Question 1

Financial inflows and income from abroad must equal the:

Accepted Answer

Financial inflows and income from abroad must equal the country's financial outflows and income paid abroad to maintain balance in the balance of payments. This reflects the principle that every transaction entering a country (inflows) must be matched by an equivalent transaction leaving the country (outflows).

Question 2

If financial outflows amount to $45.9 billion and financial inflows amount to $67 billion, then what is the country's financial account balance (in billions of dollars)?

Accepted Answer

The financial account balance is calculated as financial inflows minus financial outflows. Therefore, $67 billion - $45.9 billion = $21.1 billion.

Question 3

You import 10 handwoven sisal handbags from an artisan in Kenya. The bags cost a total of $500. If the Kenyan artisan opts to buy U.S. bonds worth $500 with the money, then the U.S. current account deficit:

Accepted Answer

When the Kenyan artisan buys U.S. bonds with the $500, the U.S. current account deficit rises by $500 due to the import of goods. Simultaneously, the U.S. financial account surplus increases by $500 because of the capital inflow from the bond purchase.

Question 4

You import 10 handwoven sisal handbags from an artisan in Kenya. The bags cost a total of $500. If the Kenyan artisan buys U.S. exports worth $500 with the money, then the U.S. current account deficit:

Accepted Answer

When the Kenyan artisan spends the $500 on U.S. exports, the money returns to the U.S., balancing the initial outflow. Thus, the U.S. current account deficit remains unchanged.

Question 5

In 1944, the Bretton Woods system was established, whereby the value of the U.S. dollar was backed by gold, and the values of many other currencies were pegged to the U.S. dollar. This system, which was removed in the early 1970s, was an example of:

Accepted Answer

The Bretton Woods system was a fixed exchange rate system, where the value of many currencies including the U.S. dollar was pegged to a fixed value of gold.

Question 6

What is the country's trade balance if exports amount to $19.4 billion and imports amount to $23.65 billion?

Accepted Answer

Trade balance is calculated by subtracting imports from exports. Therefore, trade balance in this case would be: $19.4 billion - $23.65 billion = -$4.25 billion. A negative trade balance implies that the country is importing more than exporting, leading to a deficit.

Question 7

What is the country's trade balance if exports amount to $89.7 billion and imports amount to $76.87 billion?

Accepted Answer

To calculate the trade balance, we need to subtract the imports from the exports. 
Trade balance = Exports - Imports 
Trade balance = $89.7 billion - $76.87 billion 
Trade balance = $12.83 billion 
Since the result is positive, that means the country has a trade surplus of $12.83 billion. Therefore, the correct answer is D.

Question 8

Which of the following is an example of a depreciating US dollar?

Accepted Answer

The correct answer is A because it shows a situation where the value of the U.S. dollar has decreased relative to the Indonesian rupiah, requiring more U.S. dollars to pay for the same service initially quoted at a lower price.

Question 9

Which of the following represents a current account deficit?

Accepted Answer

A current account deficit is represented by the trade balance, which is measured as exports minus imports (NX).

Question 10

Which of the following represents government saving?

Accepted Answer

Government saving represents the difference between government taxes (T) and government spending (G), which is represented by the equation T - G.

Question 11

Which of the following represents private saving?

Accepted Answer

Private saving represents the portion of disposable income that is not consumed or paid in taxes. Therefore, Y (income) minus C (consumption) and T (taxes) represents private saving. The other options do not include private saving.

Question 12

Appreciation of the Gambian dalasi occurs when the exchange rate changes from:
(i) 51 Gambian dalasi per U.S. dollar to 49.57 Gambian dalasi per U.S. dollar.
(ii) 51 Gambian dalasi per U.S. dollar to 52.18 Gambian dalasi per U.S. dollar.
(iii) 0.02 U.S. dollar per Gambian dalasi to 0.04 U.S. dollar per Gambian dalasi.
(iv) 0.02 U.S. dollar per Gambian dalasi to 0.015 U.S. dollar per Gambian dalasi.

Accepted Answer

Appreciation of the Gambian dalasi means it takes fewer dalasi to buy a U.S. dollar or more U.S. dollars can be bought with a single dalasi. In (i), the exchange rate change from 51 to 49.57 dalasi per U.S. dollar indicates appreciation. In (iii), the change from 0.02 to 0.04 U.S. dollar per Gambian dalasi also indicates appreciation, as each dalasi now buys more U.S. dollars.

Question 13

Depreciation of the Gambian dalasi occurs when the exchange rate changes from:
(i) 51 Gambian dalasi per U.S. dollar to 49.57 Gambian dalasi per U.S. dollar.
(ii) 51 Gambian dalasi per U.S. dollar to 52.18 Gambian dalasi per U.S. dollar.
(iii) 0.02 U.S. dollar per Gambian dalasi to 0.04 U.S. dollar per Gambian dalasi.
(iv) 0.02 U.S. dollar per Gambian dalasi to 0.015 U.S. dollar per Gambian dalasi.

Accepted Answer

Depreciation of the Gambian dalasi means it takes more dalasi to buy 1 U.S. dollar or you get fewer dollars for 1 dalasi. In (ii), the exchange rate changes from 51 to 52.18 dalasi per U.S. dollar, indicating depreciation. In (iv), the exchange rate changes from 0.02 to 0.015 U.S. dollar per Gambian dalasi, also indicating depreciation as you get fewer dollars for each dalasi.

Question 14

Appreciation of the South African Rand occurs when the exchange rate changes from:
(i) 16.21 South African rands per euro to 17.01 South African rands per euro.
(ii) 16.21 South African rands per euro to 15.59 South African rands per euro.
(iii) 0.06 euro per South African rand to 0.07 euro per South African rand.
(iv) 0.06 euro per South African rand to 0.054 euro per South African rand.

Accepted Answer

Appreciation of the currency occurs when it becomes stronger in relation to another currency. In (i) and (iii), the South African rand becomes stronger as it takes fewer rands to buy one euro, indicating appreciation. In (ii) and (iv), the South African rand becomes weaker as it takes more rands to buy one euro or fewer euros to buy one rand, indicating depreciation. Therefore, (i) and (iii) are the correct choices for appreciation.

Question 15

Depreciation of the South African Rand occurs when the exchange rate changes from:
(i) 16.21 South African rands per euro to 15.59 South African rands per euro.
(ii) 16.21 South African rands per euro to 17.01 South African rands per euro.
(iii) 0.06 euro per South African rand to 0.07 euro per South African rand.
(iv) 0.06 euro per South African rand to 0.054 euro per South African rand.

Accepted Answer

Depreciation of a currency occurs when the exchange rate decreases, meaning that it takes more units of the domestic currency to purchase one unit of the foreign currency. Hence, options (i) and (iii) are incorrect as they show an appreciation of the South African rand. Option (iv) shows a depreciation of the South African rand as it now takes more euros to purchase one rand. Option (ii) also shows depreciation as it now takes more South African rands to purchase one euro. Therefore, the correct answer is (ii) and (iv).

Question 16

Appreciation of the Malaysian ringgit occurs when the exchange rate changes from:
(i) 4.19 Malaysian ringgit per U.S. dollar to 4.09 Malaysian ringgit per U.S. dollar.
(ii) 4.19 Malaysian ringgit per U.S. dollar to 4.29 Malaysian ringgit per U.S. dollar.
(iii) 0.24 U.S. dollar per Malaysian ringgit to 0.25 U.S. dollar per Malaysian ringgit.
(iv) 0.24 U.S. dollar per Malaysian ringgit to 0.23 U.S. dollar per Malaysian ringgit.

Accepted Answer

Appreciation of a currency occurs when it becomes stronger relative to another currency. In this case, when the exchange rate decreases in option (i) and increases in option (iii), the Malaysian ringgit is becoming stronger relative to the U.S. dollar. Therefore, the correct choices are (i) and (iii). Option (ii) represents depreciation of the Malaysian ringgit while option (iv) represents appreciation of the U.S. dollar, but neither option represents appreciation of the Malaysian ringgit.

Question 17

Depreciation of the Malaysian ringgit occurs when the exchange rate changes from:
(i) 4.19 Malaysian ringgit per U.S. dollar to 4.09 Malaysian ringgit per U.S. dollar.
(ii) 4.19 Malaysian ringgit per U.S. dollar to 4.29 Malaysian ringgit per U.S. dollar.
(iii) 0.24 U.S. dollar per Malaysian ringgit to 0.25 U.S. dollar per Malaysian ringgit.
(iv) 0.24 U.S. dollar per Malaysian ringgit to 0.23 U.S. dollar per Malaysian ringgit.

Accepted Answer

Depreciation occurs when the value of a currency falls relative to another currency. As the Malaysian ringgit weakens, it will take more Malaysian ringgit to buy one U.S. dollar. This means that the exchange rate will increase from 4.19 Malaysian ringgit per U.S. dollar to 4.29 Malaysian ringgit per U.S. dollar (Option ii) and decrease from 0.24 U.S. dollar per Malaysian ringgit to 0.23 U.S. dollar per Malaysian ringgit (Option iv). Therefore, the correct answer is (B) option (ii) and (iv).

Question 18

If 1 British pound (£) purchases 1.16 European euros (€) and if 1 European euro purchases US$1.1, then how many U.S. dollars does 1 British pound purchase?

Accepted Answer

1 British pound (£) purchases 1.16 European euros (€), and 1 European euro purchases US$1.1. Therefore, 1 British pound purchases 1.16 * 1.1 = $1.276, which rounds to $1.28.

Question 19

List four factors that can lead to an increase in the demand for U.S. exports and therefore an increase in the demand for U.S. dollars in the dollar market.

Accepted Answer

The answer of List four factors that can lead to...

Question 20

List four factors that can lead to a decrease in the demand for U.S. exports and therefore a decrease in the demand for U.S. dollars in the dollar market.

Accepted Answer