Question 1

Exchange rates allow for a comparison of the trade values of goods and services across countries.

Accepted Answer

Exchange rates determine the relative value of currencies, which in turn allows for the comparison of trade values of goods and services between countries.

Question 2

Suppose you are a U.S. importer purchasing coffee from Guatemala at a dollar price of $10,000. If the bank charges $0.12 per quetzal, you would have to buy 120,000 quetzals to settle the account with the Guatemalan exporter.

Accepted Answer

To determine the amount of quetzals needed, you divide the dollar amount by the exchange rate: $10,000 / $0.12 per quetzal = 83,333.33 quetzals, not 120,000 quetzals.

Question 3

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.?
 
-Refer to Table 6.1. The statistical discrepancy in the balance of payments accounts for Germany in the year 2011 is:

Accepted Answer

The answer of The table given below reports the value...

Question 4

The euro is the common currency of all European countries.

Accepted Answer

The euro is not the common currency of all European countries. Only some European countries use the euro, while others maintain their own national currencies.

Question 5

A country that is running a current account deficit will have:

Accepted Answer

A current account deficit means that a country's imports exceed its exports, leading to a negative net export balance. Therefore, the correct choice is E, negative net exports.

Question 6

The euro began trading in January 1999.

Accepted Answer

The euro began trading on January 1, 1999 as a virtual currency used for accounting purposes, and physical euro notes and coins were introduced on January 1, 2002.

Question 7

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.?
 
-Refer to Table 6.1. Calculate the current account balance for Germany for the year 2011.

Accepted Answer

The current account balance is calculated by adding the value of goods and services exported (€1,077) to the value of primary income received (€182) and subtracting the value of goods and services imported (-€1,964) and the primary income paid (-€65). Therefore, current account balance = (1,077 + 182) - (1,964 + 65) = -€570. However, since the negative sign denotes outflow, the current account balance is -(-€570) = €570.

Question 8

Tourism requires the actual movement of currency notes while investment in international bank deposits does not.

Accepted Answer

Tourism involves spending money in different currencies while investment in international bank deposits does not necessitate the physical movement of currency notes.

Question 9

Which of the following is true of a net debtor nation?

Accepted Answer

A net debtor nation is a country that owes more to the rest of the world than it is owed. This means that it has a negative net international investment position, which can be a result of running trade deficits or borrowing from foreign entities.

Question 10

Suppose an economics professor receives a $10,000 royalty check from a foreign publishing company and deposits the amount in a local bank. This transaction would be recorded as:

Accepted Answer

This transaction is recorded as a $10,000 credit entry in the domestic services account because it represents income received from abroad for intellectual property, which is considered a service. The credit entry indicates an increase in the country's exports of services.

Question 11

Identify the correct statement.

Accepted Answer

The correct statement is B, as the United States was an international net creditor from the end of World War I until the mid-1980s. This means that the US held more assets abroad than foreign entities held in the US. The other answer choices are incorrect as they state that the US was a net debtor at various points in time.

Question 12

The euro coins can be spent only in the countries where they are made, because one side of the coin has an image that is individualized for each of the countries of the European Union.

Accepted Answer

Euro coins can be used in all countries that use the euro, regardless of where they were originally minted. Each coin does have a unique design on one side representing the country of origin, but this does not limit its use outside of that country.

Question 13

The hours of trading of North American markets overlap with those of both the European markets and the Asian markets.

Accepted Answer

North American markets overlap with European markets during the morning hours in North America, but they generally do not overlap with Asian markets due to the significant time difference. Asian markets close before North American markets open.

Question 14

Which of the following is true of a current account surplus?

Accepted Answer

A current account surplus indicates that a country is exporting more than it is importing, which can include goods, services, and income flows. This surplus means the country is a net lender to the rest of the world, often reflected in buying more foreign assets, including bonds, than it sells. Choices A, B, C, and D are incorrect because they either misrepresent the nature of a current account surplus or make overly specific claims not inherently true about all current account surpluses.

Question 15

The table given below reports the value of various international transactions in Germany for the year 2011. The negative sign denotes the outflow of euros from Germany.?
 
-Refer to Table 6.1. Compute the capital account balance for Germany.

Accepted Answer

The answer of The table given below reports the value...

Question 16

In the 1980s, the U.S. current account deficit was financed by:

Accepted Answer

In the 1980s, the U.S. current account deficit was financed by large inflows of capital from private foreign investment in the United States. This meant that foreign investors were willing to invest in the U.S. economy and finance its current account deficit. This was possible due to the attractiveness of the U.S. economy as a destination for foreign investment, given its stability and high potential for profit.

Question 17

All euro coins circulating in the different countries of the European Union have the same design.

Accepted Answer

While euro coins do have a common side design that features the denomination and a map of Europe, each country is allowed to design their own unique national side. This means that there are different images, symbols, and text on the coins that represent each country.

Question 18

A gift from the British prime minister to the American president would be classified as a _____ in the balance of payments account.

Accepted Answer

A gift from one country to another that is not tied to any specific transaction is considered a unilateral transfer in the balance of payments account. This is because it involves a one-way transfer of funds or assets, without any expectation of receiving something in return. Capital transfers, on the other hand, involve the transfer of assets such as funds, buildings, or equipment, and are typically associated with investment or borrowing activities. Capital receipts refer to the inflows of such assets, while universal receipts and foreign aid are not specific categories in the balance of payments account.

Question 19

When the equation X = GDP - C- I - G yields a negative X, it represents a situation in which the country:

Accepted Answer

A negative X in the equation X = GDP - C- I - G means that the country is spending more than it is producing, resulting in a deficit. In order to cover the difference, the country would need to borrow money from other sources. This is represented by choice D, which states that the country borrows to cover the difference between production and spending.

Question 20

The _____ account reflects the movement of goods and services into and out of the country. The _____ account reflects the flow of financial assets into and out of the country.

Accepted Answer

The current account reflects the movement of goods and services into and out of the country, while the financial account reflects the flow of financial assets into and out of the country. Choice A is incorrect because there is no such thing as a "universal transfer" account. Choice B is incorrect because the current account is already the correct answer. Choice D is incorrect because it reverses the order of the accounts. Choice E is incorrect because it refers to the capital account instead of the financial account.

Quiz 6: An Introduction to the Foreign Exchapterange Market and the Balance of Payments