Question 1

A nation's balance on the current account is equal to its exports less its imports of:

Accepted Answer

A)  goods and services.
B)  goods and services, minus Canadian purchases of assets abroad.
C)  goods and services, plus net investment income and net transfers.
D)  goods and services, plus foreign purchases of assets in Canada.E) C) and D)
F) A) and B)

Question 2

The Bretton Woods system of exchange rates relied on:

Accepted Answer

A)  flexible exchange rates.
B)  fixed exchange rates with no mechanism for changing them.
C)  fixed or "pegged" exchange rates, with occasional orderly adjustments to the rates.
D)  Canada to set and periodically review worldwide exchange rates.E) None of the above
F) All of the above

Question 3

The idea that flexible exchange rates equate the purchasing power of national currencies is called the:

Accepted Answer

A)  equation of exchange.
B)  balance of payments.
C)  gold standard.
D)  purchasing power parity theory.E) B) and D)
F) A) and D)

Question 4

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) All of the above
F) A) and D)

Question 5

Which of the following lists of exchange rates is arranged in proper historical order?

Accepted Answer

A)  Bretton Woods system, gold standard, managed float
B)  gold standard, managed float, Bretton Woods system
C)  managed float, Bretton Woods system, gold standard
D)  gold standard, Bretton Woods system, managed floatE) B) and C)
F) All of the above

Question 6

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) A) and D)
F) B) and D)

Question 7

Which one of the following, other things equal, will directly alter Canada's balance of trade?

Accepted Answer

A)  an increase in official international reserves
B)  a decrease in merchandise exports
C)  an increase in net transfers
D)  a decrease in capital outflowsE) A) and C)
F) A) and D)

Question 8

The graph below shows the supply and demand for Swiss francs in the absence of any intervention by the central monetary authorities.$0.25 is the value of the franc fixed by the central bank.Which of the following is correct?

Accepted Answer

A)  The Swiss franc is overvalued.
B)  Switzerland's balance of payments is likely to be in large surplus.
C)  At the $0.25 value there is an excess demand for Swiss francs.
D)  At the $0.20 value there is an excess supply of Swiss francs.E) B) and C)
F) All of the above

Question 9

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) None of the above
F) A) and D)

Question 10

The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars.  Refer to the above data.In 2013, Transylvania realized a balance of payments deficit.

Accepted Answer

A) True 
 B)False

Question 11

The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

Accepted Answer

A) True 
 B)False

Question 12

Suppose the capital account balance of an economy is -61 billion and the stock of official international reserves is -$11 billion.Given the scenario, the balance in the current account is:

Accepted Answer

A)  $50 billion.
B)  -$50 billion.
C)  -$111 billion.
D)  $111 billion.E) C) and D)
F) B) and D)

Question 13

A country'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 trade deficit must be matched by an equal surplus of investment income.
C)  all international transactions must be settled in one way or another.
D)  a nation's exports will be limited by the dollar value of its imports.E) A) and C)
F) A) and B)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The following table shows the balance of payments statement for the hypothetical nation of Zabella in 2014.All the figures are in billions of dollars.  Refer to the above data.Given the scenario, it can be said that Zabella experienced a balance of payments:

Accepted Answer

A)  deficit of $5 billion in 2014.
B)  surplus of $10 billion in 2014.
C)  deficit of $10 billion in 2014.
D)  surplus of $5 billion in 2014.E) C) and D)
F) All of the above

Question 16

The Canadian supply of pounds is:

Accepted Answer

A)  downward sloping because a lower dollar price of pounds means Canadian goods are cheaper to the British.
B)  upward sloping because a higher dollar price of pounds means Canadian goods are cheaper to the British.
C)  upward sloping because a lower dollar price of pounds means Canadian goods are cheaper to the British.
D)  downward sloping because a higher dollar price of pounds means Canadian goods are cheaper to the British.E) A) and B)
F) None of the above

Question 17

Under the managed floating exchange rate system, a government may be able to reduce the international value of its currency by:

Accepted Answer

A)  selling its currency in the foreign exchange market.
B)  buying its currency in the foreign exchange market.
C)  selling foreign currencies in the foreign exchange market.
D)  increasing its domestic interest rates.E) B) and D)
F) B) and C)

Question 18

In considering pounds and dollars, when the dollar rate of exchange for the British pound rises:

Accepted Answer

A)  the pound rate of exchange for the dollar will fall.
B)  the pound rate of exchange for the dollar will also rise.
C)  the pound rate of exchange for the dollar may either fall or rise.
D)  Canadian net exports to Britain will tend to fall.E) A) and C)
F) B) and C)

Question 19

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Between 2012 and 2014, the:

Accepted Answer

A)  dollar appreciated in value relative to the yen.
B)  yen appreciated in value relative to the dollar.
C)  dollar price of yen declined.
D)  yen price of dollars increased.E) A) and C)
F) B) and C)

Question 20

Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

Accepted Answer

A)  exchange rate appreciation and a decrease in the domestic supply of money
B)  exchange rate appreciation and domestic deflation
C)  exchange rate depreciation and domestic deflation
D)  exchange rate depreciation and domestic inflationE) None of the above
F) A) and D)

Exam 18: Part A: The Balance of Payments and Exchange Rates

Which one of the following, other things equal, will directly alter Canada's balance of trade?

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The idea that flexible exchange rates equate the purchasing power of national currencies is called the:

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The following table shows the balance of payments statement for the hypothetical nation of Zabella in 2014.All the figures are in billions of dollars. Refer to the above data.Given the scenario, it can be said that Zabella experienced a balance of payments:

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The Canadian supply of pounds is:

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The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars. Refer to the above data.In 2013, Transylvania realized a balance of payments deficit.

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Suppose the capital account balance of an economy is -61 billion and the stock of official international reserves is -$11 billion.Given the scenario, the balance in the current account is:

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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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Under the managed floating system of exchange rates:

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The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

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Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

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Under the managed floating exchange rate system, a government may be able to reduce the international value of its currency by:

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A country's annual balance of payments statement must always balance because:

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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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In considering pounds and dollars, when the dollar rate of exchange for the British pound rises:

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Which of the following lists of exchange rates is arranged in proper historical order?

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Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Between 2012 and 2014, the:

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

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The graph below shows the supply and demand for Swiss francs in the absence of any intervention by the central monetary authorities.$0.25 is the value of the franc fixed by the central bank.Which of the following is correct?

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The Bretton Woods system of exchange rates relied on:

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A nation's balance on the current account is equal to its exports less its imports of:

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