Question 1

The following table shows the trade between Canada and Transylvania for the year 2012. All figures are in billions of dollars.
 
-Refer to the above information. Canada had a balance of services by:

Accepted Answer

A)   surplus of $3 billion.
B)   deficit of $9 billion.
C)   surplus of $15 billion.
D)   deficit of $6 billion.E) B) and D)
F) B) and C)

Question 2

Assume that Switzerland and Britain have flexible exchange rates. Other things unchanged, if economic growth is more rapid in Switzerland than in Britain:

Accepted Answer

A)   gold bullion will flow out of Switzerland.
B)   the Swiss franc will depreciate.
C)   the pound will depreciate.
D)   the Swiss franc will appreciate.E) B) and C)
F) C) and D)

Question 3

The current account on a nation's balance of payments statement includes net investment income.

Accepted Answer

A) True 
 B)False

Question 4

In the balance of payments of Canada, an outflow of Canadian holdings of official international reserves is recorded as a:

Accepted Answer

A)   current account entry.
B)   negative entry.
C)   net transfer.
D)   positive entry.E) A) and B)
F) All of the above

Question 5

1 and S1. If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates: A)  gold would flow from Mexico to Canada. B)  the peso price of dollars would rise from 1/B pesos equals $1 to, 1/A pesos equals $1. C)  a problem of rationing a shortage of pesos would arise in Canada. D)  the dollar price of pesos would increase to C dollars equals 1 peso." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram. The initial demand for and supply of pesos are shown by D1 and S1. If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

Accepted Answer

A)   gold would flow from Mexico to Canada.
B)   the peso price of dollars would rise from 1/B pesos equals $1 to, 1/A pesos equals $1.
C)   a problem of rationing a shortage of pesos would arise in Canada.
D)   the dollar price of pesos would increase to C dollars equals 1 peso.E) B) and C)
F) A) and D)

Question 6

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

Accepted Answer

A)   travel by foreigners in country X
B)   the desire of foreigners to buy stocks and bonds of firms in country X
C)   the exports of country X
D)   all of the aboveE) A) and B)
F) None of the above

Question 7

The purchasing-power-parity theory holds that exchange rates equate the purchasing power of various currencies.

Accepted Answer

A) True 
 B)False

Question 8

When the people involved in an exchange are from countries that use different currencies, an intermediate asset transaction has to take place:

Accepted Answer

A)   the seller must convert her currency into the currency that the buyer uses and accepts.
B)   the buyer must convert her currency into the currency that the seller uses and accepts.
C)   the buyer and seller should engage in barter trade.
D)   both buyer and seller should exchange their currencies to gold.E) None of the above
F) B) and C)

Question 9

The current exchange-rate system is an "almost" flexible exchange-rate system.

Accepted Answer

A) True 
 B)False

Question 10

-Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D' will cause:

Accepted Answer

A)   Canada to increase its stocks of international monetary reserves.
B)   a Swiss balance of payments deficit.
C)   a Canadian balance of payments deficit.
D)   a Canadian balance of payments surplus.E) C) and D)
F) All of the above

Question 11

If the dollar depreciates, Canadian exports will eventually rise and Canadian imports will eventually fall.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following creates a supply of Euro in foreign exchange markets?

Accepted Answer

A)   a Frenchman redeems a bond issued by an Italian manufacturer.
B)   an Italian importer buys insurance from a Canadian firm.
C)   a Canadian student takes a summer trip to Rome.
D)   a Canadian importer buys 500 cases of Italian table wine.E) A) and B)
F) A) and C)

Question 13

The current system of exchange rates can best be described as:

Accepted Answer

A)   freely fluctuating exchange rates.
B)   managed floating exchange rates.
C)   rigidly fixed exchange rates.
D)   a crawling peg system.E) C) and D)
F) A) and B)

Question 14

Suppose interest rates fall sharply in Canada but are unchanged in Great Britain. Other things unchanged, under a system of flexible exchange rates we can expect the demand for pounds in Canada to:

Accepted Answer

A)   decrease, the supply of pounds to increase, and the dollar to appreciate relative to the pound.
B)   increase, the supply of pounds to increase, and the dollar may either appreciate or depreciate relative to the pound.
C)   increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound.
D)   decrease, the supply of pounds to increase, and the dollar to depreciate relative to the pound.E) B) and C)
F) A) and B)

Question 15

Assume that, under a system of flexible exchange rates, Mexicans decide to increase their investments in Canada. As a result:

Accepted Answer

A)   Canadians will want to buy fewer Mexican goods at the new exchange rate.
B)   the peso and the dollar will both depreciate in value.
C)   the peso and the dollar will both appreciate in value.
D)   the peso will depreciate and the dollar will appreciate in value.E) C) and D)
F) None of the above

Question 16

The following table shows the trade between Canada and Transylvania for the year 2012. All figures are in billions of dollars.
 
-Refer to the above information. Canada had a current account:

Accepted Answer

A)   surplus of $3 billion.
B)   deficit of $11 billion.
C)   surplus of $10 billion.
D)   surplus of $15 billion.E) A) and C)
F) B) and D)

Question 17

If the dollar depreciates relative to the pound, then the pound:

Accepted Answer

A)   will be less expensive to Canadians.
B)   may either appreciate or depreciate relative to the dollar.
C)   will appreciate relative to the dollar.
D)   will depreciate relative to the dollar.E) A) and D)
F) C) and D)

Question 18

The balance of payments must always balance, because:

Accepted Answer

A)   capital account surplus means the outflow of capital.
B)   current account surpluses automatically generate transfer of assets to foreigners.
C)   current account deficits automatically generate transfer of assets from foreigners.
D)   current account deficits automatically generate transfer of assets to foreigners while current account surpluses automatically generate transfer of assets from foreigners.E) B) and C)
F) B) and D)

Question 19

Which one of the following is not one of the so-called G-8 nations?

Accepted Answer

A)   Japan
B)   Canada
C)   United States
D)   MexicoE) B) and C)
F) A) and D)

Question 20

Evidence of a chronic balance of payments deficit is:

Accepted Answer

A)   a decline in amount of the nation's currency held by other nations.
B)   an excess of exports over imports.
C)   diminishing reserves of foreign currencies.
D)   an increase in the international value of the nation's currency.E) All of the above
F) None of the above

Exam 17: Exchange Rates and the Balance of Payments

The balance of payments must always balance, because:

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Which one of the following is not one of the so-called G-8 nations?

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The purchasing-power-parity theory holds that exchange rates equate the purchasing power of various currencies.

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The following table shows the trade between Canada and Transylvania for the year 2012. All figures are in billions of dollars. -Refer to the above information. Canada had a balance of services by:

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In the balance of payments of Canada, an outflow of Canadian holdings of official international reserves is recorded as a:

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Which of the following creates a supply of Euro in foreign exchange markets?

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The current exchange-rate system is an "almost" flexible exchange-rate system.

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The current account on a nation's balance of payments statement includes net investment income.

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-Refer to the above diagram. The initial demand for and supply of pesos are shown by D1 and S1. If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

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

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Suppose interest rates fall sharply in Canada but are unchanged in Great Britain. Other things unchanged, under a system of flexible exchange rates we can expect the demand for pounds in Canada to:

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If the dollar depreciates relative to the pound, then the pound:

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The current system of exchange rates can best be described as:

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If the dollar depreciates, Canadian exports will eventually rise and Canadian imports will eventually fall.

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The following table shows the trade between Canada and Transylvania for the year 2012. All figures are in billions of dollars. -Refer to the above information. Canada had a current account:

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Assume that, under a system of flexible exchange rates, Mexicans decide to increase their investments in Canada. As a result:

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Assume that Switzerland and Britain have flexible exchange rates. Other things unchanged, if economic growth is more rapid in Switzerland than in Britain:

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-Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of fixed exchange rates, the shift in demand from D to D' will cause:

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When the people involved in an exchange are from countries that use different currencies, an intermediate asset transaction has to take place:

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Evidence of a chronic balance of payments deficit is:

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-Refer to the above diagram. The initial demand for and supply of pesos are shown by D₁ and S₁. If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

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