Question 1

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. The "official international reserves" account indicates that Zabella:

Accepted Answer

A)   added $5 billion to its stock of foreign currencies.
B)   imported more merchandise than it exported.
C)   exported $5 billion of its stock of foreign currencies.
D)   experienced a balance of payments surplus in 2011.E) B) and C)
F) All of the above

Question 2

A nation's balance on the current account is equal to its exports less its imports of:

Accepted Answer

A)   goods and services.
B)   goods and services, minus Canadian purchases of assets abroad.
C)   goods and services, plus net investment income and net transfers.
D)   goods and services, plus foreign purchases of assets in Canada.E) A) and B)
F) None of the above

Question 3

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) A) and C)

Question 4

Which of the following lists of exchange rates is arranged in proper historical order?

Accepted Answer

A)   Bretton Woods system, gold standard, managed float
B)   gold standard, managed float, Bretton Woods system
C)   managed float, Bretton Woods system, gold standard
D)   gold standard, Bretton Woods system, managed floatE) None of the above
F) B) and D)

Question 5

Assume that Switzerland and Britain have flexible exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland:

Accepted Answer

A)   gold bullion will flow into Switzerland.
B)   the Swiss franc will depreciate.
C)   the British pound will depreciate.
D)   the Swiss franc will appreciate.E) None of the above
F) All of the above

Question 6

Refer to the diagram below. Assume the initial demand for and supply of dollars are shown by D1 and S1. The exchange rate will be: 1 and S1. The exchange rate will be:   A)  $1 equals 5 British pounds. B)  $4 equals 1 British pound. C)  $5 equals 1 British pound. D)  JQ3 British pounds per dollar." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   $1 equals 5 British pounds.
B)   $4 equals 1 British pound.
C)   $5 equals 1 British pound.
D)   JQ3 British pounds per dollar.E) C) and D)
F) A) and D)

Question 7

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. Suppose that Libra decided to import more Canadian products. We would expect the quantity of libras:

Accepted Answer

A)   demanded at each dollar price to rise and the dollar to depreciate relative to the libra.
B)   demanded at each dollar price to fall and the dollar to appreciate relative to the libra.
C)   supplied at each dollar price to rise and the dollar to appreciate relative to the libra.
D)   supplied at each dollar price to fall and the dollar to depreciate relative to the libra.E) A) and B)
F) C) and D)

Question 8

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

Question 9

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We conclude that:

Accepted Answer

A)   1 yen = 280 Swiss francs.
B)   1 yen = 14 Swiss francs.
C)   1 Swiss franc = 28 yen.
D)   1 Swiss franc = 14 yen.E) A) and B)
F) A) and C)

Question 10

In the balance of payments of Canada, capital inflows are recorded as:

Accepted Answer

A)   a positive entry.
B)   a current account entry.
C)   official reserves.
D)   net investment income.E) A) and D)
F) A) and B)

Question 11

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 12

Which one of the following will directly affect Canada's balance on goods and services, but not affect its balance of trade?

Accepted Answer

A)   an increase in merchandise exports
B)   a decrease in exports of services
C)   an increase in official reserves
D)   an increase in net transfersE) A) and B)
F) B) and C)

Question 13

Under the managed floating exchange rate system, a government may be able to reduce the international value of its currency by:

Accepted Answer

A)   selling its currency in the foreign exchange market.
B)   buying its currency in the foreign exchange market.
C)   selling foreign currencies in the foreign exchange market.
D)   increasing its domestic interest rates.E) A) and B)
F) None of the above

Question 14

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

Question 15

The exchange rate system currently used by the industrially advanced nations is:

Accepted Answer

A)   the gold standard.
B)   the Bretton Woods system.
C)   the managed float.
D)   a fixed rate system.E) A) and B)
F) B) and C)

Question 16

Which one of the following, other things equal, will directly alter Canada's balance of trade?

Accepted Answer

A)   an increase in official international reserves
B)   a decrease in merchandise exports
C)   an increase in net transfers
D)   a decrease in capital outflowsE) A) and B)
F) A) and C)

Question 17

The following table shows the trade between Canada and Transylvania for the year 2012. All figures are in billions of dollars.  Refer to the information above. Canada had a merchandise trade:

Accepted Answer

A)   surplus of $137 billion.
B)   surplus of $9 billion.
C)   deficit of $9 billion.
D)   deficit of $128 billionE) None of the above
F) All of the above

Question 18

In 1985 the dollar would buy 262 yen, but in 1992 it would buy only 123 yen. Relative to the yen, the value of the dollar:

Accepted Answer

A)   increased by about 25 percent.
B)   decreased by about 50 percent.
C)   decreased by about 75 percent.
D)   decreased by about 100 percent.E) All of the above
F) C) and D)

Question 19

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 foreigners made a smaller volume of investments in Transylvania than Transylvanians invested abroad.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 17: Exchange Rates and the Balance of Payments

Which one of the following will directly affect Canada's balance on goods and services, but not affect its balance of trade?

Correct Answer
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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. The "official international reserves" account indicates that Zabella:

Correct Answer
verified

Refer to the diagram below. Assume the initial demand for and supply of dollars are shown by D₁ and S₁. The exchange rate will be:

Correct Answer
verified

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 foreigners made a smaller volume of investments in Transylvania than Transylvanians invested abroad.

Correct Answer
verified

Assume that Switzerland and Britain have flexible exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland:

Correct Answer
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Which one of the following, other things equal, will directly alter Canada's balance of trade?

Correct Answer
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Which of the following lists of exchange rates is arranged in proper historical order?

Correct Answer
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In the balance of payments of Canada, capital inflows are recorded as:

Correct Answer
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Under the managed floating exchange rate system, a government may be able to reduce the international value of its currency by:

Correct Answer
verified

The following table shows the trade between Canada and Transylvania for the year 2012. All figures are in billions of dollars. Refer to the information above. Canada had a merchandise trade:

Correct Answer
verified

In 1985 the dollar would buy 262 yen, but in 1992 it would buy only 123 yen. Relative to the yen, the value of the dollar:

Correct Answer
verified

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.

Correct Answer
verified

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

Correct Answer
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A nation's balance on the current account is equal to its exports less its imports of:

Correct Answer
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Under the gold standard:

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

Correct Answer
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The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We conclude that:

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

Correct Answer
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The exchange rate system currently used by the industrially advanced nations is:

Correct Answer
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Correct Answer
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Exam 17: Exchange Rates and the Balance of Payments

Which one of the following will directly affect Canada's balance on goods and services, but not affect its balance of trade?

Correct AnswerverifiedShow Answer

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. The "official international reserves" account indicates that Zabella:

Correct AnswerverifiedShow Answer

Refer to the diagram below. Assume the initial demand for and supply of dollars are shown by D1 and S1. The exchange rate will be:

Correct AnswerverifiedShow Answer

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 foreigners made a smaller volume of investments in Transylvania than Transylvanians invested abroad.

Correct AnswerverifiedShow Answer

Assume that Switzerland and Britain have flexible exchange rates. Other things unchanged, if a tight money policy raises interest rates in Britain as compared to Switzerland:

Correct AnswerverifiedShow Answer

Which one of the following, other things equal, will directly alter Canada's balance of trade?

Correct AnswerverifiedShow Answer

Which of the following lists of exchange rates is arranged in proper historical order?

Correct AnswerverifiedShow Answer

In the balance of payments of Canada, capital inflows are recorded as:

Correct AnswerverifiedShow Answer

Under the managed floating exchange rate system, a government may be able to reduce the international value of its currency by:

Correct AnswerverifiedShow Answer

The following table shows the trade between Canada and Transylvania for the year 2012. All figures are in billions of dollars. Refer to the information above. Canada had a merchandise trade:

Correct AnswerverifiedShow Answer

In 1985 the dollar would buy 262 yen, but in 1992 it would buy only 123 yen. Relative to the yen, the value of the dollar:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A nation's balance on the current account is equal to its exports less its imports of:

Correct AnswerverifiedShow Answer

Under the gold standard:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We conclude that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The exchange rate system currently used by the industrially advanced nations is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Correct Answer
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Refer to the diagram below. Assume the initial demand for and supply of dollars are shown by D₁ and S₁. The exchange rate will be:

Correct Answer
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