Question 1

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 2

Under a system of fixed exchange rates, a nation which experiences chronic balance of payments deficits may:

Accepted Answer

A)   initiate protectionist trade policies.
B)   run short of international monetary reserves.
C)   be forced to use contractionary monetary and fiscal policies.
D)   do all of the above.E) C) and D)
F) A) and B)

Question 3

Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D1 to D2 will: 1 to D2 will:   A)  ultimately cause Canadian exports to decline and its imports to rise. B)  cause the dollar price of pesos to increase. C)  cause the peso to depreciate. D)  cause the dollar to depreciate." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   ultimately cause Canadian exports to decline and its imports to rise.
B)   cause the dollar price of pesos to increase.
C)   cause the peso to depreciate.
D)   cause the dollar to depreciate.E) C) and D)
F) A) and B)

Question 4

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Accepted Answer

A) True 
 B)False

Question 5

The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

Accepted Answer

A) True 
 B)False

Question 6

In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

Accepted Answer

A)   limiting its imports to the dollar value of its exports.
B)   decreasing the nation's domestic price level.
C)   limiting its exports to the dollar value of its imports.
D)   appreciating the value of its currency.E) All of the above
F) B) and C)

Question 7

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

Question 8

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. The equilibrium dollar price of libras is:

Accepted Answer

A)   $5.
B)   $4.
C)   $3.
D)   indeterminate.E) A) and B)
F) B) and C) C

Question 9

Critics of the managed floating exchange rate system argue that it:

Accepted Answer

A)   is dominated by G-8 nations.
B)   is a "non-system" with unclear rules.
C)   increased the growth in world trade at too fast a rate.
D)   puts too much reliance on the adjustable-peg mechanism for stabilizing exchange rates.E) A) and B)
F) All of the above

Question 10

The Canadian demand for pounds is:

Accepted Answer

A)   downward sloping because a higher dollar price of pounds means British goods are cheaper to Canadians.
B)   downward sloping because a lower dollar price of pounds means British goods are more expensive to Canadians.
C)   upsloping because a lower dollar price of pounds means British goods are cheaper to Canadians.
D)   downward sloping because a lower dollar price of pounds means British goods are cheaper to Canadians.E) B) and C)
F) A) and B) D

Question 11

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) All of the above D

Question 12

The expectations of speculators in Canada that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

A deficit on the current account:

Accepted Answer

A)   normally causes a surplus on the capital account.
B)   normally causes a deficit on the capital account.
C)   has no relationship to the capital account.
D)   means that a nation is not making any international transfers.E) B) and C)
F) None of the above

Question 15

Suppose that in 2002 the exchange rate between the Canadian dollar and the Japanese yen was
$1 = 220 yen, and in 2012 it 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 cited in the previous question?

Accepted Answer

A)   Japan exported far more to Canada during this period than it imported from Canada.
B)   Japan greatly increased its purchases from Canada during this period.
C)   Japan's economy grew far faster than the Canadian economy during this period.
D)   Japan's government devalued the yen during this period.E) A) and B)
F) None of the above

Question 16

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

Question 17

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 B)
F) A) and C)

Question 18

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Accepted Answer

A)   merchandise imports
B)   changes in foreign currency reserves
C)   capital outflows
D)   exports of servicesE) A) and B)
F) A) and C)

Question 19

Which of the following would contribute to a Canadian balance of payments deficit?

Accepted Answer

A)   Kawasaki builds a motorcycle manufacturing plant in Vancouver
B)   Canadian tourists travel in large numbers to Europe
C)   a wealthy Iranian builds a mansion in Montreal
D)   Zaire pays interest on its debt to CanadaE) A) and C)
F) A) and B)

Question 20

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 B)
F) A) and C)

Exam 17: Exchange Rates and the Balance of Payments

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

Correct Answer
verified

Under a system of fixed exchange rates, a nation which experiences chronic balance of payments deficits may:

Correct Answer
verified

Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will:

Correct Answer
verified

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Correct Answer
verified

The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

Correct Answer
verified

In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

Correct Answer
verified

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

Correct Answer
verified

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. The equilibrium dollar price of libras is:

Correct Answer
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C

Critics of the managed floating exchange rate system argue that it:

Correct Answer
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The Canadian demand for pounds is:

Correct Answer
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D

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

Correct Answer
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D

The expectations of speculators in Canada that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Correct Answer
verified

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

Correct Answer
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A deficit on the current account:

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

Correct Answer
verified

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:

Correct Answer
verified

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Correct Answer
verified

Which of the following would contribute to a Canadian balance of payments deficit?

Correct Answer
verified

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

Correct Answer
verified

Exam 17: Exchange Rates and the Balance of Payments

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

Correct AnswerverifiedShow Answer

Under a system of fixed exchange rates, a nation which experiences chronic balance of payments deficits may:

Correct AnswerverifiedShow Answer

Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D1 to D2 will:

Correct AnswerverifiedShow Answer

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Correct AnswerverifiedShow Answer

The sum of a nation's current account balance and its capital account balance in any year is always equal to zero.

Correct AnswerverifiedShow Answer

In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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. The equilibrium dollar price of libras is:

Correct AnswerverifiedC

Critics of the managed floating exchange rate system argue that it:

Correct AnswerverifiedShow Answer

The Canadian demand for pounds is:

Correct AnswerverifiedD

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

Correct AnswerverifiedD

The expectations of speculators in Canada that the exchange rate for the euro will fall in the future will increase the supply of euros in the foreign exchange market and decrease the exchange rate for the euros.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A deficit on the current account:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

Correct AnswerverifiedShow Answer

Which of the following would contribute to a Canadian balance of payments deficit?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Refer to the diagram below where D and S are Canada's demand for and supply of pesos. At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium. Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will:

Correct Answer
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C

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D

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D

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