Question 1

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

Question 2

-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) C) and D)
F) All of the above

Question 3

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

Question 4

Which one of the following will not directly affect Canada's balance on current account?

Accepted Answer

A)   an increase in merchandise imports
B)   an increase in capital outflows from Canada
C)   a decrease in net investment income
D)   an increase in imports of servicesE) B) and D)
F) All of the above

Question 5

Which of the following would call for a payment to Canada?

Accepted Answer

A)   gold flows into Canada
B)   Canadian firms sell insurance to Brazilian shippers
C)   Canadian unilateral foreign aid to less developed countries
D)   Canadian imports of German automobilesE) A) and B)
F) A) and C)

Question 6

Refer to the diagram below. The initial demand for and supply of pesos are shown by D1 and S1. Suppose Canada reduces its imports of Mexican goods, shifting its demand for pesos from D1 and D2. If Canada was operating under a system of exchange controls that maintains the exchange rate at E, the Canadian government would: 1 and S1. Suppose Canada reduces its imports of Mexican goods, shifting its demand for pesos from D1 and D2. If Canada was operating under a system of exchange controls that maintains the exchange rate at E, the Canadian government would:   A)  find that, at the controlled exchange rate, pesos would be in surplus. B)  be faced with deteriorating terms of trade. C)  be faced with the problem of rationing BG pesos to Canadian importers who want BF pesos. D)  be faced with the problem of rationing BF pesos to Canadian importers who want BG pesos." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   find that, at the controlled exchange rate, pesos would be in surplus.
B)   be faced with deteriorating terms of trade.
C)   be faced with the problem of rationing BG pesos to Canadian importers who want BF pesos.
D)   be faced with the problem of rationing BF pesos to Canadian importers who want BG pesos.E) A) and B)
F) None of the above

Question 7

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 balance on capital account shows a:

Accepted Answer

A)   deficit of $10 billion.
B)   surplus of $5 billion.
C)   deficit of $28 billion.
D)   surplus of $13 billion.E) C) and D)
F) None of the above

Question 8

In the balance of payments of Canada, Canadian merchandise imports are recorded as a:

Accepted Answer

A)   positive entry.
B)   capital account entry.
C)   current account entry.
D)   official reserves entry.E) C) and D)
F) B) and C)

Question 9

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

Question 10

Refer to the diagram below 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. A shift of the demand curve to D' might be the result of:

Accepted Answer

A)   a relative decline in interest rates in Switzerland.
B)   a reduction in Canada's relative price level.
C)   a recession in Canada, which slows its rate of growth.
D)   a relative decline in interest rates in Canada.E) B) and D)
F) B) and C)

Question 11

An increase in Canadian interest rates can be expected to:

Accepted Answer

A)   adversely affect Canadian exporters.
B)   encourage investment spending by Canadian firms.
C)   lower the foreign exchange value of the dollar.
D)   cause a net outflow of foreign capital from Canada.E) B) and D)
F) A) and B)

Question 12

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 B)
F) All of the above

Question 13

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 was a net recipient of transfers from the rest of the world.

Accepted Answer

A) True 
 B)False

Question 14

The items in a hypothetical country's balance of payments account were: current account deficit -$100; capital account surplus +$85. The value of official reserves was:

Accepted Answer

A)   +$15.
B)   -$15.
C)   +$185.
D)   -$185.E) None of the above
F) A) and B)

Question 15

In considering British pound and dollar, the rates of exchange for the pound and the dollar:

Accepted Answer

A)   are directly related.
B)   are inversely related.
C)   are unrelated.
D)   move in the same direction.E) B) and C)
F) None of the above

Question 16

The foreign demand curve for a nation's currency is considered to be a derived demand because:

Accepted Answer

A)   it stems from the willingness of consumers in one country to buy goods and services from another country.
B)   it stems from the willingness of consumers within their country to buy goods and services that are produced within their country.
C)   it is derived from the demand of governments.
D)   it is derived by a nation's central bank.E) A) and D)
F) A) and B)

Question 17

If the rate of exchange for a British pound is $4, the rate of exchange for the dollar:

Accepted Answer

A)   is ¼ of a British pound.
B)   is 4 British pounds.
C)   is $.25.
D)   cannot be determined from the information given.E) None of the above
F) A) and B)

Question 18

An increase in the dollar price of British pounds will:

Accepted Answer

A)   increase the pound price of dollars.
B)   lower the pound price of dollars.
C)   leave the pound price of dollars unchanged.
D)   cause Britain's terms of trade with the United States to deteriorate.E) A) and D)
F) All of the above

Question 19

A nation's merchandise balance of trade is equal to its exports less its imports of:

Accepted Answer

A)   goods.
B)   goods and services.
C)   financial assets.
D)   official reserves.E) A) and B)
F) A) and C)

Question 20

International financial transactions mostly fall into two broad categories:

Accepted Answer

A)   international asset transactions and international gold transactions.
B)   international asset transactions and transactions in the stock market.
C)   international trade and international development.
D)   international trade and international asset transactions.E) C) and D)
F) All of the above

Exam 17: Exchange Rates and the Balance of Payments

An increase in Canadian interest rates can be expected to:

Correct Answer
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Refer to the diagram below 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. A shift of the demand curve to D' might be the result of:

Correct Answer
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In the foreign exchange markets:

Correct Answer
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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 balance on capital account shows a:

Correct Answer
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In considering British pound and dollar, the rates of exchange for the pound and the dollar:

Correct Answer
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If the rate of exchange for a British pound is $4, the rate of exchange for the dollar:

Correct Answer
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The foreign demand curve for a nation's currency is considered to be a derived demand because:

Correct Answer
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In the balance of payments of Canada, Canadian merchandise imports are recorded as a:

Correct Answer
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International financial transactions mostly fall into two broad categories:

Correct Answer
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Under the managed floating system of exchange rates:

Correct Answer
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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:

Correct Answer
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An increase in the dollar price of British pounds will:

Correct Answer
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A nation's merchandise balance of trade is equal to its exports less its imports of:

Correct Answer
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The Bretton Woods system of exchange rates relied on:

Correct Answer
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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 was a net recipient of transfers from the rest of the world.

Correct Answer
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Which one of the following will not directly affect Canada's balance on current account?

Correct Answer
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The Canadian supply of pounds is:

Correct Answer
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The items in a hypothetical country's balance of payments account were: current account deficit -$100; capital account surplus +$85. The value of official reserves was:

Correct Answer
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Which of the following would call for a payment to Canada?

Correct Answer
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Correct Answer
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Exam 17: Exchange Rates and the Balance of Payments

An increase in Canadian interest rates can be expected to:

Correct AnswerverifiedShow Answer

Refer to the diagram below 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. A shift of the demand curve to D' might be the result of:

Correct AnswerverifiedShow Answer

In the foreign exchange markets:

Correct AnswerverifiedShow Answer

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 balance on capital account shows a:

Correct AnswerverifiedShow Answer

In considering British pound and dollar, the rates of exchange for the pound and the dollar:

Correct AnswerverifiedShow Answer

If the rate of exchange for a British pound is $4, the rate of exchange for the dollar:

Correct AnswerverifiedShow Answer

The foreign demand curve for a nation's currency is considered to be a derived demand because:

Correct AnswerverifiedShow Answer

In the balance of payments of Canada, Canadian merchandise imports are recorded as a:

Correct AnswerverifiedShow Answer

International financial transactions mostly fall into two broad categories:

Correct AnswerverifiedShow Answer

Under the managed floating system of exchange rates:

Correct AnswerverifiedShow Answer

-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:

Correct AnswerverifiedShow Answer

An increase in the dollar price of British pounds will:

Correct AnswerverifiedShow Answer

A nation's merchandise balance of trade is equal to its exports less its imports of:

Correct AnswerverifiedShow Answer

The Bretton Woods system of exchange rates relied on:

Correct AnswerverifiedShow Answer

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 was a net recipient of transfers from the rest of the world.

Correct AnswerverifiedShow Answer

Which one of the following will not directly affect Canada's balance on current account?

Correct AnswerverifiedShow Answer

The Canadian supply of pounds is:

Correct AnswerverifiedShow Answer

The items in a hypothetical country's balance of payments account were: current account deficit -$100; capital account surplus +$85. The value of official reserves was:

Correct AnswerverifiedShow Answer

Which of the following would call for a payment to Canada?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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