Question 30

The balance of payments is

A) a summary record of the financial transactions of a country's government with foreign governments.
B) a summary record of a country's imports and exports of goods with foreign residents and governments.
C) a summary record of a country's economic transactions with foreign residents and governments.
D) a summary record of a country's purchases and sales of goods and services in the world market.

Question 31

The U.S. balance of payments status may improve when

A) the inflation rate increases in the United States relative to other countries.
B) political instability in other countries increases.
C) the world demand for U.S. products falls.
D) the American government increases its spending on foreign aid.

Question 32

Unilateral transfers are

A) transactions that take place within the geographic boundaries of a country.
B) gifts from residents of one country to foreign residents.
C) transactions that take place across geographic boundaries but in which both participants are citizens of the same country.
D) government transactions that involve reserves.

Question 33

A record of all transactions between households, firms, and the government of one country and the rest of the world is the

A) balance of trade.
B) balance of payments.
C) International Monetary Fund.
D) government budget.

Question 34

When a Chinese company builds an auto plant in the United States, the immediate result of this Chinese investment in the United States is a ________ item in the U.S. ________ account.

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

Question 35

When there is a current account deficit, it is likely that

A) exports exceed imports for the country.
B) the country is an exporter of capital.
C) the financial account has a surplus.
D) the country has a budget surplus.

Question 36

A reduction in a country's rate of inflation should

A) increase its imports.
B) increase its exports.
C) lead to a negative trade balance.
D) lead to an outflow of SDRs.

Question 37

A summary of a country's economic transactions with foreign residents and governments is called the

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

Question 38

When the balance of trade is in balance, we know with certainty that

A) the value of all debit transactions equals the value of all credit transactions.
B) the value of exports of goods equals the value of imports of goods.
C) the value of capital exports equals the value of capital imports.
D) the value of exports of goods and services equals the value of imports of goods and services.

Question 39

The balance of trade is

A) the difference between exports and imports of goods and services.
B) the difference between exports and imports of services.
C) the summary record of a country's economic transactions with foreigners in a year.
D) none of the above.

Question 40

When the value of exports exceeds the value of imports then

A) changes in productivity will occur.
B) international trade is in balance.
C) the country is running a trade deficit.
D) the country is running a trade surplus.

Question 41

An accounting identity

A) ensures that all balances will be in equilibrium.
B) is useless in analyzing balance of payments since one cannot tell from the identity whether an equilibrium exists or not.
C) ensures a balance but does not ensure an equilibrium.
D) applies only to plans of economic agents and not to their actual actions.

Question 42

In the balance of payments, all of the following are deficit items EXCEPT

A) imports of merchandise.
B) funds placed in foreign depository institutions.
C) sales of dollars to foreigners.
D) tourism expenditures abroad.

Question 43

An accounting identity is

A) when the balance of payments is running a surplus or deficits.
B) when the balance of trade is in surplus or deficit.
C) an expression of values that are equivalent by definition.
D) special drawing rights.

Question 44

Any transaction that leads to a payment by a country's residents or government is a(n)

A) debt.
B) asset.
C) deficit item.
D) surplus item.

Question 45

In international trade, all payments and gifts that are related to the purchase or sale of both goods and services are referred to as the

A) current account.
B) financial account.
C) labor account.
D) official reserve transactions account.

Question 46

In the balance of payments, a deficit item is any transaction

A) that leads to a receipt by a resident of a country or its government.
B) that leads to a payment by a resident of a country or its government.
C) that is an export of a good or service.
D) that makes residents of a country worse off.

Question 47

Which of the following is included in both the balance of trade and the balance of payments?

A) exports
B) earnings on domestic assets owned by foreign residents
C) international capital movements
D) earnings by domestic residents on assets located abroad

Question 48

Which of the following is NOT a category in the U.S. balance of payments account?

A) current account
B) past-due account
C) financial account
D) official reserve transactions account

Question 49

The current account is

A) the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations.
B) the price of one nation's currency in term of the currency of another country.
C) a category of the balance of payments transactions that measures flows of real and financial assets.
D) a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.

Question 50

A surplus item is

A) the import of goods or services that is not needed by residents of a country.
B) the import or export of products that are by-products of the manufacturing of export goods.
C) any transaction that leads to a receipt by a resident of a country or its government.
D) any transaction that leads to a payment by a resident of a country or its government.

Question 51

To know whether a particular situation for a family, business, or government involves an equilibrium or not, one must

A) understand the circumstances fully.
B) determine whether the accounts are in balance.
C) determine whether the credits equal the debits.
D) determine whether a particular portion of the accounts are in balance or not.

Question 52

Current account transactions are all payments that are related to the purchase or sale of

A) goods only.
B) services only.
C) goods and services only.
D) goods and services excluding government purchases.

Question 53

Someone in Germany has just ordered a U.S. car to be exported to Germany. In the U.S. balance of payments, this purchase is a(n)

A) accounting identity.
B) special draw.
C) surplus item.
D) deficit item.

Question 54

An example of a transaction that will be a surplus item on the U.S. balance of payments is

A) the purchase of General Motors stock by a German resident.
B) the purchase of a Mercedes-Benz by an American.
C) a Nissan plant in Tennessee buying parts from the main plant in Japan.
D) a gift of wheat from the United States government to Egypt.

Question 55

A U.S. family flies from Boston to Shanghai on a China Airlines plane. This transaction is

A) considered an export of service in the U.S balance of payment accounts.
B) a deficit item in the balance of payment accounts of China.
C) Both of the above are correct.
D) none of the above.

Question 56

Ahmed is working and is spending more than he is earning by using his savings to make up the difference. Which of the following statements is TRUE?

A) Ahmed is in equilibrium since he pays all of his bills.
B) Ahmed is in disequilibrium.
C) By using savings Ahmed is using special drawing rights.
D) By using savings Ahmed has caused the balance of payments to go into a deficit situation.

Question 57

An example of a deficit item on the U.S. balance of payments is

A) the sale of a carburetor made in Michigan to a Honda plant in Ohio.
B) a deposit in a bank in New York by a British firm.
C) a U.S. resident flies from New York to Rome on British Airways.
D) the payment of a dividend from a Canadian firm to an American living in Maine.

Question 58

A citizen of Mexico who has lived in El Paso during the past three years has just sent $100 to relatives in Mexico for Christmas. This transaction is

A) counted in the U.S. balance of payments as a current account item.
B) counted in the U.S. balance of payments as a surplus item.
C) counted in the U.S. balance of payments as an export item.
D) none of the above.

Question 59

In the balance of payments, any transaction that leads to a receipt by a resident of a country or its government is a(n)

A) asset.
B) minus item.
C) deficit item.
D) surplus item.

Question 60

Judy has just bought a car that is made in Germany. As far as the U.S. balance of payments is concerned this purchase is a(n)

A) accounting identity.
B) special draw.
C) surplus item.
D) deficit item.

Question 61

Jane has just sent a gift that was made in the U.S. to her relatives in Italy. As far as the balance of payments is concerned this gift will

A) have no influence on the balance of payments since it was made in the U.S.
B) be part of the capital account since the gift is a physical item.
C) be considered an export since it has left the U.S.
D) be part of the current account as a unilateral transfer.

Question 62

Refer to the above table. The balance of trade is

A) $1000.
B) -$665.
C) +$335.
D) -$155.

Question 63

The financial account is

A) the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations.
B) the price of one nation's currency in term of the currency of another country.
C) a category of the balance of payments transactions that measures flows of real and financial assets.
D) a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.

Question 64

The largest portion of any nation's balance of payments current account is the

A) importing and exporting of merchandise goods.
B) importing and exporting of services.
C) importing and exporting of gold.
D) importing and exporting of capital goods.

Question 65

Financial account transactions occur

A) when an U.S. company purchases goods from a foreign company.
B) because of cross-border flows of financial assets.
C) when you move money from one U.S. bank to another U.S. bank.
D) when an U.S. citizen purchases stock in an U.S. corporation.

Question 66

Refer to the above table. The current account balance is

A) $140.
B) $155.
C) $170.
D) -$45.

Question 67

Based on the transactions in the above table, what is the change in the U.S. financial account?

A) $9,800
B) $10,000
C) -$20,000
D) -$20,200

Question 68

Based on the transactions in the above table, what is the change in the U.S. balance of merchandise trade?

A) $11,000
B) $29,700
C) -$30,000
D) -$31,000

Question 69

Based on the transactions in the above table, what is the change in the U.S. current account balance?

A) $30,000
B) $31,000
C) -$32,500
D) -$32,700

Question 70

When there is a negative entry for unilateral transfers in the balance of payments, it means that

A) there must be an offsetting positive sign in the financial account.
B) U.S. residents gave more to foreign residents than foreign residents gave to U.S. residents.
C) U.S. residents purchased less services from foreign countries than foreign countries purchased from U.S. residents.
D) U.S. residents purchased more services from foreign countries than foreign countries purchased from U.S. residents.

Question 71

Which of the following statements is TRUE about the role that service exports and imports have in the balance of payments?

A) Service exports and imports are not included in the balance of payments because it is impossible to transport a service to another country.
B) Service exports and imports are included in the balance of payments in the labor account.
C) Service exports and imports are included in the balance of payments in the official reserve transactions account.
D) Service exports and imports are included in the balance of payments in the current account.

Question 72

An example of an import of a service in the U.S. balance of payments would be when

A) an U.S. resident purchases a Japanese stereo.
B) a Norwegian traveling in the United States rides a trolley car in San Francisco.
C) a U.S. resident buying insurance from a firm in Toronto.
D) a U.S. firm purchases 100 shares of a Dutch firm.

Question 73

The effect that a gift given to a U.S. citizen from a foreign resident will have on the balance of payments is to

A) increase the current account balance.
B) have no effect on the balance of payments if the gift was made in the U.S.
C) have no effect on the balance of payments if the gift was made by a foreign country.
D) decrease the balance of payments.

Question 74

Unilateral transfers are

A) transactions that take place across national boundaries but in which both transactions are citizens of the same country.
B) government transactions that use gold and other official reserves.
C) gifts from a resident of one country to a resident in a foreign country.
D) the payments of interest to residents of another country.

Question 75

In the balance of payments, the buying and selling of real and financial assets is represented in

A) current account.
B) financial account.
C) labor account.
D) official reserve transactions account.

Question 76

Suppose the current account of a country is initially in balance. A new transaction occurs so that the current account is now in surplus. Official reserve balance is maintained before and after the transaction occurs. From this, we know that

A) the balance of trade is now in surplus.
B) the balance of goods and services is now in surplus.
C) the financial account is now in deficit.
D) the government must make official reserve transactions.

Question 77

Which of the following statements is TRUE about the role of gifts given to U.S. citizens from foreign residents?

A) Gifts are not included in the balance of payments because of the nature of the gift.
B) Gifts are only included in the balance of payments if the gift is given to a government official.
C) Gifts are included in the balance of payments.
D) Gifts given to U.S. citizens are not included in the balance of payments but gifts given to foreigners are included.

Question 78

Refer to the above table. The financial account balance is

A) 0.
B) -$260.
C) -$200.
D) -$155.

Question 79

If there are no interventions by finance ministers or control banks in the international market, then

A) the current account and the capital account must sum to zero.
B) the current account will be greater than the financial market.
C) the capital market will be greater than the current account.
D) the capital market will equal the current account.

Question 80

A resident of the U.S. just purchased a share of stock on the London stock market. As far as the U.S. balance of payments this purchase will

A) have no influence on the balance of payments since stock is not a good or service.
B) be entered as a unilateral transfer in the current account.
C) be entered in the financial account.
D) require special drawing rights.