Question 1

In the balance of payments of Canada,Canadian merchandise imports are recorded as a:

Accepted Answer

A)   positive entry.
B)   capital account entry.
C)   current account entry.
D)   official reserves entry.E) B) and C)
F) None of the above C

Question 2

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

Question 3

Under flexible exchange rates a Canadian trade deficit with Britain will cause the dollar price of pounds to rise.

Accepted Answer

A) True 
 B)False

Question 4

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) A) and B)

Question 5

A nation's merchandise balance of trade is equal to its exports less its imports of:

Accepted Answer

A)   goods.
B)   goods and services.
C)   financial assets.
D)   official reserves.E) A) and D)
F) B) and C)

Question 6

If the dollar depreciates relative to the pound,then the pound:

Accepted Answer

A)   will be less expensive to Canadians.
B)   may either appreciate or depreciate relative to the dollar.
C)   will appreciate relative to the dollar.
D)   will depreciate relative to the dollar.E) All of the above
F) A) and D)

Question 7

The Canadian supply of pounds is:

Accepted Answer

A)   downward sloping because a lower dollar price of pounds means Canadian goods are cheaper to the British.
B)   upward sloping because a higher dollar price of pounds means Canadian goods are cheaper to the British.
C)   upward sloping because a lower dollar price of pounds means Canadian goods are cheaper to the British.
D)   downward sloping because a higher dollar price of pounds means Canadian goods are cheaper to the British.E) B) and C)
F) A) and D)

Question 8

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

Question 9

The leaders of the G-8 nations which meet regularly to discuss economic issues and try to coordinate economic policies are:

Accepted Answer

A)   Canada,U.S. ,France,Britain,Mexico,Germany,Russia,and Brazil.
B)   Canada,U.S. ,France,Japan,Italy,Germany,Russia,and the United Kingdom
C)   Canada,U.S. ,Mexico,Brazil,Argentina,Uruguay,and Chile.
D)   Italy,France,Britain,Germany,Netherlands,Norway,China,and Sweden.E) A) and D)
F) None of the above

Question 10

If a nation's balance on current account is a negative $20 billion,while its balance on capital account is a positive $16.5 billion,we can conclude with certainty that this nation is experiencing:

Accepted Answer

A)   a merchandise trade deficit.
B)   a merchandise trade surplus.
C)   a reduction in its stock of foreign currency.
D)   a balance of payments surplus.E) None of the above
F) All of the above

Question 11

The Bretton Woods system of exchange rates relied on:

Accepted Answer

A)   flexible exchange rates.
B)   fixed exchange rates with no mechanism for changing them.
C)   fixed or "pegged" exchange rates,with occasional orderly adjustments to the rates.
D)   Canada to set and periodically review worldwide exchange rates.E) A) and D)
F) C) and D)

Question 12

The purchasing-power-parity theory holds that exchange rates equate the purchasing power of various currencies.

Accepted Answer

A) True 
 B)False

Question 13

The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

Accepted Answer

A) True 
 B)False

Question 14

In saying that the present system of flexible exchange rates is managed we mean that:

Accepted Answer

A)   countries which allow their exchange rate to move freely will lose their borrowing privileges with the IMF.
B)   the value of any IMF member's currency can only vary 2 percent from its par value.
C)   IMF officials determine exchange rates on a day-to-day basis.
D)   the central banks of various countries buy and sell foreign exchange to smooth out short-term fluctuations or undesirable trends in exchange rates.E) A) and B)
F) None of the above

Question 15

If Canada has full employment and the dollar dramatically depreciates in value,we can expect:

Accepted Answer

A)   both our imports and our exports to rise.
B)   both our imports and our exports to fall.
C)   our exports to fall and our imports to increase.
D)   inflation to occur.E) C) and D)
F) A) and B)

Question 16

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

Question 17

A country's annual balance of payments statement must always balance because:

Accepted Answer

A)   a nation's imports are limited to the value of its exports.
B)   a trade deficit must be matched by an equal surplus of investment income.
C)   all international transactions must be settled in one way or another.
D)   a nation's exports will be limited by the dollar value of its imports.E) A) and C)
F) None of the above

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

Question 19

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

Question 20

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 is experiencing a balance of payments:

Accepted Answer

A)   deficit of $5 billion.
B)   surplus of $10 billion.
C)   deficit of $10 billion.
D)   surplus of $5 billion.E) None of the above
F) A) and B) A

Exam 18: Exchange Rates and the Balance of Payments

In the balance of payments of Canada,Canadian merchandise imports are recorded as a:

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

Under flexible exchange rates a Canadian trade deficit with Britain will cause the dollar price of pounds to rise.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A nation's merchandise balance of trade is equal to its exports less its imports of:

Correct AnswerverifiedShow Answer

If the dollar depreciates relative to the pound,then the pound:

Correct AnswerverifiedShow Answer

The Canadian supply of pounds is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The leaders of the G-8 nations which meet regularly to discuss economic issues and try to coordinate economic policies are:

Correct AnswerverifiedShow Answer

If a nation's balance on current account is a negative $20 billion,while its balance on capital account is a positive $16.5 billion,we can conclude with certainty that this nation is experiencing:

Correct AnswerverifiedShow Answer

The Bretton Woods system of exchange rates relied on:

Correct AnswerverifiedShow Answer

The purchasing-power-parity theory holds that exchange rates equate the purchasing power of various currencies.

Correct AnswerverifiedShow Answer

The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

Correct AnswerverifiedShow Answer

In saying that the present system of flexible exchange rates is managed we mean that:

Correct AnswerverifiedShow Answer

If Canada has full employment and the dollar dramatically depreciates in value,we can expect:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A country's annual balance of payments statement must always balance because:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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

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,Zabella is experiencing a balance of payments:

Correct AnswerverifiedA

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B

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A