Question 1

The balance of payments must always balance, because:

Accepted Answer

A)  capital account surplus means the outflow of capital.
B)  current account surpluses automatically generate transfer of assets to foreigners.
C)  current account deficits automatically generate transfer of assets from foreigners.
D)  current account deficits automatically generate transfer of assets to foreigners while current account surpluses automatically generate transfer of assets from foreigners.E) C) and D)
F) None of the above

Question 2

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

Question 3

Which of the following would call for a payment to Canada?

Accepted Answer

A)  gold flows into Canada
B)  Canadian firms sell insurance to Brazilian shippers
C)  Canadian unilateral foreign aid to less developed countries
D)  Canadian imports of German automobilesE) A) and D)
F) A) and B)

Question 4

The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars.  Refer to the above data.In 2013, Transylvania realized a $1 billion surplus on goods and services.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

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 7

Which of the following will generate a demand for country X's currency in the foreign exchange market?

Accepted Answer

A)  travel by foreigners in country X
B)  the desire of foreigners to buy stocks and bonds of firms in country X
C)  the exports of country X
D)  all of the aboveE) None of the above
F) B) and D)

Question 8

If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

Accepted Answer

A)  balance of trade surplus.
B)  balance of payments surplus.
C)  positive balance on current account.
D)  positive balance on goods and services.E) A) and D)
F) A) and B)

Question 9

Evidence of a chronic balance of payments deficit is:

Accepted Answer

A)  a decline in amount of the nation's currency held by other nations.
B)  an excess of exports over imports.
C)  diminishing reserves of foreign currencies.
D)  an increase in the international value of the nation's currency.E) A) and C)
F) A) and B)

Question 10

Which of the following is not included in the current account of a nation's balance of payments?

Accepted Answer

A)  its merchandise exports
B)  its merchandise imports
C)  its net investment income
D)  its capital inflowsE) B) and D)
F) A) and B)

Question 11

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 B)
F) All of the above

Question 12

Under a system of flexible exchange rates a Canadian trade deficit with Mexico will tend to cause:

Accepted Answer

A)  the Canadian government to ration pesos to Canadian importers.
B)  a flow of gold from Canada to Mexico.
C)  an increase in the peso price of dollars.
D)  an increase in the dollar price of pesos.E) All of the above
F) A) and B)

Question 13

The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars.  Refer to the above data.In 2013, Transylvania had a $2 billion balance of trade surplus.

Accepted Answer

A) True 
 B)False

Question 14

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.Current Account:  Refer to the above data.Zabella's is experiencing a balance of trade:

Accepted Answer

A)  deficit of $10 billion.
B)  surplus of $5 billion.
C)  surplus of $10 billion.
D)  deficit of $5 billion.E) All of the above
F) B) and C)

Question 15

If a nation has a balance of payments deficit and exchange rates are flexible, the price of that nation's currency in the foreign exchange markets will rise.

Accepted Answer

A) True 
 B)False

Question 16

Suppose interest rates fall sharply in Canada but are unchanged in Great Britain.Other things unchanged, under a system of flexible exchange rates we can expect the demand for pounds in Canada to:

Accepted Answer

A)  decrease, the supply of pounds to increase, and the dollar to appreciate relative to the pound.
B)  increase, the supply of pounds to increase, and the dollar may either appreciate or depreciate relative to the pound.
C)  increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound.
D)  decrease, the supply of pounds to increase, and the dollar to depreciate relative to the pound.E) None of the above
F) A) and C)

Question 17

If the Canadian dollar price of United States dollars increases from $.80 to $1.00, it can be concluded that:

Accepted Answer

A)  the Canadian dollar has appreciated in value to the United States dollar.
B)  both countries are on the international gold standard.
C)  the American dollar has depreciated in value relative to the Canadian dollar.
D)  the Canadian dollar has depreciated in value relative to the United States dollar.E) All of the above
F) A) and D)

Question 18

If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound, the rate of exchange between the two currencies:

Accepted Answer

A)  is $.5 = 1 pound.
B)  is $2 = 1 pound.
C)  is $1 = 2 pounds.
D)  is $1.5 = 1 Pound.E) All of the above
F) A) and B)

Question 19

The following are hypothetical exchange rates: 2 Swiss francs = 1 British pound and $1 = 2 British pound.We can conclude that:

Accepted Answer

A)  $1 = 4 Swiss francs.
B)  $1 = .5 Swiss francs.
C)  1 Swiss franc = $.50.
D)  1 Swiss franc = $2.E) C) and D)
F) None of the above

Question 20

A market in which the money of one nation is exchanged for the money of another nation is a:

Accepted Answer

A)  resource market.
B)  financial market.
C)  futures market.
D)  foreign exchange market.E) B) and C)
F) A) and D)

Exam 18: Part A: The Balance of Payments and Exchange Rates

If the Canadian dollar price of United States dollars increases from $.80 to $1.00, it can be concluded that:

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Which of the following would call for a payment to Canada?

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Which of the following is not included in the current account of a nation's balance of payments?

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The balance of payments must always balance, because:

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The following are hypothetical exchange rates: 2 Swiss francs = 1 British pound and $1 = 2 British pound.We can conclude that:

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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.

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Under the gold standard:

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Which of the following will generate a demand for country X's currency in the foreign exchange market?

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If a nation has a balance of payments deficit and exchange rates are flexible, the price of that nation's currency in the foreign exchange markets will rise.

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Evidence of a chronic balance of payments deficit is:

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Under a system of flexible exchange rates a Canadian trade deficit with Mexico will tend to cause:

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If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

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The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars. Refer to the above data.In 2013, Transylvania realized a $1 billion surplus on goods and services.

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Appreciation of the Swiss franc will:

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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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The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.Current Account: Refer to the above data.Zabella's is experiencing a balance of trade:

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Suppose interest rates fall sharply in Canada but are unchanged in Great Britain.Other things unchanged, under a system of flexible exchange rates we can expect the demand for pounds in Canada to:

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The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars. Refer to the above data.In 2013, Transylvania had a $2 billion balance of trade surplus.

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A market in which the money of one nation is exchanged for the money of another nation is a:

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If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound, the rate of exchange between the two currencies:

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