Question 1

In equilibrium, if $1 = .5 pounds sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollars and Swiss francs will be:

Accepted Answer

A)  1 Swiss franc = $.10.
B)  1 Swiss franc = $.20.
C)  $1 = 80 Swiss francs.
D)  $1 = 20 Swiss francs.E) C) and D)
F) None of the above

Question 2

The foreign demand curve for a nation's currency is considered to be a derived demand because it stems from the willingness of consumers in one country to buy goods and services from another country.

Accepted Answer

A) True 
 B)False

Question 3

Imports cause:

Accepted Answer

A)  an outflow of money and an inflow of goods and services.
B)  an inflow of money and an inflow of goods and services.
C)  an outflow of money and an outflow of goods and services.
D)  an inflow of money and an outflow of goods and services.E) A) and C)
F) A) and B)

Question 4

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

Question 5

The Canadian demand for Swiss francs is:

Accepted Answer

A)  downward sloping because, at lower dollar prices for francs, Canadians will want to buy more Swiss goods and services.
B)  downward sloping because, at higher dollar prices for francs, Canadians will want to buy more Swiss goods and services.
C)  downward sloping because the dollar price of francs and the franc price of dollars are directly related.
D)  upward sloping because a higher dollar price of Swiss francs makes Swiss goods and services more attractive to Canadians.E) B) and C)
F) A) and B)

Question 6

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

Accepted Answer

A)  the multiplier does not apply to a trade deficit.
B)  it increases our aggregate output and employment.
C)  Canadian consumers benefit from a trade deficit during the period it occurs.
D)  all of the above reasons.E) A) and C)
F) A) and D)

Question 7

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

Question 8

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

Question 9

The idea that flexible exchange rates equate the purchasing power of national currencies is called the:

Accepted Answer

A)  equation of exchange.
B)  balance of payments.
C)  gold standard.
D)  purchasing power parity theory.E) A) and D)
F) B) and D)

Question 10

Canadian exports increase and Canadian imports decrease the supplies of foreign monies owned by Canadian banks.

Accepted Answer

A) True 
 B)False

Question 11

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Accepted Answer

A) True 
 B)False  False

Question 12

The graph below shows the supply and demand for Swiss francs in the absence of any intervention by the central monetary authorities.$0.25 is the value of the franc fixed by the central bank.Which of the following is correct?

Accepted Answer

A)  The Swiss franc is overvalued.
B)  Switzerland's balance of payments is likely to be in large surplus.
C)  At the $0.25 value there is an excess demand for Swiss francs.
D)  At the $0.20 value there is an excess supply of Swiss francs.E) None of the above
F) A) and D)

Question 13

If in a system of fixed exchange rates the dollar price of pounds is above the market equilibrium

Accepted Answer

A)  gold will flow from Canada to Great Britain.
B)  there will be a surplus of pounds.
C)  the Canadian government will have to ration pounds to Canadian importers.
D)  there will be a shortage of pounds.E) A) and C)
F) All of the above B

Question 14

If the equilibrium exchange rate changes so that fewer dollars are required to buy a pound, then:

Accepted Answer

A)  Canadians will buy fewer British goods and services.
B)  the pound has appreciated in value.
C)  fewer Canadian goods and services will be demanded by the British.
D)  the dollar has depreciated in value.E) All of the above
F) B) and D)

Question 15

If a Canadian importer can purchase 10,000 pounds for $20,000, the rate of exchange:

Accepted Answer

A)  is $1 = 2 pounds in Canada.
B)  is $2 = 1 pound in Canada.
C)  is $1 = 2 pounds in Great Britain.
D)  is $.5 = 1 pound in Great Britain.E) None of the above
F) All of the above

Question 16

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.,In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate in 2014?

Accepted Answer

A)  During the period, Japan exported more to Canada than it imported from Canada.
B)  Japan increased its purchases from Canada during the period.
C)  Japan's growth of national income was more rapid than that of the Canadian economy during the period.
D)  Japan's government devalued the yen during the period.E) C) and D)
F) B) and C)

Question 17

Fixed exchange rates are often maintained by using all of the following except:

Accepted Answer

A)  open speculation by individual traders in foreign currency markets.
B)  international monetary reserves held by central banks.
C)  controls on imports and exports such as tariffs and quotas.
D)  domestic macroeconomic adjustments using monetary and fiscal policies.E) A) and C)
F) A) and B)

Question 18

If country A experiences rapid inflation while country B has a stable price level, this will:

Accepted Answer

A)  shift the demand curve for country A's currency in the foreign exchange market to the right.
B)  discourage imports to the country whose currency has depreciated.
C)  discourage exports to the country whose currency has depreciated.
D)  encourage foreign travel by the citizens of the country whose currency has depreciated.E) All of the above
F) None of the above

Question 19

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

Question 20

Which of the following is not a serious disadvantage associated with flexible exchange rates?

Accepted Answer

A)  uncertainty which tends to diminish trade
B)  worsening terms of trade if there is a sizeable depreciation of a country's currency
C)  longer lags in eliminating balance of payments surpluses or deficits
D)  greater challenges in managing and designing domestic macroeconomic policies.E) A) and B)
F) C) and D)

Exam 18: B: The Balance of Payments and Exchange Rates

In equilibrium, if $1 = .5 pounds sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollars and Swiss francs will be:

Correct AnswerverifiedShow Answer

The foreign demand curve for a nation's currency is considered to be a derived demand because it stems from the willingness of consumers in one country to buy goods and services from another country.

Correct AnswerverifiedShow Answer

Imports cause:

Correct AnswerverifiedShow Answer

In the foreign exchange markets:

Correct AnswerverifiedShow Answer

The Canadian demand for Swiss francs is:

Correct AnswerverifiedShow Answer

It may be misleading to label a trade deficit as "unfavourable" or "adverse" because:

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

Correct AnswerverifiedD

The idea that flexible exchange rates equate the purchasing power of national currencies is called the:

Correct AnswerverifiedShow Answer

Canadian exports increase and Canadian imports decrease the supplies of foreign monies owned by Canadian banks.

Correct AnswerverifiedShow Answer

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods.

Correct AnswerverifiedFalse

The graph below shows the supply and demand for Swiss francs in the absence of any intervention by the central monetary authorities.$0.25 is the value of the franc fixed by the central bank.Which of the following is correct?

Correct AnswerverifiedShow Answer

If in a system of fixed exchange rates the dollar price of pounds is above the market equilibrium

Correct AnswerverifiedB

If the equilibrium exchange rate changes so that fewer dollars are required to buy a pound, then:

Correct AnswerverifiedShow Answer

If a Canadian importer can purchase 10,000 pounds for $20,000, the rate of exchange:

Correct AnswerverifiedShow Answer

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.,In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate in 2014?

Correct AnswerverifiedShow Answer

Fixed exchange rates are often maintained by using all of the following except:

Correct AnswerverifiedShow Answer

If country A experiences rapid inflation while country B has a stable price level, this will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a serious disadvantage associated with flexible exchange rates?

Correct AnswerverifiedShow Answer

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D

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False

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B

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