Question 1

Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1.If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with

Accepted Answer

A)  $40 million.
B)  $800 million.
C)  $2 million.
D)  $0.5 million.E) A) and B)
F) All of the above

Question 2

When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has

Accepted Answer

A)  depreciated.
B)  appreciated.
C)  inflated.
D)  deflated.E) A) and B)
F) A) and C)

Question 3

If the dollar price of yen rises, then

Accepted Answer

A)  the yen price of dollars also rises.
B)  the dollar depreciates relative to the yen.
C)  the yen depreciates relative to the dollar.
D)  the dollar will buy fewer U.S.goods.E) All of the above
F) A) and D)

Question 4

If the price of British pounds, measured in terms of U.S.dollars, is rising, then the price of U.S.dollars, measured in terms of British pounds, is also rising.

Accepted Answer

A) True 
 B)False

Question 5

The United States has had significant trade and current account surpluses in recent years.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would call for outpayments from the United States?

Accepted Answer

A)  The United States exports computer software.
B)  The United States purchases assets abroad.
C)  Foreigners purchase assets in the United States.
D)  Foreign tourists spend money in the United States.E) A) and C)
F) A) and B)

Question 7

Proponents of the managed floating exchange rate system argue that it has

Accepted Answer

A)  added the volatility needed by the exchange rate market.
B)  been effective because it is a "nonsystem" without fixed rules.
C)  been sufficiently flexible to weather major economic turbulence.
D)  resolved major problems in balance of payments surpluses and deficits.E) A) and D)
F) B) and C)

Question 8

Under an international gold standard,

Accepted Answer

A)  exchange rates would fluctuate inversely with the domestic interest rates of the participating countries.
B)  each nation must agree to depreciate its currency in direct proportion to the growth of its real GDP.
C)  gold would flow into a nation experiencing a balance of payments surplus.
D)  exchange rates would fluctuate directly with the domestic price levels of the various trading countries.E) B) and D)
F) B) and C)

Question 9

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S.imports, then these events are most likely to cause the British pound to

Accepted Answer

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

Question 10

The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos.This change will lead to

Accepted Answer

A)  U.S.goods becoming less expensive for Mexicans.
B)  Mexican goods becoming more expensive for Americans.
C)  an increase in U.S.exports to Mexico.
D)  a decrease in U.S.exports to Mexico.E) A) and B)
F) None of the above

Question 11

When a U.S.company purchases a factory in Singapore, this will be a

Accepted Answer

A)  credit on the current account of the U.S.balance of payments.
B)  debit on the current account of the U.S.balance of payments.
C)  credit on the financial account of the U.S.balance of payments.
D)  debit on the financial account of the U.S.balance of payments.E) A) and D)
F) A) and C)

Question 12

The Bretton Woods system of exchange rates

Accepted Answer

A)  is also known as the gold standard and met its demise in the 1930s.
B)  relied heavily on floating exchange rates determined in the market for foreign exchange.
C)  was abandoned in the 1930s.
D)  was a system of fixed or pegged exchange rates, which occasionally could be adjusteD.E) None of the above
F) A) and B)

Question 13

(Consider This)  Which of the following statements is most accurate about China's pegging of its currency against the U.S.dollar in the 2000s?

Accepted Answer

A)  China has consistently kept the yuan price of a dollar lower than what the free market equilibrium exchange rate would be.
B)  China has consistently kept the yuan price of a dollar higher than what the free market equilibrium exchange rate would be.
C)  China has regularly adjusted the peg so as to sometimes set the yuan price of a dollar too high and other times set it too low.
D)  China has seen a rapid decline in its reserves of dollars.E) B) and C)
F) B) and D)

Question 14

If China maintains a pegged exchange rate with the U.S.dollar, and the consequence is rising inflation, then the pegged value of the Chinese yuan must be

Accepted Answer

A)  above the equilibrium $/yuan value.
B)  discouraging Chinese exports in the world markets.
C)  causing China to accumulate FX reserves.
D)  exposing Chinese exporters and investors to the vagaries of the foreign exchange markets.E) None of the above
F) C) and D)

Question 15

If a nation has a balance of payments deficit and exchange rates are flexible, the price or value of that nation's currency in the foreign exchange markets will rise.

Accepted Answer

A) True 
 B)False

Question 16

If several nations decide to adopt and use a common currency, then each of these nations would lose the following, except

Accepted Answer

A)  the ability to set its own interest rates.
B)  the ability to set its own tax rates.
C)  control of its own exchange rate.
D)  the use of "external adjustment" tools to deal with current-account balance problems.E) All of the above
F) A) and C)

Question 17

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by

Accepted Answer

A)  private businesses engaging in trade.
B)  central banks of the nations engaged in trade.
C)  commercial banks, which make loans to businesses engaging in trade.
D)  commercial banks, which make loans to governments that engage in trade.E) B) and C)
F) All of the above

Question 18

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then

Accepted Answer

A)  Americans will buy fewer Korean goods and services.
B)  the won has appreciated in value.
C)  fewer U.S.goods and services will be demanded by the South Koreans.
D)  the dollar has depreciated in value.E) A) and C)
F) C) and D)

Question 19

A nation's annual balance of payments statement must always balance because

Accepted Answer

A)  a nation's imports are limited to the value of its exports.
B)  a nation's exports and imports are always paid with dollars.
C)  all international transactions must be settled in one way or another.
D)  a trade deficit must be matched by an equal surplus of investment income.E) None of the above
F) All of the above

Question 20

Appreciation of the Canadian dollar will

Accepted Answer

A)  intensify an existing disequilibrium in Canada's balance of payments.
B)  make Canada's exports less expensive and its imports more expensive.
C)  make Canada's exports more expensive and its imports less expensive.
D)  make Canada's exports and imports both more expensive.E) All of the above
F) None of the above

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

If the dollar price of yen rises, then

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A nation's annual balance of payments statement must always balance because

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If a nation has a balance of payments deficit and exchange rates are flexible, the price or value of that nation's currency in the foreign exchange markets will rise.

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Appreciation of the Canadian dollar will

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Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1.If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with

Correct AnswerverifiedShow Answer

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then

Correct AnswerverifiedShow Answer

When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has

Correct AnswerverifiedShow Answer

The United States has had significant trade and current account surpluses in recent years.

Correct AnswerverifiedShow Answer

Which of the following would call for outpayments from the United States?

Correct AnswerverifiedShow Answer

(Consider This) Which of the following statements is most accurate about China's pegging of its currency against the U.S.dollar in the 2000s?

Correct AnswerverifiedShow Answer

If several nations decide to adopt and use a common currency, then each of these nations would lose the following, except

Correct AnswerverifiedShow Answer

If the price of British pounds, measured in terms of U.S.dollars, is rising, then the price of U.S.dollars, measured in terms of British pounds, is also rising.

Correct AnswerverifiedShow Answer

Official reserves used to achieve a balance of payments between nations engaging in international trade are held by

Correct AnswerverifiedShow Answer

Proponents of the managed floating exchange rate system argue that it has

Correct AnswerverifiedShow Answer

Under an international gold standard,

Correct AnswerverifiedShow Answer

When a U.S.company purchases a factory in Singapore, this will be a

Correct AnswerverifiedShow Answer

The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos.This change will lead to

Correct AnswerverifiedShow Answer

If China maintains a pegged exchange rate with the U.S.dollar, and the consequence is rising inflation, then the pegged value of the Chinese yuan must be

Correct AnswerverifiedShow Answer

The Bretton Woods system of exchange rates

Correct AnswerverifiedShow Answer

If there is a recession in the United Kingdom and a reduction in British imports, and an economic boom in the United States and an increase in U.S.imports, then these events are most likely to cause the British pound to

Correct AnswerverifiedShow Answer

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