Question 1

If the U.S.dollar depreciates,then U.S.exports become ____ expensive to foreigners and foreign goods become ____ expensive to U.S.citizens.

Accepted Answer

When the U.S. dollar depreciates, it takes more dollars to buy the same amount of foreign currency. This makes U.S. exports cheaper for foreigners (less expensive), which could lead to an increase in sales. However, it also makes foreign goods more expensive for U.S. citizens (more expensive), which could lead to a decrease in imports.

Question 2

Which one of the following would supply dollars to the foreign exchange market?

Accepted Answer

When U.S. tourists spend money in Europe, they are exchanging their dollars for euros. This means that there is an increase in the supply of dollars in the foreign exchange market.

Question 3

Under a pure flexible exchange rate system,the rate that equates demand and supply in the exchange rate market will also lead to a balance of

Accepted Answer

The answer of Under a pure flexible exchange rate system,the...

Question 4

Other things constant,which of the following will most likely cause the dollar to appreciate on the exchange rate market?

Accepted Answer

The answer of Other things constant,which of the following will...

Question 5

Which of the following would be likely to cause a nation's currency to depreciate?

Accepted Answer

When foreign interest rates are higher than domestic interest rates, investors are more likely to invest in the foreign country, causing a decrease in demand for the domestic currency and therefore causing the currency to depreciate.

Question 6

Under a flexible exchange rate system,which of the following will be most likely to cause a depreciation in the exchange rate value of the dollar (relative to the English pound)?

Accepted Answer

If real interest rates in the United States fall lower than real interest rates in England, then U.S. investors will be less likely to invest in the U.S. and more likely to invest in England. This will lead to a decrease in demand for the dollar and an increase in demand for the English pound, causing the dollar to depreciate relative to the pound.

Question 7

"Wine experts are discovering that California wines of several varieties and vintages are comparable to many of the best French wines.The result is an increased demand,here and abroad,for California wines." With regard to the U.S.balance on current account,this trend will

Accepted Answer

Increased demand for California wines abroad will lead to increased exports, which will decrease the U.S. deficit on the current account.

Question 8

Under a system of flexible exchange rates,which of the following will cause the nation's currency to depreciate in the exchange market?

Accepted Answer

A domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices will cause the nation's currency to depreciate in the exchange market. This is because the higher inflation rate in the domestic country will make its products relatively more expensive, decreasing demand for the national currency and increasing the supply of foreign currency. This shift in the demand and supply of currencies will cause the depreciation of the domestic currency.

Question 9

During recent times,the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services).Which of the following is true regarding these trade deficits?

Accepted Answer

Trade deficits can be caused by various factors such as a strong domestic economy leading to increased demand for imports, a strong currency making exports relatively expensive, and also the attractiveness of the country as a place to invest leading to capital inflows. It is not accurate to say that trade deficits put the country in debt to foreign economies or that they are evidence of unfair trade practices by other countries.

Question 10

If a German student pays her way to attend Harvard University,her actions will

Accepted Answer

When a German student pays her way to attend Harvard University, she will need to exchange Euros for dollars to pay for tuition, room and board, and other expenses. This will create a supply of Euros and a demand for dollars in the foreign currency market. As a result, the value of the Euro may depreciate relative to the dollar, while the value of the dollar may appreciate.

Question 11

(I)The U.S.trade deficit is a financial obligation of the federal government,and if it is not paid off,foreigners will be reluctant to loan money to the U.S.government.
(II)When a nation runs a current account deficit due to a merchandise trade deficit,it must also be true that the nation has a surplus on its capital account due to an inflow of foreign capital.

Accepted Answer

The answer of (I)The U.S.trade deficit is a financial obligation...

Question 12

If the exchange rate between the U.S.dollar and the Japanese yen were such that one U.S.dollar equals 100 yen,what would be the price in dollars of a Japanese automobile that cost 2,000,000 yen?

Accepted Answer

Since one U.S. dollar equals 100 yen, we can convert 2,000,000 yen to U.S. dollars by dividing by 100:
2,000,000 yen / 100 yen per U.S. dollar = 20,000 U.S. dollars. Therefore, the price in dollars of a Japanese automobile that costs 2,000,000 yen is $20,000.

Question 13

With time,a depreciation in the value of a nation's currency in the foreign market will cause the nation's

Accepted Answer

The answer of With time,a depreciation in the value of...

Question 14

An increase in the dollar price of the Mexican peso (an appreciation of the peso)would cause

Accepted Answer

The answer of An increase in the dollar price of...

Question 15

Under a system of flexible exchange rates,transactions that increase the supply of the nation's currency to the foreign exchange market will cause the nation's

Accepted Answer

According to the fundamentals of flexible exchange rates, if a large amount of a currency floods the foreign exchange market, the supply of that particular currency will increase relative to other currencies in the market, causing a depreciation in the value of the currency. This happens because as the supply of the currency increases, it becomes less valuable and people are willing to pay less for it.

Question 16

Which of the following identities regarding the balance of payments must be true?

Accepted Answer

The identity that must be true regarding the balance of payments is the one where the sum of the Current-Account Balance, Capital Account Balance, and Official Reserve Balance is equal to zero. This is because every transaction in the balance of payments has a corresponding transaction on the opposite side. For example, when a country imports goods (Current Account), it will pay for those goods with foreign currency (Capital Account), which will then reduce its amount of foreign reserves (Official Reserve Balance). Therefore, these three accounts must sum up to zero in order to balance the overall payments of the country.

Question 17

If the value of a nation's merchandise imports exceeds merchandise exports,the nation is running a

Accepted Answer

A merchandise trade deficit occurs when a country's imports of goods exceed its exports of goods. This does not necessarily mean that the country is running a balance of payments deficit or surplus, as the balance of payments includes other financial transactions such as services, income, and transfers.

Question 18

For a country to successfully maintain a fixed exchange rate value of its currency relative to another currency (for example,as is done when currencies are unified or pegged),it must

Accepted Answer

In order to maintain a fixed exchange rate value of its currency, a country must give up the independence of its monetary policy and tie its monetary policy to the currency it is pegged to. This means that the central bank of the country cannot control its own interest rates or money supply, but must adjust them to match those of the currency it is pegged to. This is necessary to prevent significant fluctuations in the value of the country's currency relative to the pegged currency. Maintaining a high rate of inflation or running a trade deficit are not necessary for maintaining a fixed exchange rate, and balancing the government budget is important for overall financial stability but not directly related to exchange rates.

Question 19

If the value of a country's merchandise exports is less than the value of its merchandise imports,it is said to have a

Accepted Answer

A country is said to have a trade deficit when the value of its merchandise imports exceeds the value of its merchandise exports. This means that the country is importing more goods than it is exporting, leading to a negative trade balance.

Question 20

An appreciation in the value of the U.S.dollar would

Accepted Answer

The answer of An appreciation in the value of the...

Quiz 19: International Finance and the Foreign Exchange Market

If the U.S.dollar depreciates,then U.S.exports become expensive to foreigners and foreign goods become expensive to U.S.citizens.