Question 1

Under the managed floating system of exchange rates,

Accepted Answer

A)  all exchange rates vary with changes in the free-market prices of gold.
B)  industrialized nations meet once each year to negotiate readjustments in their exchange rates.
C)  exchange rates are essentially flexible, but governments intervene to offset disorderly fluctuations in rates.
D)  exchange rates are adjusted at the discretion of the IMF.E) B) and D)
F) C) and D)

Question 2

The world's largest debtor nation in terms of debt owed to foreign citizens and governments is

Accepted Answer

A)  Russia.
B)  Argentina.
C)  Japan.
D)  the United States.E) A) and C)
F) None of the above

Question 3

Under a system of freely flexible (floating)  exchange rates, a U.S.trade deficit with Mexico will tend to cause

Accepted Answer

A)  the U.S.government to ration pesos to U.S.importers.
B)  a flow of gold from the United States to Mexico.
C)  an increase in the peso price of dollars.
D)  an increase in the dollar price of pesos.E) B) and C)
F) None of the above

Question 4

The purchase of a foreign hotel by a U.S.company is recorded as a credit in the financial account of the U.S.balance-of-payments statement.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following is part of the financial account on the U.S.balance of payments?

Accepted Answer

A)  net transfers
B)  net investment income
C)  U.S.goods exports
D)  U.S.purchases of assets abroadE) All of the above
F) C) and D)

Question 6

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S.dollar.Which of the following statements is true?

Accepted Answer

A)  Econland's government will have a limited capacity to maintain the peg at the current level if the supply of dollars in the foreign exchange market is continually rising.
B)  Econland's government will have a limited capacity to maintain the peg at the current level if the demand for pesos in the foreign exchange market is continually falling.
C)  Econland's government will have a limited capacity to maintain the peg at the current level if the demand for Econland's products in the world market is strongly rising.
D)  Econland's government will have a limited capacity to maintain the peg at the current level if the demand for U.S.products in Econland is sharply falling.E) None of the above
F) B) and D)

Question 7

If a U.S.importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

Accepted Answer

A)  $1 = 2 British pounds in the United States.
B)  $2 = 1 British pound in the United States.
C)  $1 = 2 British pounds in Great Britain.
D)  $0.5 = 1 British pound in Great Britain.E) None of the above
F) B) and C)

Question 8

U.S.exports represent two flows,

Accepted Answer

A)  an outflow of goods or services and an outflow of payments.
B)  an inflow of goods or services and an outflow of payments.
C)  an outflow of goods or services and an inflow of payments.
D)  an inflow of goods or services and an inflow of payments.E) B) and D)
F) A) and C)

Question 9

Assume that Japan and the United States are engaged in a system of flexible exchange rates.If more Japanese tourists decide to visit the United States for their vacations,

Accepted Answer

A)  the yen will appreciate and the U.S.dollar will depreciate.
B)  the yen will depreciate and the U.S.dollar will appreciate.
C)  the yen and the U.S.dollar will appreciate.
D)  the yen and the U.S.dollar will depreciate.E) A) and D)
F) A) and C)

Question 10

Suppose that the United States fixes the dollar-pound exchange rate.In the process of maintaining the fixed exchange rate, the U.S.central bank regularly finds itself in a position of having to increase its reserves of pounds.Based on this, we could conclude that

Accepted Answer

A)  the fixed dollar-pound exchange rate is consistently below the equilibrium exchange rate that would be produced by a private foreign exchange market.
B)  the fixed dollar-pound exchange rate consistently exceeds the equilibrium exchange rate that would be produced by a private foreign exchange market.
C)  the fixed dollar-pound exchange rate is a good approximation of the exchange rate that would be produced by a private foreign exchange market.
D)  the U.S.central bank is regularly having to reduce the domestic money supply.E) A) and B)
F) B) and D)

Question 11

In saying that the present system of floating exchange rates is managed, we mean that

Accepted Answer

A)  countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF.
B)  the value of any IMF member's currency can only vary 2 percent from its par value.
C)  IMF officials determine exchange rates on a day-to-day basis.
D)  the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.E) All of the above
F) A) and B)

Question 12

Which one of the following will not directly affect the U.S.balance on current account?

Accepted Answer

A)  an increase in U.S.goods imports
B)  a decrease in U.S.net investment income
C)  an increase in U.S.purchases of assets abroad
D)  an increase in U.S.imports of servicesE) B) and D)
F) B) and C)

Question 13

Under a fixed exchange-rate system, which of the following statements is true?

Accepted Answer

A)  An overvalued currency at the pegged rate will tend to be inflationary.
B)  A peg that overvalues the local currency is harder to maintain than one that undervalues it.
C)  A fixed rate that undervalues the local currency (relative to equilibrium)  will drain the nation's FX reserves.
D)  A nation's central bank has exactly the same capacity to increase the value of its currency as it does to decrease it.E) None of the above
F) A) and B)

Question 14

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Accepted Answer

A)  monetary policy.
B)  an inflationary peg.
C)  sterilization.
D)  a currency intervention.E) C) and D)
F) A) and B)

Question 15

U.S.exports increase and U.S.imports decrease the supplies of foreign monies owned by U.S.banks.

Accepted Answer

A) True 
 B)False

Question 16

To maintain a fixed exchange rate, the government can use the following tools, except

Accepted Answer

A)  currency market intervention.
B)  controlling the flow of trade through various barriers.
C)  rationing of foreign exchange.
D)  keeping its level of international reserves strictly fixed.E) A) and D)
F) None of the above

Question 17

Which of the following statements is correct?

Accepted Answer

A)  Under the gold standard, exchange rates fluctuate without restraint and thereby correct any international balance of payment disequilibrium.
B)  If nations X and Y are on the international gold standard, and X's exports to Y exceed X's imports from Y, then gold will flow from X to Y.
C)  If the dollar price of pounds rises, then the pound price of dollars will also rise.
D)  American exports tend to increase, while American imports tend to decrease, the supplies of foreign monies deposited in American banks.E) None of the above
F) A) and B)

Question 18

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Accepted Answer

A)  travel by citizens of country X in other countries
B)  the desire of foreigners to buy stocks and bonds of firms in country X
C)  the imports of country X
D)  charitable contributions by country X's citizens to citizens of developing nationsE) A) and B)
F) A) and C)

Question 19

Depreciation of the dollar will

Accepted Answer

A)  decrease the prices of both U.S.imports and exports.
B)  increase the prices of both U.S.imports and exports.
C)  decrease the prices of U.S.imports but increase the prices to foreigners of U.S.exports.
D)  increase the prices of U.S.imports but decrease the prices to foreigners of U.S.exports.E) A) and C)
F) A) and D)

Question 20

In the U.S.balance of payments, foreign purchases of assets in the United States are a

Accepted Answer

A)  foreign currency outflow.
B)  foreign currency inflow.
C)  current account item.
D)  debit, or outpayment.E) A) and B)
F) B) and C)

Exam 41: The Balance of Payments, Exchange Rates, and Trade Deficits

The purchase of a foreign hotel by a U.S.company is recorded as a credit in the financial account of the U.S.balance-of-payments statement.

Correct AnswerverifiedShow Answer

Depreciation of the dollar will

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Assume that Japan and the United States are engaged in a system of flexible exchange rates.If more Japanese tourists decide to visit the United States for their vacations,

Correct AnswerverifiedShow Answer

U.S.exports represent two flows,

Correct AnswerverifiedShow Answer

Suppose that the United States fixes the dollar-pound exchange rate.In the process of maintaining the fixed exchange rate, the U.S.central bank regularly finds itself in a position of having to increase its reserves of pounds.Based on this, we could conclude that

Correct AnswerverifiedShow Answer

Under a fixed exchange-rate system, which of the following statements is true?

Correct AnswerverifiedShow Answer

The world's largest debtor nation in terms of debt owed to foreign citizens and governments is

Correct AnswerverifiedShow Answer

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Correct AnswerverifiedShow Answer

To maintain a fixed exchange rate, the government can use the following tools, except

Correct AnswerverifiedShow Answer

Which one of the following is part of the financial account on the U.S.balance of payments?

Correct AnswerverifiedShow Answer

Under a system of freely flexible (floating) exchange rates, a U.S.trade deficit with Mexico will tend to cause

Correct AnswerverifiedShow Answer

When a government buys or sells foreign exchange in the foreign exchange market in order to alter the supply or demand for currency and push the exchange rate in a desired direction, this is known as

Correct AnswerverifiedShow Answer

In saying that the present system of floating exchange rates is managed, we mean that

Correct AnswerverifiedShow Answer

Under the managed floating system of exchange rates,

Correct AnswerverifiedShow Answer

Which one of the following will not directly affect the U.S.balance on current account?

Correct AnswerverifiedShow Answer

In the U.S.balance of payments, foreign purchases of assets in the United States are a

Correct AnswerverifiedShow Answer

U.S.exports increase and U.S.imports decrease the supplies of foreign monies owned by U.S.banks.

Correct AnswerverifiedShow Answer

If a U.S.importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

Correct AnswerverifiedShow Answer

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S.dollar.Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified