Chapter 21: International Finance

30.In a floating-exchange-rate system, the capital-account balance equals:

                A)   The negative of the current-account balance.

                B)   Foreign purchases of U.S. assets minus U.S. purchases of foreign assets.

                C)   The balance of payments minus the sum trade balance, the services balance, and unilateral transfers.

                D)   All of the above.

29.Under floating exchange rates the capital-account balance is equal to the negative of:

                A)   Trade balance + services balance + unilateral transfers.

                B)   Trade balance + capital-account balance + services balance.

                C)   Current-account balance + exports + unilateral transfers.

                D)   Unilateral transfers + exports + imports.

28.The capital account includes:

                A)   Trade in goods.                                                             C)    Unilateral transfers.

                B)   Trade in services.                                                          D)    Foreign purchases of U.S. assets.

27.The current-account balance equals:

                A)   Exports minus imports.

                B)   Foreign purchases of U.S. assets minus U.S. purchases of foreign assets.

                C)   The trade balance plus the services balance plus unilateral transfers.

                D)   All of the above.

 

      26.    The current account balance is equal to:

                A)   Trade balance + services balance - capital-account balance.

                B)   Trade balance + services balance + capital-account balance.

                C)   Trade balance + services balance + unilateral transfers.

                D)   Total payments made by residents of the United States to foreigners plus total payments made by foreigners to residents of the United States.

      25.    The net balance of payments is:

                A)   The difference between exports and imports.

                B)   The difference between the current-account balance and the capital-account balance.

                C)   The sum of the current-account balance and the trade-account balance.

                D)   The sum of the current-account balance and the capital-account balance.

 

      24.    An increase in the U.S. trade deficit could be caused by:

                A)   An appreciation of the dollar in terms of other currencies.

                B)   An increase in the rate of inflation in the U.S.

                C)   The imposition of a tariff on imported goods.

                D)   A depreciation of the dollar in terms of other currencies.

23.Theoretically, the net balance of payments is:

                A)   Foreign demand for a country's currency minus foreign supply.

                B)   The current account plus the capital account.

                C)   A country's capital inflow minus its capital outflow.

                D)   Exports minus imports.

22.The merchandise trade balance is equal to:

                A)   The difference between merchandise exports and merchandise imports.

                B)   The difference between service exports and service imports.

                C)   The capital account balance.

                D)   The current-account balance.

21.The merchandise trade balance for the United States equals:

                A)   The difference between service exports and service imports.

                B)   The difference between dollar value of merchandise exports and dollar value of merchandise imports.

                C)   Exports minus imports.

                D)   The current-account balance minus the capital-account balance.

      20.    Merchandise exports minus merchandise imports defines a country's:

                A)   Current-account balance.                                           C)    Balance of payments.

                B)   Capital-account balance.                                           D)    Trade balance.

19.If the exchange rate between the U.S. dollar and Japanese yen changes from $1=100 yen to $1=90 yen, then:

                A)   All Japanese producers and consumers will lose.

                B)   U.S. auto producers and autoworkers will lose.

                C)   U.S. consumers of Japanese TV sets will benefit.

                D)   Japanese tourists to the U.S. will benefit.

18.Suppose a U.S. firm purchases some English china. The china costs 1,000 British pounds. At the exchange rate of $1.45 = 1 pound, the dollar price of the china is:

                A)   $250.    B)  $690.    C)  $1,450.    D)  $2,000.

17.If one euro is equal to 0.60 U.S. dollars, what would be the euro price of a car that costs $10,000?

                A)   5,000 euros.    B)  16,667 euros.    C)  60,000 euros.    D)  10,000 euros.

 

      16.    An increase in the price of the U.S. dollar in terms of euros will cause, ceteris paribus:

                A)   A lower European inflation rate.

                B)   Higher interest rates in the United States.

                C)   European goods to be cheaper to residents of the United States.

                D)   All of the above.

 

      15.    A change in the exchange rate for a country's currency alters the prices of:

                A)   Exports only.                                                                 C)    Both exports and imports.

                B)   Imports only.                                                                D)    Only domestic goods and services.

      14.    When the exchange rate between the U.S. dollar and the Japanese yen is $1=100 yen, this is an indication that:

                A)   It would take 100 yen to purchase $1.                    C)    The dollar is depreciating compared to the yen.

                B)   The yen is stronger than the U.S. dollar.                  D)    All of the above.

13.Changes in the value of the euro affect the economies of:

                A)   Only those countries using the euro as currency.

                B)   All European countries but there would be no significant impact on countries outside Europe.

                C)   Potentially the entire world.

                D)   There would be no significant impact on any economies as long as exchange rates are flexible.

12.When Americans buy Mercedes-Benz automobiles made in Germany, they are generating a:

                A)   Supply of U.S. dollars and a supply of a foreign currency.

                B)   Supply of U.S. dollars and a demand for a foreign currency.

                C)   Demand for U.S. dollars and a supply of a foreign currency.

                D)   Demand for U.S. dollars and a demand for a foreign currency.

11.When foreign countries buy wheat grown in the United States, they are generating a:

                A)   Demand for U.S. dollars and a demand for a foreign currency.

                B)   Demand for U.S. dollars and a supply of a foreign currency.

                C)   Supply of U.S. dollars and a demand for a foreign currency.

                D)   Supply of U.S. dollars and a supply of a foreign currency.

10.Which of the following generates a supply of dollars in the foreign-exchange market?

                A)   Transfers of money by foreign nationals to relatives in the United States.

                B)   U.S. exports to foreign countries.

                C)   U.S. military installations abroad.

                D)   Purchases of real estate investment in the United States by foreign nationals.

 

         9.    Which of the following generates demand for foreign currencies?

                A)   Expenditures by Americans traveling abroad.

                B)   Exports from the United States to foreign countries.

                C)   The purchase by foreigners of bonds issued by the U.S. government.

                D)   Transfers of money from foreigners to relatives in the United States.

8.Which of the following generates demand for foreign currencies?

                A)   Exports from the United States to foreign countries.

                B)   Imports of foreign goods by firms located in the U.S.

                C)   The building of plants by foreign corporations in the U.S.

                D)   All of the above.

         7.    Which of the following generates a demand for dollars in the foreign-exchange market?

                A)   The demand for exports from the United States. C)    Speculation.

                B)   Investment by foreigners in the United States.       D)    All of the above.

6.Which of the following generates a demand for dollars in the foreign-exchange market?

                A)   Transfers of money by foreign workers in the United States to relatives abroad.

                B)   U.S. military installations abroad.

                C)   Foreign aid given by the United States.

                D)   Travel by foreign visitors in the United States.

         5.    The demand for dollars in the foreign-exchange market:

                A)   Is represented by a point in a diagram of foreign-exchange supply and demand.

                B)   Depends in part on the foreign demand for U.S. goods.

                C)   Depends on U.S. demand for foreign goods and services.

                D)   Is the ratio of the dollars demanded to the amount of foreign currency supplied.

         4.    The U.S. demand for foreign currency arises from speculation and the:

                A)   U.S. demand for foreign goods, services, and financial assets.

                B)   Foreign demand for United States goods, services, and financial assets.

                C)   Foreign demand for United States holdings of gold.

                D)   Supply of goods and services from the United States.

3.The U.S. demand for foreign currency represents:

                A)   A demand for U.S. dollars.

                B)   A supply of U.S. dollars.

                C)   The foreign demand for U.S. exports.

                D)   A point of disequilibrium in the foreign-exchange market.

         2.    An exchange rate is:

                A)   Always fixed.                                                                C)    The price of one currency in terms of another.

                B)   Tied to the price of gold.                                             D)    All of the above.

         1.    The exchange rate is the:

                A)   Opportunity cost at which goods are produced domestically.

                B)   Balance-of-trade ratio of one country to another.

                C)   Price of one country's currency expressed in terms of another country's currency.

                D)   Amount of currency that can be purchased with 1 ounce of gold.

      31.    Which of the following does not involve exports and imports?

                A)   Net exports.    B)  Current account.    C)  Balance of trade.    D)  Capital account.

 

      32.    Except for a statistical error under flexible exchange rates, any current-account deficit:

                A)   Can only be partially offset by capital-account surpluses and unilateral transfers.

                B)   Must be completely offset by unilateral transfers.

                C)   Must be completely offset by a capital-account surplus.

                D)   Must be completely offset by a trade surplus.

      33.    Depreciation of the dollar refers to:

                A)   A loss of foreign-exchange reserves.

                B)   An increase in the dollar price of foreign currency.

                C)   Intervention in international money markets.

                D)   A fall in the dollar price of a foreign currency.

34.The depreciation of a country's currency causes the price of imports to:

                A)   Rise and the prices of exports to rise.                       C)    Fall and the prices of exports to rise.

                B)   Rise and the prices of exports to fall.                       D)    Fall and the prices of exports to fall.

35.If the U.S. dollar depreciates, in the long run the United States should experience a:

                A)   Lower inflation rate.                                                    C)    Larger deficit in the U.S. current account.

                B)   Smaller deficit in the U.S. trade balance.                 D)    Larger deficit in the U.S. capital account.

36.A depreciation of the Korean won against the U.S. dollar will:

                A)   Raise the dollar price of Korean goods.                   C)    Raise the won price of U.S. goods.

                B)   Lower the dollar price of U.S. goods.                        D)    Lower the won price of Korean goods.

      37.    Suppose that today 1 British pound exchanges for $1.60.  If next week 1 pound exchanges for $1.70, it is clear that:

                A)   The pound has depreciated relative to the dollar.

                B)   The dollar has appreciated relative to the pound.

                C)   Both currencies have appreciated.

                D)   The dollar has depreciated relative to the pound.

38.Generally speaking, a country whose currency depreciates will experience, as a result:

                A)   Increasing unemployment in export sectors.

                B)   Reduced aggregate demand.

                C)   Inflationary pressure because of an increase in exports.

                D)   Falling interest rates from a capital outflow.

 

      39.    Which of the following groups would be aided by a depreciation of the American dollar?

                A)   Foreign producers of goods imported by the United States.

                B)   American producers of goods for export.

                C)   U.S. importers of goods from abroad.

                D)   Foreign workers.

40.Suppose that today the exchange rate between the U.S. dollar and the Chinese yuan is $1 = .12 yuan. If next week the exchange rate is $1 = .20 yuan, it is clear that:

                A)   The yuan has depreciated relative to the dollar.    C)    The dollar has depreciated relative to the yuan.

                B)   Both currencies have depreciated.                            D)    Both currencies have appreciated.

41.A good time for an American to hold German stocks, ceteris paribus, is when the:

                A)   Euro is stable compared to the U.S. dollar.

                B)   U.S. dollar depreciates in value compared to the euro.

                C)   U.S. dollar appreciates in value compared to the euro.

                D)   The return in the German stock market has no relationship to the value of the dollar compared to the euro.

42.If speculators with Swiss francs believed the yen was going to depreciate against the dollar, they would most likely:

                A)   Purchase francs.

                B)   Purchase dollars.

                C)   Purchase yen.

                D)   Not participate in foreign-exchange markets because of the volatility.

43.Appreciation of the dollar refers to:

                A)   A loss of foreign-exchange reserves.

                B)   An increase in the dollar price of foreign currency.

                C)   Intervention in international money markets.

                D)   A fall in the dollar price of a foreign currency.

44.American citizens planning a vacation abroad would welcome:

                A)   Appreciation of the dollar.                                         C)    Devaluation of the dollar.

                B)   Depreciation of the dollar.                                          D)    Appreciation of the foreign currency.

      45.    When foreign residents increase their demand for U.S. dollars, ceteris paribus:

                A)   The dollar price of foreign currency will rise.

                B)   Foreign residents, at the same time, reduce their supply of foreign currency to the foreign-exchange market.

                C)   The dollar will appreciate in value.

                D)   All of the above.

      46.    Import-competing industries in the United States are likely to resist:

                A)   Appreciation of the dollar.                                         C)    Devaluation of the dollar.

                B)   Depreciation of the dollar.                                          D)    Evaluation of the dollar.

      47.    Generally speaking, a country whose currency appreciates will experience, as a result:

                A)   Reduced aggregate demand because of a decrease in exports.

                B)   Inflationary pressure from higher import prices.

                C)   Increasing interest rates from capital inflow.

                D)   Increased exports.

 

      48.    Which of the following events would result in a greater demand for U.S. dollars in the foreign-exchange market, ceteris paribus?

                A)   An increase in interest rates in the United States.

                B)   An increase in interest rates in Japan.

                C)   Higher tariffs imposed by the United States on imports.

                D)   Higher quotas imposed by the United States on imports.

      49.    Which of the following could be responsible for the depreciation of a country's currency?

                A)   The country defaults on bonds held by foreigners.

                B)   Speculators anticipate a military attack from a neighboring country.

                C)   The country experiences a sudden spurt in the rate of inflation while other nations do not.

                D)   All of the above.

50.Which of the following might cause a depreciation of the U.S. dollar versus the Japanese yen?

                A)   A recession in Japan.                                                   C)    More Japanese visitors to Hawaii.

                B)   A recession in U.S.                                                        D)    A greater demand for U.S. coal by Japan.

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