Question 1

In a floating exchange rate system,the capital account balance equals the negative of the current account balance.

Accepted Answer

The answer of In a floating exchange rate system,the capital...

Question 2

The inflow of foreign investment into the U.S.economy reflects a level of confidence in the United States.

Accepted Answer

The inflow of foreign investment into the U.S. economy is a positive indicator of investor confidence in the stability and growth potential of the United States.

Question 3

Under a flexible exchange rate system,there is no need for foreign exchange reserves.

Accepted Answer

The answer of Under a flexible exchange rate system,there is...

Question 4

Yesterday the exchange rate was €1 = $1.30,and today it is €1 = $1.35.In this case the dollar has appreciated.

Accepted Answer

The dollar has depreciated because it now takes more dollars to buy the same amount of euros compared to yesterday.

Question 5

Industrial countries are not usually involved in currency bailouts since they are not likely to be affected by the devaluation of another country's currency.

Accepted Answer

Industrial countries may be involved in currency bailouts if they have significant economic ties with the country experiencing the currency devaluation, or if the instability in that country's economy could potentially affect global markets.

Question 6

If there are no reserves,domestic adjustments to payment imbalances under fixed exchange rates require surplus countries to forsake full employment and deficit countries to forsake price stability.

Accepted Answer

Under fixed exchange rates, deficit countries typically need to adjust by reducing demand to lower imports and possibly devaluing their currency, which can lead to forsaking full employment. Surplus countries, on the other hand, face pressure to increase demand to raise imports and appreciate their currency, potentially impacting price stability, but not necessarily forsaking it. The statement incorrectly reverses the roles of surplus and deficit countries in terms of the economic adjustments they are pressured to make.

Question 7

State the case for and the case against currency bailouts.

Accepted Answer

The answer of State the case for and the case...

Question 8

The capital account balance equals foreign purchases of U.S.assets minus U.S.purchases of foreign assets.

Accepted Answer

This is the definition of the capital account balance. It measures the net difference between a country's purchases of foreign assets and foreign purchases of domestic assets.

Question 9

Explain the forces that can cause an exchange rate to change.

Accepted Answer

The answer of Explain the forces that can cause an...

Question 10

If income in the United States rises relative to income in Japan,the yen should appreciate against the dollar,ceteris paribus.

Accepted Answer

An increase in income in the United States relative to income in Japan would cause an increase in the demand for goods and services in the US, leading to an increase in demand for dollars. This would lead to an increase in the value of the dollar relative to the yen. However, the question is asking about the yen appreciating against the dollar, which means the value of the yen would increase relative to the dollar. Therefore, the answer is A, as an increase in income in the United States relative to income in Japan would cause the value of the yen to appreciate against the dollar, ceteris paribus.

Question 11

Under a fixed exchange rate regime,what will happen to the balance of payments for the United States and Mexico when the demand for Mexican goods rises? What is the only possible solution to this problem,given the fixed exchange rate?

Accepted Answer

The answer of Under a fixed exchange rate regime,what will...

Question 12

Use a model of the dollar-euro foreign exchange market to illustrate how the value of the dollar is determined in terms of the euro.Identify two factors that would increase the value of the dollar in terms of the euro.

Accepted Answer

The answer of Use a model of the dollar-euro foreign...

Question 13

How can trade policy,fiscal policy,and monetary policy be used to support fixed exchange rates when there is a surplus of U.S.dollars?

Accepted Answer

The answer of How can trade policy,fiscal policy,and monetary policy...

Question 14

If income is rising faster in Japan than in the United States,there will be an increase in the demand for the yen and a decrease in the demand for the dollar.

Accepted Answer

The answer of If income is rising faster in Japan...

Question 15

In the current account,a deficit in the trade balance is necessarily offset by a surplus in the service balance.

Accepted Answer

The answer of In the current account,a deficit in the...

Question 16

Explain what economists mean when they say that the United States is a net debtor nation.Identify a potential problem and a positive aspect associated with this status.

Accepted Answer

The answer of Explain what economists mean when they say...

Question 17

If the Russian ruble depreciates relative to the U.S.dollar,Russian steel becomes more expensive for American firms to purchase.

Accepted Answer

When the Russian ruble depreciates relative to the U.S. dollar, it means that the dollar is stronger and can buy more rubles. This makes Russian goods, including steel, cheaper for American firms, not more expensive.

Quiz 36: International Finance