Question 1

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 2

The several financial crises in which country required a massive financial bailout by the International Monetary Fund.

Accepted Answer

A)  Russia
B)  Canada
C)  China
D)  United StatesE) B) and D)
F) C) and D)

Question 3

Which of the following creates a supply of Euro in foreign exchange markets?

Accepted Answer

A)  a Frenchman redeems a bond issued by an Italian manufacturer.
B)  an Italian importer buys insurance from a Canadian firm.
C)  a Canadian student takes a summer trip to Rome.
D)  a Canadian importer buys 500 cases of Italian table wine.E) A) and B)
F) A) and C)

Question 4

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 B)
F) None of the above

Question 5

An increase in the dollar price of British pounds will:

Accepted Answer

A)  increase the pound price of dollars.
B)  lower the pound price of dollars.
C)  leave the pound price of dollars unchanged.
D)  cause Britain's terms of trade with the United States to deteriorate.E) None of the above
F) A) and C)

Question 6

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

Question 7

In considering British pound and dollar, the rates of exchange for the pound and the dollar:

Accepted Answer

A)  are directly related.
B)  are inversely related.
C)  are unrelated.
D)  move in the same direction.E) B) and C)
F) C) and D)

Question 8

Under a system of flexible exchange rates, an increase in the international value of a nation's currency will:

Accepted Answer

A)  cause an international surplus of its currency.
B)  contribute to disequilibrium in its balance of payments.
C)  cause gold to flow into that country.
D)  cause its imports to rise.E) A) and B)
F) B) and C)

Question 9

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 C)
F) None of the above

Question 10

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 exchange rate is:

Accepted Answer

A)  4 libras for one dollar.
B)  .30 libras for one dollar.
C)  .40 libras for one dollar.
D)  none of the above.E) C) and D)
F) A) and B)

Question 11

Suppose one Canadian dollar would buy 262 yen in 2005.However, it would buy only 123 yen in 2012.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) C) and D)
F) B) and D)

Question 12

1 and S1.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates: A) gold would flow from Mexico to Canada. B) the peso price of dollars would rise from 1/B pesos equals $1 to, 1/A pesos equals $1. C) a problem of rationing a shortage of pesos would arise in Canada. D) the dollar price of pesos would increase to C dollars equals 1 peso." class="answers-bank-image d-inline" rel="preload" > Refer to the above diagram.The initial demand for and supply of pesos are shown by D1 and S1.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

Accepted Answer

A)  gold would flow from Mexico to Canada.
B)  the peso price of dollars would rise from 1/B pesos equals $1 to, 1/A pesos equals $1.
C)  a problem of rationing a shortage of pesos would arise in Canada.
D)  the dollar price of pesos would increase to C dollars equals 1 peso.E) B) and C)
F) B) and D)

Question 13

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

Question 14

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

Question 15

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

Question 16

When the people involved in an exchange are from countries that use different currencies, an intermediate asset transaction has to take place:

Accepted Answer

A)  the seller must convert her currency into the currency that the buyer uses and accepts.
B)  the buyer must convert her currency into the currency that the seller uses and accepts.
C)  the buyer and seller should engage in barter trade.
D)  both buyer and seller should exchange their currencies to gold.E) B) and D)
F) B) and C)

Question 17

If the dollar depreciates, Canadian exports will eventually rise and Canadian imports will eventually fall.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  Canada makes a unilateral tariff reduction on imported goods
B)  Canadian Pacific pays a dividend to a Swiss stockholder
C)  Canada cuts back on Canadian military personnel stationed in Germany
D)  Russian vodka becomes increasingly popular in CanadaE) A) and B)
F) C) and D)

Question 20

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars.  Refer to the above data.Zabella's balance on goods and services shows a:

Accepted Answer

A)  $5 billion deficit.
B)  $5 billion surplus.
C)  $10 billion surplus.
D)  $15 billion deficit.E) All of the above
F) B) and D)

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

If the dollar depreciates, Canadian exports will eventually rise and Canadian imports will eventually fall.

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Which of the following creates a supply of Euro in foreign exchange markets?

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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 exchange rate is:

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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:

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

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An increase in the dollar price of British pounds will:

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Suppose one Canadian dollar would buy 262 yen in 2005.However, it would buy only 123 yen in 2012.Relative to the yen, the value of the dollar:

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

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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.

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When the people involved in an exchange are from countries that use different currencies, an intermediate asset transaction has to take place:

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Under a system of flexible exchange rates, an increase in the international value of a nation's currency will:

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The several financial crises in which country required a massive financial bailout by the International Monetary Fund.

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

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Refer to the above diagram.The initial demand for and supply of pesos are shown by D1 and S1.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

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The Canadian demand for Swiss francs is:

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

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

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The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars. Refer to the above data.Zabella's balance on goods and services shows a:

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

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In considering British pound and dollar, the rates of exchange for the pound and the dollar:

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Refer to the above diagram.The initial demand for and supply of pesos are shown by D₁ and S₁.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

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