Question 1

-In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in Australia. This change ________ the supply of dollars and the market moves to a point such as  ________.

Accepted Answer

The answer of 
-In the figure above, suppose the economy...

Question 2

In the foreign exchange market, the higher the dollar's exchange rate, the

Accepted Answer

A higher exchange rate makes it more attractive for holders of dollars to exchange them for foreign currency, increasing the quantity supplied of dollars.

Question 3

Suppose the Australian interest rate is 6 per cent and the world interest rate is 5 per cent. The Australian interest differential is

Accepted Answer

The Australian interest differential is the difference between the Australian interest rate and the world interest rate. In this case, the Australian interest rate is 6 per cent and the world interest rate is 5 per cent, so the Australian interest differential is 6% - 5% = 1%.

Question 4

If the nominal exchange rate rises and price levels stay constant, the real exchange rate will

Accepted Answer

The real exchange rate is calculated by adjusting the nominal exchange rate for differences in price levels. If the nominal exchange rate rises while price levels remain constant, the real exchange rate will also rise.

Question 5

If the price level rises in Australia but not in foreign nations and the current exchange rate does not change, the expected future exchange rate

Accepted Answer

If the price level rises in Australia but not in foreign nations, Australian goods become relatively more expensive compared to foreign goods. This would lead to a decrease in demand for Australian currency, causing the expected future exchange rate to fall.

Question 6

The lower the exchange rate today, ceteris paribus, the

Accepted Answer

A lower exchange rate makes Australian dollars cheaper, increasing the potential for profit when they are expected to appreciate in the future, thus increasing the expected profit from buying and holding them.

Question 7

The law of demand for dollars in the foreign exchange market means that the

Accepted Answer

The law of demand states that as the price of a good decreases, the quantity demanded increases, and vice versa. In the context of foreign exchange, a lower exchange rate makes dollars cheaper, increasing demand, while a higher rate makes them more expensive, decreasing demand.

Question 8

The ________ the expected profit from holding a foreign currency, the greater is the ________ in the foreign exchange market.

Accepted Answer

The answer of The ________ the expected profit from holding...

Question 9

In part, a country's current account measures

Accepted Answer

The current account measures the trade balance, which includes receipts from exports and payments for imports of goods and services, along with net income and current transfers.

Question 10

A country's balance of payments accounts record

Accepted Answer

The balance of payments accounts record all economic transactions between residents of a country and the rest of the world, including trade, borrowing, and lending.

Question 11

If the Australian government increased its holdings of British pounds, definitely

Accepted Answer

When the Australian government increases its holdings of British pounds, it is adding to its foreign currency reserves, which results in an increase in Australian official reserves.

Question 12

With everything else the same, in the foreign exchange market the

Accepted Answer

The larger the value of Australian exports, the greater is the quantity of dollars demanded because foreign buyers need to exchange their currency for Australian dollars to pay for the exports.

Question 13

Which of the following accounts records the change in Australian official reserves?

Accepted Answer

The reserve assets account records the change in Australian official reserves.

Question 14

Today, Australia is a
I. net borrower.
II. net lender.
III. debtor nation.
IV. creditor nation.

Accepted Answer

Australia is a net borrower and a debtor nation, meaning it borrows more from other countries than it lends and owes more to other countries than it is owed.

Question 15

The ________ the exchange rate, the ________ are foreign- produced goods and hence the smaller the quantity of dollars supplied.

Accepted Answer

A lower exchange rate makes foreign-produced goods more expensive, reducing the quantity of dollars supplied as fewer imports are purchased.

Question 16

When a nation's currency depreciates, the country might

Accepted Answer

When a nation's currency depreciates, it often means that the inflation rate in that country is higher than in the countries it trades with, making its goods more expensive and less attractive to foreign buyers, leading to a decrease in currency value.

Question 17

The reserve assets account records the change in ________.

Accepted Answer

The reserve assets account specifically records changes in the official reserves held by a country's central bank, such as the Reserve Bank in Australia.

Question 18

If the current account balance is $30 billion, and the capital and financial account balance is $35 billion, then the reserve assets account balance is ________ billion, and the official reserves________.

Accepted Answer

The answer of If the current account balance is $30...

Question 19

Which of the following is included in Australia's current account balance?
I. Exports to Japan
II. Interest payments made to Canada
III. Transfer payments made to East Timor

Accepted Answer

The current account balance includes exports (I), interest payments (II), and transfer payments (III) as it records all transactions of goods, services, income, and current transfers.

Question 20

Which of the following is included in a nation's capital and financial account?
I. The purchase of foreign stocks and bonds
II. The sale of foreign stocks and bonds
III. Importing a piece of capital equipment

Accepted Answer

The capital and financial account includes transactions that involve the purchase and sale of financial assets, such as stocks and bonds, between countries. Importing capital equipment is part of the current account, not the capital and financial account.

Quiz 23: The Exchange Rate and the Balance of Payments

-In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in Australia. This change the supply of dollars and the market moves to a point such as .

In the foreign exchange market, the higher the dollar's exchange rate, the

Suppose the Australian interest rate is 6 per cent and the world interest rate is 5 per cent. The Australian interest differential is

If the nominal exchange rate rises and price levels stay constant, the real exchange rate will

If the price level rises in Australia but not in foreign nations and the current exchange rate does not change, the expected future exchange rate

The lower the exchange rate today, ceteris paribus, the

The law of demand for dollars in the foreign exchange market means that the

The the expected profit from holding a foreign currency, the greater is the in the foreign exchange market.

In part, a country's current account measures

A country's balance of payments accounts record

If the Australian government increased its holdings of British pounds, definitely

With everything else the same, in the foreign exchange market the

Which of the following accounts records the change in Australian official reserves?

Today, Australia is a I. net borrower. II. net lender. III. debtor nation. IV. creditor nation.

The the exchange rate, the are foreign- produced goods and hence the smaller the quantity of dollars supplied.

When a nation's currency depreciates, the country might

The reserve assets account records the change in ________.

If the current account balance is $30 billion, and the capital and financial account balance is $35 billion, then the reserve assets account balance is billion, and the official reserves.

Which of the following is included in Australia's current account balance? I. Exports to Japan II. Interest payments made to Canada III. Transfer payments made to East Timor

Which of the following is included in a nation's capital and financial account? I. The purchase of foreign stocks and bonds II. The sale of foreign stocks and bonds III. Importing a piece of capital equipment