Question 1

Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the

Accepted Answer

A)   U.S. demand curve for Mexican pesos will shift rightward
B)   U.S. demand curve for Mexican pesos will shift leftward
C)   U.S. supply curve of Mexican pesos will shift leftward
D)   U.S. supply curve of Mexican pesos will shift rightward
E)   U.S. supply curve of Mexican pesos will shift upwardF) A) and B)
G) D) and E)

Question 2

Suppose that U.S. incomes rise relative to British incomes. Then,

Accepted Answer

A)   the dollar will appreciate and the pound will depreciate
B)   the dollar will depreciate and the pound will appreciate
C)   the dollar will depreciate and the pound's value will remain constant
D)   the dollar will appreciate and the pound's value will remain constant
E)   neither the dollar nor the pound will be affectedF) A) and D)
G) A) and C)

Question 3

Which of the following will not result in a shift in the demand curve for the US dollar?

Accepted Answer

A)   an increase of in the income of US residents
B)   a decrease in the expected rate of inflation in the US
C)   an increase in the dollar/Eruo exchange rate
D)   an increase in interest rates in the US
E)   a decrease in interest rates in the Euro zoneF) A) and B)
G) A) and C)

Question 4

When faced with a continual excess demand for foreign exchange, which of the following options can the government choose to eliminate the disequilibrium situation?

Accepted Answer

A)   increase the peg or devalue
B)   engage in fiscal policy and raise the country's income level
C)   engage in monetary policy and lower interest rates
D)   increase the inflation rate
E)   decrease the peg or revalueF) A) and E)
G) A) and B)

Question 5

From the U.S. perspective, a drop in the price of foreign exchange means that

Accepted Answer

A)   fewer U.S. dollars are needed to purchase foreign currency
B)   more U.S. dollars are needed to purchase foreign currency
C)   worldwide, imports will become more expensive
D)   worldwide, exports will become cheaper
E)   transaction costs on international markets will decreaseF) All of the above
G) B) and C)

Question 6

Under the gold standard, all except one of the following are true. Which is not true?

Accepted Answer

A)   Paper currency was convertible into gold at a fixed rate.
B)   A balance-of-payments deficit would result in a loss of gold.
C)   A balance-of-payments surplus would result in an inflow in gold.
D)   The money supply of any country was largely determined by flows of gold.
E)   A surplus country experienced a rise in its money supply and a drop in its price level.F) A) and B)
G) D) and E)

Question 7

The merchandise trade balance measures

Accepted Answer

A)   the value of goods and services exported
B)   the value of all goods and services exported minus the value of all goods and services imported
C)   the value of all goods and services exported minus the value of all goods and services imported, and transactions to finance the difference
D)   the value of all tangible products exported minus the value of all tangible products imported
E)   the value of all tangible products exported minus the value of all tangible products imported, and transactions to finance the differenceF) A) and B)
G) C) and D)

Question 8

If the U.S. dollar depreciates, it means that

Accepted Answer

A)   the value of the U.S. dollar has increased
B)   the value of foreign exchange has decreased
C)   fewer U.S. dollars are required to purchase foreign exchange
D)   more U.S. dollars are required to purchase foreign exchange
E)   exports will immediately fallF) None of the above
G) A) and B)

Question 9

If a foreign currency becomes more expensive in United States dollars, we would expect

Accepted Answer

A)   U.S. exports to increase
B)   U.S. imports to increase
C)   U.S. exports to remain constant
D)   U.S. exports to decrease
E)   the quantity of foreign currency demanded in the United States to riseF) A) and B)
G) A) and C)

Question 10

In determining the exchange rate between the Canadian dollar and British pound, if Canadian income increases, then

Accepted Answer

A)   the demand for pounds will increase, leading to depreciation of the Canadian dollar, assuming exchange rates are allowed to float
B)   the demand for pounds will increase, leading to depreciation of the Canadian dollar, assuming exchange rates are fixed
C)   the demand for pounds will increase, leading to appreciation of the Canadian dollar, assuming exchange rates are allowed to float
D)   the demand for pounds will increase, leading to appreciation of the Canadian dollar, assuming exchange rates are fixed
E)   the supply of pounds will shift to the left, causing appreciation of the Canadian dollar, assuming exchange rates are fixedF) B) and E)
G) A) and D)

Question 11

A leftward shift of the Japanese demand curve for foreign exchange will

Accepted Answer

A)   increase the price of foreign exchange in Japan
B)   decrease the value of the yen
C)   make foreign goods more expensive in terms of yen
D)   make foreign goods less expensive in terms of yen
E)   make Japanese goods less expensive in terms of foreign exchangeF) B) and C)
G) A) and C)

Question 12

Which of the following best describes a graph showing the supply and demand for foreign exchange?

Accepted Answer

A)   The quantity of foreign exchange is on the horizontal axis and the quantity of the domestic currency is on the vertical axis.
B)   The quantity of the domestic currency is on the horizontal axis and the quantity of foreign exchange is on the vertical axis.
C)   The quantity of foreign exchange is on the horizontal axis and the price of foreign exchange in terms of the domestic currency is on the vertical axis.
D)   The quantity of foreign exchange is on the vertical axis and the price of foreign exchange in terms of the domestic currency is on the horizontal axis.
E)   The quantity of the domestic currency is on the horizontal axis and the price of foreign exchange in terms of dollars is on the vertical axis.F) A) and C)
G) All of the above

Question 13

One difference between arbitrageurs and speculators is that

Accepted Answer

A)   arbitrageurs buy and sell foreign exchange; speculators do not
B)   speculators only buy foreign exchange but do not sell it
C)   arbitrageurs take more risks than do speculators
D)   speculators take more risks than do arbitrageurs
E)   arbitrageurs buy foreign exchange in the hope that its value will increaseF) A) and B)
G) A) and E)

Question 14

The capital account keeps track of the amount of

Accepted Answer

A)   foreign-owned machinery in a country
B)   domestically owned machinery in foreign countries
C)   exports and imports of goods only
D)   exports and imports of goods and services
E)   assets in one country owned by citizens of anotherF) A) and B)
G) All of the above

Question 15

The current account shows international transactions in goods and services, the capital account shows international transactions involving the flow of financial assets, and the official reserve transactions account shows movement of international reserves.

Accepted Answer

A) True 
 B)False

Question 16

Under a flexible exchange rate system, which one of the following would not directly affect the exchange rate?

Accepted Answer

A)   a change in income
B)   the relative inflation rates in two countries
C)   the salary of the president of the United States
D)   a change in capital flows
E)   a change in the level of exports or importsF) A) and B)
G) All of the above

Question 17

The current international financial system is a managed float system.

Accepted Answer

A) True 
 B)False

Question 18

Because of the accounting techniques used, the balance of payments shows that debits equal credits only if exports equal imports.

Accepted Answer

A) True 
 B)False

Question 19

In the early 1970s, in an attempt to solve the problem of the overvalued U.S. dollar, world leaders

Accepted Answer

A)   increased the price of gold in terms of other currencies
B)   appreciated the dollar, which made foreign exchange cheaper to U.S. residents
C)   appreciated the dollar, which made foreign exchange more expensive to U.S. residents
D)   devalued the dollar, which made foreign exchange cheaper to U.S. residents
E)   devalued the dollar, which made foreign exchange more expensive to U.S. residentsF) A) and B)
G) None of the above

Question 20

A wealthy Japanese executive decides to buy a large amount of U.S. assets. This would contribute to

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 deficit in the total balance of paymentsF) A) and D)
G) A) and E)

Exam 20: International Finance

Under the gold standard, all except one of the following are true. Which is not true?

Correct AnswerverifiedShow Answer

The current account shows international transactions in goods and services, the capital account shows international transactions involving the flow of financial assets, and the official reserve transactions account shows movement of international reserves.

Correct AnswerverifiedShow Answer

When faced with a continual excess demand for foreign exchange, which of the following options can the government choose to eliminate the disequilibrium situation?

Correct AnswerverifiedShow Answer

The merchandise trade balance measures

Correct AnswerverifiedShow Answer

In the early 1970s, in an attempt to solve the problem of the overvalued U.S. dollar, world leaders

Correct AnswerverifiedShow Answer

One difference between arbitrageurs and speculators is that

Correct AnswerverifiedShow Answer

Which of the following will not result in a shift in the demand curve for the US dollar?

Correct AnswerverifiedShow Answer

If a foreign currency becomes more expensive in United States dollars, we would expect

Correct AnswerverifiedShow Answer

In determining the exchange rate between the Canadian dollar and British pound, if Canadian income increases, then

Correct AnswerverifiedShow Answer

The current international financial system is a managed float system.

Correct AnswerverifiedShow Answer

A wealthy Japanese executive decides to buy a large amount of U.S. assets. This would contribute to

Correct AnswerverifiedShow Answer

From the U.S. perspective, a drop in the price of foreign exchange means that

Correct AnswerverifiedShow Answer

Because of the accounting techniques used, the balance of payments shows that debits equal credits only if exports equal imports.

Correct AnswerverifiedShow Answer

Under a flexible exchange rate system, which one of the following would not directly affect the exchange rate?

Correct AnswerverifiedShow Answer

If the U.S. dollar depreciates, it means that

Correct AnswerverifiedShow Answer

Which of the following best describes a graph showing the supply and demand for foreign exchange?

Correct AnswerverifiedShow Answer

The capital account keeps track of the amount of

Correct AnswerverifiedShow Answer

Suppose that U.S. incomes rise relative to British incomes. Then,

Correct AnswerverifiedShow Answer

A leftward shift of the Japanese demand curve for foreign exchange will

Correct AnswerverifiedShow Answer

Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the

Correct AnswerverifiedShow Answer

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