Question 1

Which of the following would contribute to a Canadian balance of payments deficit?

Accepted Answer

A)   Kawasaki builds a motorcycle manufacturing plant in Vancouver
B)   Canadian tourists travel in large numbers to Europe
C)   a wealthy Iranian builds a mansion in Montreal
D)   Zaire pays interest on its debt to CanadaE) A) and B)
F) All of the above

Question 2

In a nation's balance of payments,which one of the following items is always recorded as a positive entry?

Accepted Answer

A)   merchandise imports
B)   changes in foreign currency reserves
C)   capital outflows
D)   exports of servicesE) None of the above
F) All of the above

Question 3

In the foreign exchange markets:

Accepted Answer

A)   those who wish to sell one currency to buy another interact with others who would like to do exactly the opposite.
B)   the buyers and sellers of a product engage in barter trade.
C)   both buyers and sellers of a product can exchange their currencies with gold.
D)   only the buyers of a product can exchange their currencies with a financial asset.E) All of the above
F) A) and D)

Question 4

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) A) and D)

Question 5

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.
Current Account:
 
-Refer to the above data.Zabella's is experiencing a balance of trade:

Accepted Answer

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

Question 6

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.
Current Account:
 
-Refer to the above data.The "official international reserves" account indicates that Zabella:

Accepted Answer

A)   added $5 billion to its stock of foreign currencies.
B)   imported more merchandise than it exported.
C)   exported $5 billion of its stock of foreign currencies.
D)   experienced a balance of payments surplus in 2011.E) A) and B)
F) All of the above

Question 7

Which of the following would contribute to a Canadian balance of payments surplus?

Accepted Answer

A)   Canada makes a unilateral tariff reduction on imported goods
B)   Canadian Pacific pays a dividend to a Swiss stockholder
C)   Canada cuts back on Canadian military personnel stationed in Germany
D)   Russian vodka becomes increasingly popular in CanadaE) B) and C)
F) B) and D)

Question 8

Under the international gold standard,exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Accepted Answer

A) True 
 B)False

Question 9

If the exchange rate changes so that more Swiss francs are required to buy a dollar,then:

Accepted Answer

A)   the Swiss franc has appreciated in value.
B)   Canadians will buy more Swiss goods and services.
C)   more Canadian goods and services will be demanded by the Swiss.
D)   the dollar has depreciated in value.E) A) and B)
F) A) and C)

Question 10

The foreign demand curve for a nation's currency is considered to be a derived demand because it stems from the willingness of consumers in one country to buy goods and services from another country.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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

Question 13

In 1985 the dollar would buy 262 yen,but in 1992 it would buy only 123 yen.Relative to the yen,the value of the dollar:

Accepted Answer

A)   increased by about 25 percent.
B)   decreased by about 50 percent.
C)   decreased by about 75 percent.
D)   decreased by about 100 percent.E) A) and B)
F) All of the above

Question 14

The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars.
 
-Refer to the above data.In 2008 Transylvania realized a $1 billion surplus on goods and services.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The following are hypothetical exchange rates: $1 = 140 yen;1 Swiss franc = $.10.We conclude that:

Accepted Answer

A)   1 yen = 280 Swiss francs.
B)   1 yen = 14 Swiss francs.
C)   1 Swiss franc = 28 yen.
D)   1 Swiss franc = 14 yen.E) B) and D)
F) B) and C)

Question 17

-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.Given a change in demand from D to D' Canada could maintain the dollar price of francs by:

Accepted Answer

A)   shifting the S curve to the right through the use of domestic expansionary policies.
B)   instituting exchange controls to ration Ed francs to Canadian importers who want Ec francs.
C)   using international monetary reserves to cover the Ec shortage of francs.
D)   using international monetary reserves to cover the cd shortage of francs.E) A) and C)
F) B) and C)

Question 18

Refer to the diagram below.Assume the initial demand for and supply of dollars are shown by D1 and S1.The exchange rate will be: 1 and S1.The exchange rate will be:   A)  $1 equals 5 British pounds. B)  $4 equals 1 British pound. C)  $5 equals 1 British pound. D)  JQ3 British pounds per dollar." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   $1 equals 5 British pounds.
B)   $4 equals 1 British pound.
C)   $5 equals 1 British pound.
D)   JQ3 British pounds per dollar.E) B) and D)
F) A) and B)

Question 19

According to the purchasing power parity theory of exchange rates:

Accepted Answer

A)   a dollar,when converted to other currencies at the prevailing flexible exchange rate,has the same purchasing power in various countries.
B)   in equilibrium,national currencies have equal value in terms of gold.
C)   the higher a nation's price level in terms of its own currency,the greater is the amount of foreign exchange it can obtain for a unit of its currency.
D)   all of the above are true.E) B) and D)
F) B) and C)

Question 20

There must always be a balance of a nation's:

Accepted Answer

A)   merchandise exports and gold imports.
B)   total international payments.
C)   imports and exports of goods and services.
D)   merchandise imports and exports.E) A) and D)
F) A) and C)

Exam 18: Exchange Rates and the Balance of Payments

The following table shows the 2008 balance of payments statement for Transylvania.All figures are in billions of dollars. -Refer to the above data.In 2008 Transylvania realized a $1 billion surplus on goods and services.

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The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars. Current Account: -Refer to the above data.Zabella's is experiencing a balance of trade:

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The following are hypothetical exchange rates: $1 = 140 yen;1 Swiss franc = $.10.We conclude that:

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Which of the following would contribute to a Canadian balance of payments deficit?

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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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Under the international gold standard,exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

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In 1985 the dollar would buy 262 yen,but in 1992 it would buy only 123 yen.Relative to the yen,the value of the dollar:

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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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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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In the foreign exchange markets:

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There must always be a balance of a nation's:

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In a nation's balance of payments,which one of the following items is always recorded as a positive entry?

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The foreign demand curve for a nation's currency is considered to be a derived demand because it stems from the willingness of consumers in one country to buy goods and services from another country.

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Refer to the diagram below.Assume the initial demand for and supply of dollars are shown by D1 and S1.The exchange rate will be:

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

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Which of the following would contribute to a Canadian balance of payments surplus?

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If the exchange rate changes so that more Swiss francs are required to buy a dollar,then:

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According to the purchasing power parity theory of exchange rates:

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The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars. Current Account: -Refer to the above data.The "official international reserves" account indicates that Zabella:

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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.Given a change in demand from D to D' Canada could maintain the dollar price of francs by:

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Refer to the diagram below.Assume the initial demand for and supply of dollars are shown by D₁ and S₁.The exchange rate will be:

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