Question 1

What are the main arguments presented against flexible exchange rates?

Accepted Answer

Arguments against flexible exchange rates are that international trade levels will be diminished due to the uncertainty of future currency prices and that the flexible rates would lead to inflation.Proponents of flexible exchange rates have strong counter-arguments to those views.

Question 2

The balance on goods and services is the same as the balance on the current account.

Accepted Answer

A) True 
 B)False

Question 3

U.S.imports are considered:

Accepted Answer

A)   a credit or plus item in the U.S. balance of payments.
B)   a credit or minus item in the U.S. balance of payments.
C)   a debit or plus item in the U.S. balance of payments.
D)   a debit or minus item in the U.S. balance of payments.E) A) and D)
F) A) and B)

Question 4

An increase in the demand for British pounds might result from:

Accepted Answer

A)   a reduction in the price level in the U.S. relative to Britain.
B)   a recession in the U.S. which reduces real output.
C)   a decline in interest rates in Britain.
D)   a decline in interest rates in the U.S.E) None of the above
F) C) and D)

Question 5

The less foreigners demand U.S.products:

Accepted Answer

A)   the more of their currencies they will supply in exchange for U.S. dollars.
B)   the more of their currencies they will demand in exchange for U.S. dollars.
C)   the less of their currencies they will supply in exchange for U.S. dollars.
D)   the less of their currencies they will demand in exchange for U.S. dollars.E) None of the above
F) B) and C)

Question 6

If European incomes rose,European tariffs on U.S.goods decreased,or their tastes for American goods increased,Europeans would demand ____ U.S.goods,leading them to ____ their supply of euros to obtain the added dollars necessary to make those purchases.

Accepted Answer

A)   more; increase.
B)   more; decrease.
C)   fewer; increase.
D)   fewer; decrease.E) A) and D)
F) B) and C)

Question 7

Fixed exchange rates give countries too much freedom over their monetary policies,thereby threatening higher rates of inflation.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 29-1  Refer to Exhibit 29-1.For Nation Z,the current account balance for the year 2011 equals:

Accepted Answer

A)   -$97 billion.
B)   -$96 billion.
C)   $96 billion.
D)   -$87 billion.E) A) and B)
F) A) and C)

Question 9

Whenever there is a deficit in the current account,the capital account:

Accepted Answer

A)   will be negative.
B)   will be positive.
C)   will be zero.
D)   could be negative, positive, or zero.E) A) and B)
F) A) and C)

Question 10

Under a system of flexible exchange rates,a decrease in demand for a nation's currency in the foreign exchange market will:

Accepted Answer

A)   make it less expensive for foreigners to buy the nation's goods.
B)   make it more expensive for the nation to import goods.
C)   cause the nation's balance on current account to shift toward a deficit.
D)   all of the aboveE) C) and D)
F) A) and B)

Question 11

If real interest rates in the United States rise relative to real interest rates in other countries,other things being equal,

Accepted Answer

A)   the exchange value of the dollar would decline relative to other currencies.
B)   the exchange value of the dollar would increase relative to other currencies.
C)   there would likely be no effect on the exchange value of the dollar relative to other currencies.
D)   there would be an indeterminate effect on the exchange value of the dollar relative to other currencies.E) B) and D)
F) C) and D)

Question 12

If a British student pays her way to attend Harvard University,her actions will:

Accepted Answer

A)   create a supply of dollars and a demand for pounds in the foreign currency market.
B)   create a supply of pounds and a demand for dollars in the foreign currency market.
C)   cause the British pound to appreciate.
D)   cause the U.S. dollar to depreciate.E) None of the above
F) B) and C)

Question 13

On January 12,2011,one U.S.dollar was worth 0.78 euros.How many U.S.dollars did it take to buy one euro?

Accepted Answer

A)   0.78
B)   1.28
C)   1.43
D)   1.70E) A) and B)
F) All of the above

Question 14

The balance of trade records information about:

Accepted Answer

A)   purchases of U.S. merchandise exports by foreigners.
B)   purchases of foreign financial assets by Americans.
C)   American purchases of foreign services while traveling abroad.
D)   errors and omissions.E) A) and C)
F) B) and D)

Question 15

Which of the following would occur as a result if Europe experienced a lower inflation rate than the U.S.?

Accepted Answer

A)   European products would become more expensive to U.S. consumers.
B)   It would decrease the quantity of European goods demanded by Americans.
C)   It would decrease the demand for Euros.
D)   None of the above would occur.E) B) and C)
F) B) and D)

Question 16

If a Japanese pension fund decides to purchase U.S.government bonds,what is the effect in the exchange market?

Accepted Answer

A)   It will increase the supply of U.S. dollars.
B)   It will decrease the supply of U.S. dollars.
C)   It will increase the demand for U.S. dollars.
D)   It will decrease the demand for U.S. dollars.E) B) and C)
F) A) and D) C

Question 17

If the dollar appreciates,it can be said that:

Accepted Answer

A)   foreigners respect the United States more.
B)   other currencies depreciate.
C)   it increases in value within the United States.
D)   other currencies also appreciate.E) C) and D)
F) B) and C) B

Question 18

Can the U.S.dollar and the euro both appreciate relative to each other?

Accepted Answer

A)   Yes, both countries can gain in this manner.
B)   Yes, provided the central banks agree to permit it.
C)   No, if one currency appreciates relative to another, the other depreciates.
D)   No, the citizens of the countries would not agree to it.E) B) and C)
F) A) and D)

Question 19

If more French tourists visit the Grand Canyon,what is the effect in the exchange market?

Accepted Answer

A)   It will increase the supply of U.S. dollars.
B)   It will decrease the supply of U.S. dollars.
C)   It will increase the demand for U.S. dollars.
D)   It will decrease the demand for U.S. dollars.E) A) and B)
F) None of the above

Question 20

Sweden's currency would tend to depreciate if:

Accepted Answer

A)   Sweden's inflation rate rises relative to inflation in the rest of the world.
B)   the demand for imports by Swedes increases.
C)   real interest rates in Sweden decrease relative to the rest of the world.
D)   all of the aboveE) None of the above
F) B) and C)

Exam 29: International Finance

What are the main arguments presented against flexible exchange rates?

The balance on goods and services is the same as the balance on the current account.

Correct Answer
verified

U.S.imports are considered:

Correct Answer
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An increase in the demand for British pounds might result from:

Correct Answer
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The less foreigners demand U.S.products:

Correct Answer
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If European incomes rose,European tariffs on U.S.goods decreased,or their tastes for American goods increased,Europeans would demand U.S.goods,leading them to their supply of euros to obtain the added dollars necessary to make those purchases.

Correct Answer
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Fixed exchange rates give countries too much freedom over their monetary policies,thereby threatening higher rates of inflation.

Correct Answer
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Exhibit 29-1 Refer to Exhibit 29-1.For Nation Z,the current account balance for the year 2011 equals:

Correct Answer
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Whenever there is a deficit in the current account,the capital account:

Correct Answer
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Under a system of flexible exchange rates,a decrease in demand for a nation's currency in the foreign exchange market will:

Correct Answer
verified

If real interest rates in the United States rise relative to real interest rates in other countries,other things being equal,

Correct Answer
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If a British student pays her way to attend Harvard University,her actions will:

Correct Answer
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On January 12,2011,one U.S.dollar was worth 0.78 euros.How many U.S.dollars did it take to buy one euro?

Correct Answer
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The balance of trade records information about:

Correct Answer
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Which of the following would occur as a result if Europe experienced a lower inflation rate than the U.S.?

Correct Answer
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If a Japanese pension fund decides to purchase U.S.government bonds,what is the effect in the exchange market?

Correct Answer
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C

If the dollar appreciates,it can be said that:

Correct Answer
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B

Can the U.S.dollar and the euro both appreciate relative to each other?

Correct Answer
verified

If more French tourists visit the Grand Canyon,what is the effect in the exchange market?

Correct Answer
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Sweden's currency would tend to depreciate if:

Correct Answer
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Exam 29: International Finance

What are the main arguments presented against flexible exchange rates?

The balance on goods and services is the same as the balance on the current account.

Correct AnswerverifiedShow Answer

U.S.imports are considered:

Correct AnswerverifiedShow Answer

An increase in the demand for British pounds might result from:

Correct AnswerverifiedShow Answer

The less foreigners demand U.S.products:

Correct AnswerverifiedShow Answer

If European incomes rose,European tariffs on U.S.goods decreased,or their tastes for American goods increased,Europeans would demand ____ U.S.goods,leading them to ____ their supply of euros to obtain the added dollars necessary to make those purchases.

Correct AnswerverifiedShow Answer

Fixed exchange rates give countries too much freedom over their monetary policies,thereby threatening higher rates of inflation.

Correct AnswerverifiedShow Answer

Exhibit 29-1 Refer to Exhibit 29-1.For Nation Z,the current account balance for the year 2011 equals:

Correct AnswerverifiedShow Answer

Whenever there is a deficit in the current account,the capital account:

Correct AnswerverifiedShow Answer

Under a system of flexible exchange rates,a decrease in demand for a nation's currency in the foreign exchange market will:

Correct AnswerverifiedShow Answer

If real interest rates in the United States rise relative to real interest rates in other countries,other things being equal,

Correct AnswerverifiedShow Answer

If a British student pays her way to attend Harvard University,her actions will:

Correct AnswerverifiedShow Answer

On January 12,2011,one U.S.dollar was worth 0.78 euros.How many U.S.dollars did it take to buy one euro?

Correct AnswerverifiedShow Answer

The balance of trade records information about:

Correct AnswerverifiedShow Answer

Which of the following would occur as a result if Europe experienced a lower inflation rate than the U.S.?

Correct AnswerverifiedShow Answer

If a Japanese pension fund decides to purchase U.S.government bonds,what is the effect in the exchange market?

Correct AnswerverifiedC

If the dollar appreciates,it can be said that:

Correct AnswerverifiedB

Can the U.S.dollar and the euro both appreciate relative to each other?

Correct AnswerverifiedShow Answer

If more French tourists visit the Grand Canyon,what is the effect in the exchange market?

Correct AnswerverifiedShow Answer

Sweden's currency would tend to depreciate if:

Correct AnswerverifiedShow Answer

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If European incomes rose,European tariffs on U.S.goods decreased,or their tastes for American goods increased,Europeans would demand U.S.goods,leading them to their supply of euros to obtain the added dollars necessary to make those purchases.

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C

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B

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