Question 1

Suppose a basket of goods that costs $400 in the United States costs only £200 in Britain and the current exchange rate is $1 per pound. According to the purchasing power parity theory, which of the following statements explains the reason behind a higher equilibrium exchange rate than $1 per pound?​

Accepted Answer

A)  The same basket of goods could be purchased in Britain for £200 and sold in the United States for $400, and the $400 could be used to purchase £400 for a £200 profit.
B)  The basket of goods could be purchased in Britain for £200 and sold in the United States for $200, and the $200 could be used to buy £200 for a £500 profit.
C)  The basket of goods could be purchased in the United States for $400 and sold in Britain for £400, and the £400 could be used to buy $1,400 for a £1,000 profit.
D)  The basket of goods could be purchased in the United States for $200 and sold in Britain for £400, and the £400 could be used to buy $800 for a $400 profit.
E)  The basket of goods could be purchased in the United States for $200 and sold in Britain for £400, and the £400 could be used to buy $900 for a £500 profit.F) A) and B)
G) A) and C)

Question 2

Critics of the system of flexible exchange rates allege that it:​

Accepted Answer

A)  causes inflation.
B)  causes unemployment.
C)  gives central banks too little discretion over their money supplies.
D)  restricts the growth of developing countries.
E)  gives too much financial power to industrial countries.F) B) and E)
G) A) and B)

Question 3

A country's balance of payments summarizes all economic transactions during a given period between the residents of that country and the residents of other countries.​

Accepted Answer

A) True 
 B)False

Question 4

A German national who exchanges euros for dollars at a U.S. airport is:​

Accepted Answer

A)  contributing to U.S. exports of merchandise.
B)  lending dollars to Germany.
C)  participating in the foreign exchange market.
D)  engaging in speculative activities.
E)  engaging in illegal activities.F) D) and E)
G) A) and B)

Question 5

The International Monetary Fund was founded in _____.​

Accepted Answer

A)  1938
B)  1961​
C)  1971​
D)  1991​
E)  1944​F) B) and D)
G) A) and B)

Question 6

Under the Bretton Woods agreement, _____.​

Accepted Answer

A)  nations could not adjust their exchange rates relative to the dollar for any reason
B)  exchange rates were based on a market basket of European currencies plus the dollar​
C)  the United States stood ready to convert foreign holdings of dollars into gold at a fixed rate of $35 per ounce​
D)  the international monetary system operated exactly like the gold standard of the pre-World War II years​
E)  gold played no role in the international monetary system​F) B) and C)
G) A) and E)

Question 7

If foreigners increase their ownership of U.S. assets, this would help to offset:​

Accepted Answer

A)  a deficit in the U.S. current account.
B)  a deficit in the U.S. capital account.
C)  a surplus in the U.S. current account.
D)  a surplus in the U.S. capital account.
E)  a surplus in the overall balance of payments.F) All of the above
G) D) and E)

Question 8

If interest rates fall in country A, other things constant, which of the following statements is true?​

Accepted Answer

A)  The demand for country A's currency will fall and the currency will depreciate.
B)  The demand for country A's currency will fall and the currency will appreciate.
C)  The demand for country A's currency will increase and the currency will depreciate.
D)  The demand for country A's currency will increase and the currency will appreciate.
E)  There will be a net inflow of foreign investments in country A.F) B) and C)
G) All of the above

Question 9

A leftward shift of a country's demand curve for foreign exchange will:​

Accepted Answer

A)  increase the price of foreign exchange in the country.
B)  decrease the value of its currency.
C)  make foreign goods more expensive in the domestic market.
D)  make foreign goods less expensive in the domestic market.
E)  make its goods less expensive in the foreign market.F) A) and B)
G) B) and C)

Question 10

The balance of payments can be thought of as the balance of economic transactions.​

Accepted Answer

A) True 
 B)False

Question 11

A floating exchange rate:​

Accepted Answer

A)  is determined by the national governments involved.
B)  remains extremely stable over long periods of time.
C)  is determined by the actions of central banks.
D)  is allowed to vary only within a narrow range.
E)  adjusts in response to market forces.F) B) and C)
G) All of the above

Question 12

The Bretton Woods system fixed all exchange rates in terms of the U.S. dollar.​

Accepted Answer

A) True 
 B)False

Question 13

Suppose U.S. consumers start buying more English shoes and fewer American shoes. Which of the following will be a likely impact on the foreign exchange market?​

Accepted Answer

A)  U.S. demand for British pounds will increase.
B)  U.S. demand for British pounds will decrease.
C)  U.S. demand for British pounds will increase, but the demand for foreign exchange will decrease.
D)  U.S. demand for British pounds will decrease, but the demand for foreign exchange will increase.
E)  There would be no effect on the demand for foreign exchange in the U.S.F) A) and C)
G) A) and B)

Question 14

The purchasing power parity theory:​

Accepted Answer

A)  is more a predictor of a long-run tendency than of the day-to-day relationship between changes in the price level and the exchange rate.
B)  predicts that exchange rates between two currencies will adjust in the short run so that the price level is equal to the exchange rate between two countries.
C)  is more a predictor of a short-run phenomenon than of a long-run relationship between the price level and the exchange rate between two countries.
D)  is helpful in explaining long-run trends, even though trade barriers and central bank intervention may hinder the usefulness of the theory.
E)  tells us that a country's currency generally will appreciate if its inflation rate is higher than that of the rest of the world.F) B) and D)
G) B) and C)

Question 15

The statistical discrepancy:​

Accepted Answer

A)  is always positive but less than 1.
B)  is always negative and greater than −1.
C)  must be reduced to zero and eliminated from the balance of payments before the records become official.
D)  is a residual factor that indicates the net error in the balance of payments data.
E)  is a record of all transactions between residents of two countries over a specified period.F) B) and C)
G) A) and C)

Question 16

A drop in the dollar price of British pounds implies that:​

Accepted Answer

A)  fewer U.S. dollars are needed to buy British pounds.
B)  more dollars are needed to buy British pounds.
C)  the pound has appreciated.
D)  the dollar has depreciated.
E)  British goods are now more expensive to Americans.F) B) and E)
G) All of the above

Question 17

The merchandise trade balance:​

Accepted Answer

A)  reflects trade in intangibles like insurance and tourism.
B)  includes personal gifts to friends abroad.
C)  records the flow of financial assets like stocks and bonds.
D)  equals the value of imports in goods and services minus the value of exports in goods and services.
E)  equals the value of tangible products exported minus the value of tangible products imported.F) B) and E)
G) A) and C)

Question 18

Which of the following is a credit item in the U.S. balance of payments?​

Accepted Answer

A)  U.S. companies selling merchandise abroad
B)  Foreign companies selling merchandise to U.S. consumers​
C)  U.S. consumers sending money to foreign companies​
D)  Immigrants to the United States sending money back to their families in their native countries​
E)  Immigrants to the United States sending gifts back to their families in their native countries​F) C) and D)
G) B) and D)

Question 19

The foreign exchange rate is:​

Accepted Answer

A)  an entry in the current account.
B)  the price of a foreign good in the world market.
C)  an entry in the capital account.
D)  an entry in the balance of trade.
E)  the cost of one currency in terms of another.F) A) and E)
G) A) and B)

Question 20

The value of a country's exports is listed in its balance of payments account as a(n)  _____.​

Accepted Answer

A)  credit
B)  debit
C)  payment
D)  investment
E)  unilateral transferF) C) and D)
G) A) and C)

Exam 20: International Finance

A country's balance of payments summarizes all economic transactions during a given period between the residents of that country and the residents of other countries.

Correct Answer
verified

The purchasing power parity theory:

Correct Answer
verified

Critics of the system of flexible exchange rates allege that it:

Correct Answer
verified

If foreigners increase their ownership of U.S. assets, this would help to offset:

Correct Answer
verified

If interest rates fall in country A, other things constant, which of the following statements is true?

Correct Answer
verified

The statistical discrepancy:

Correct Answer
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The International Monetary Fund was founded in _____.

Correct Answer
verified

Suppose U.S. consumers start buying more English shoes and fewer American shoes. Which of the following will be a likely impact on the foreign exchange market?

Correct Answer
verified

A leftward shift of a country's demand curve for foreign exchange will:

Correct Answer
verified

A floating exchange rate:

Correct Answer
verified

The Bretton Woods system fixed all exchange rates in terms of the U.S. dollar.

Correct Answer
verified

A drop in the dollar price of British pounds implies that:

Correct Answer
verified

Correct Answer
verified

Under the Bretton Woods agreement, _____.

Correct Answer
verified

The merchandise trade balance:

Correct Answer
verified

The foreign exchange rate is:

Correct Answer
verified

The balance of payments can be thought of as the balance of economic transactions.

Correct Answer
verified

Which of the following is a credit item in the U.S. balance of payments?

Correct Answer
verified

The value of a country's exports is listed in its balance of payments account as a(n) _____.

Correct Answer
verified

A German national who exchanges euros for dollars at a U.S. airport is:

Correct Answer
verified

Exam 20: International Finance

A country's balance of payments summarizes all economic transactions during a given period between the residents of that country and the residents of other countries.​

Correct AnswerverifiedShow Answer

The purchasing power parity theory:​

Correct AnswerverifiedShow Answer

Critics of the system of flexible exchange rates allege that it:​

Correct AnswerverifiedShow Answer

If foreigners increase their ownership of U.S. assets, this would help to offset:​

Correct AnswerverifiedShow Answer

If interest rates fall in country A, other things constant, which of the following statements is true?​

Correct AnswerverifiedShow Answer

The statistical discrepancy:​

Correct AnswerverifiedShow Answer

The International Monetary Fund was founded in _____.​

Correct AnswerverifiedShow Answer

Suppose U.S. consumers start buying more English shoes and fewer American shoes. Which of the following will be a likely impact on the foreign exchange market?​

Correct AnswerverifiedShow Answer

A leftward shift of a country's demand curve for foreign exchange will:​

Correct AnswerverifiedShow Answer

A floating exchange rate:​

Correct AnswerverifiedShow Answer

The Bretton Woods system fixed all exchange rates in terms of the U.S. dollar.​

Correct AnswerverifiedShow Answer

A drop in the dollar price of British pounds implies that:​

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Under the Bretton Woods agreement, _____.​

Correct AnswerverifiedShow Answer

The merchandise trade balance:​

Correct AnswerverifiedShow Answer

The foreign exchange rate is:​

Correct AnswerverifiedShow Answer

The balance of payments can be thought of as the balance of economic transactions.​

Correct AnswerverifiedShow Answer

Which of the following is a credit item in the U.S. balance of payments?​

Correct AnswerverifiedShow Answer

The value of a country's exports is listed in its balance of payments account as a(n) _____.​

Correct AnswerverifiedShow Answer

A German national who exchanges euros for dollars at a U.S. airport is:​

Correct AnswerverifiedShow Answer

A country's balance of payments summarizes all economic transactions during a given period between the residents of that country and the residents of other countries.

Correct Answer
verified

The purchasing power parity theory:

Correct Answer
verified

Critics of the system of flexible exchange rates allege that it:

Correct Answer
verified

If foreigners increase their ownership of U.S. assets, this would help to offset:

Correct Answer
verified

If interest rates fall in country A, other things constant, which of the following statements is true?

Correct Answer
verified

The statistical discrepancy:

Correct Answer
verified

The International Monetary Fund was founded in _____.

Correct Answer
verified

Suppose U.S. consumers start buying more English shoes and fewer American shoes. Which of the following will be a likely impact on the foreign exchange market?

Correct Answer
verified

A leftward shift of a country's demand curve for foreign exchange will:

Correct Answer
verified

A floating exchange rate:

Correct Answer
verified

The Bretton Woods system fixed all exchange rates in terms of the U.S. dollar.

Correct Answer
verified

A drop in the dollar price of British pounds implies that:

Correct Answer
verified

Correct Answer
verified

Under the Bretton Woods agreement, _____.

Correct Answer
verified

The merchandise trade balance:

Correct Answer
verified

The foreign exchange rate is:

Correct Answer
verified

The balance of payments can be thought of as the balance of economic transactions.

Correct Answer
verified

Which of the following is a credit item in the U.S. balance of payments?

Correct Answer
verified

The value of a country's exports is listed in its balance of payments account as a(n) _____.

Correct Answer
verified

A German national who exchanges euros for dollars at a U.S. airport is:

Correct Answer
verified