Question 1

Assume that,under a system of flexible exchange rates,Mexicans decide to increase their investments in Canada.As a result:

Accepted Answer

A)   Canadians will want to buy fewer Mexican goods at the new exchange rate.
B)   the peso and the dollar will both depreciate in value.
C)   the peso and the dollar will both appreciate in value.
D)   the peso will depreciate and the dollar will appreciate in value.E) A) and B)
F) A) and C)

Question 2

Which of the following creates a supply of Euro in foreign exchange markets?

Accepted Answer

A)   a Frenchman redeems a bond issued by an Italian manufacturer.
B)   an Italian importer buys insurance from a Canadian firm.
C)   a Canadian student takes a summer trip to Rome.
D)   a Canadian importer buys 500 cases of Italian table wine.E) All of the above
F) A) and D)

Question 3

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

Question 4

Under a system of flexible exchange rates,an increase in the international value of a nation's currency will:

Accepted Answer

A)   cause an international surplus of its currency.
B)   contribute to disequilibrium in its balance of payments.
C)   cause gold to flow into that country.
D)   cause its imports to rise.E) None of the above
F) A) and D)

Question 5

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) C) and D)

Question 6

The current exchange-rate system is an "almost" flexible exchange-rate system.

Accepted Answer

A) True 
 B)False

Question 7

In the balance of payments of Canada,an outflow of Canadian holdings of official international reserves is recorded as a:

Accepted Answer

A)   current account entry.
B)   negative entry.
C)   net transfer.
D)   positive entry.E) C) and D)
F) None of the above

Question 8

Which one of the following is not one of the so-called G-8 nations?

Accepted Answer

A)   Japan
B)   Canada
C)   United States
D)   MexicoE) A) and B)
F) B) and C)

Question 9

The following table indicates the dollar price of libras,the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place.
 
-Refer to the above table.The equilibrium dollar price of libras is:

Accepted Answer

A)   $5
B)   $4
C)   $3
D)   indeterminate.E) None of the above
F) A) and B)

Question 10

Proponents of the managed floating exchange rate system argue that it has:

Accepted Answer

A)   added the volatility needed by the exchange rate market.
B)   been effective because it is a "non-system" without fixed rules.
C)   been sufficiently flexible to weather major economic turbulence.
D)   resolved major problems in balance of payments surpluses and deficits.E) C) and D)
F) All of the above

Question 11

Under the gold standard:

Accepted Answer

A)   nations can protect their domestic price and employment levels from changes in the volume and direction of world trade.
B)   exchange rates were virtually fixed.
C)   differences in exports and imports will be precisely balanced by long-term capital flows.
D)   exchange rates fluctuate freely in response to changes in the supply of,and demand for,foreign monies.E) B) and C)
F) None of the above

Question 12

1 and S1.The exchange rate will be: A)  M dollars for one peso. B)  1/B pesos for one dollar. C)  A dollars for one peso. D)  C dollars for one peso." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram.The initial demand for and supply of pesos are shown by D1 and S1.The exchange rate will be:

Accepted Answer

A)   M dollars for one peso.
B)   1/B pesos for one dollar.
C)   A dollars for one peso.
D)   C dollars for one peso.E) B) and C)
F) All of the above

Question 13

If the price of British pounds,measured in terms of Canadian dollars is rising then,the price of Canadian dollars,measured in terms of British pounds,is also rising.

Accepted Answer

A) True 
 B)False

Question 14

Under a system of fixed exchange rates,a nation which experiences chronic balance of payments deficits may:

Accepted Answer

A)   initiate protectionist trade policies.
B)   run short of international monetary reserves.
C)   be forced to use contractionary monetary and fiscal policies.
D)   do all of the above.E) A) and D)
F) A) and B)

Question 15

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 balance of payments deficit.

Accepted Answer

A) True 
 B)False

Question 16

If the dollar price of yen rises,then:

Accepted Answer

A)   the yen price of dollars also rises.
B)   the dollar depreciates relative to the yen.
C)   the yen depreciates relative to the dollar.
D)   all of the above will occur.E) C) and D)
F) B) and D)

Question 17

Depreciation of the Canadian dollar will tend to:

Accepted Answer

A)   decrease the prices of both imports and exports.
B)   increase the prices of both imports and exports.
C)   decrease the prices of the goods Canadians import,but increase the prices to foreigners of the goods Canadians export.
D)   increase the prices of the goods Canadians import,but decrease the prices to foreigners of the goods Canadians export.E) A) and B)
F) B) and C)

Question 18

The current system of exchange rates can best be described as:

Accepted Answer

A)   freely fluctuating exchange rates.
B)   managed floating exchange rates.
C)   rigidly fixed exchange rates.
D)   a crawling peg system.E) All of the above
F) B) and C)

Question 19

Appreciation of the Swiss franc will:

Accepted Answer

A)   intensify an existing disequilibrium in France's balance of payments.
B)   make France's exports less expensive and its imports more expensive.
C)   make France's exports more expensive and its imports less expensive.
D)   make France's exports and imports both more expensive.E) A) and D)
F) A) and C)

Question 20

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

Exam 18: Exchange Rates and the Balance of Payments

Proponents of the managed floating exchange rate system argue that it has:

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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 realized a balance of payments deficit.

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

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Which of the following creates a supply of Euro in foreign exchange markets?

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Under a system of flexible exchange rates,an increase in the international value of a nation's currency will:

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If the dollar price of yen rises,then:

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An increase in the dollar price of British pounds will:

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The current exchange-rate system is an "almost" flexible exchange-rate system.

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Depreciation of the Canadian dollar will tend to:

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If the price of British pounds,measured in terms of Canadian dollars is rising then,the price of Canadian dollars,measured in terms of British pounds,is also rising.

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The following table indicates the dollar price of libras,the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. -Refer to the above table.The equilibrium dollar price of libras is:

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Under the gold standard:

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Assume that,under a system of flexible exchange rates,Mexicans decide to increase their investments in Canada.As a result:

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In the balance of payments of Canada,an outflow of Canadian holdings of official international reserves is recorded as a:

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Under a system of fixed exchange rates,a nation which experiences chronic balance of payments deficits may:

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The current system of exchange rates can best be described as:

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Appreciation of the Swiss franc will:

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-Refer to the above diagram.The initial demand for and supply of pesos are shown by D1 and S1.The exchange rate will be:

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Which one of the following is not one of the so-called G-8 nations?

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An increase in Canadian interest rates can be expected to:

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-Refer to the above diagram.The initial demand for and supply of pesos are shown by D₁ and S₁.The exchange rate will be:

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