Deck 36: International Finance

Question 1

When foreigners buy U.S.dollars because they are a more stable currency than the currencies in their countries,they are generating a

A)Demand for U.S.dollars and a demand for a foreign currency.
B)Supply of U.S.dollars and a supply of a foreign currency.
C)Demand for U.S.dollars and a supply of a foreign currency.

Answer 1

Demand for U.S.dollars and a supply of a foreign currency.

Question 2

The demand for U.S.dollars originates from all of the following except

A)Foreign demand for U.S.exports.
B)Speculation in U.S.dollars.
C)Foreign demand for U.S.investments.
D)U.S.demand for imported goods.

Answer 2

U.S.demand for imported goods.

Question 3

When American companies buy office buildings in Australia,they are generating a

A)Supply of U.S.dollars and a demand for a foreign currency.
B)Supply of U.S.dollars and a supply of a foreign currency.
C)Demand for U.S.dollars and a supply of a foreign currency.

Answer 3

Supply of U.S.dollars and a demand for a foreign currency.

Question 4

When the exchange rate between the U.S.dollar and the Japanese yen is $1 = 100 yen,this is an indication that

A)It would take 100 yen to purchase $1.
B)The yen is stronger than the U.S.dollar.
C)The dollar is depreciating compared to the yen.

Question 5

When Americans buy Mercedes-Benz automobiles made in Germany,they are generating a

A)Supply of U.S.dollars and a supply of a foreign currency.
B)Supply of U.S.dollars and a demand for a foreign currency.
C)Demand for U.S.dollars and a supply of a foreign currency.

Question 6

The U.S.demand for foreign currency arises from speculation and the

A)U.S.demand for foreign goods,services,and financial assets.
B)Foreign demand for U.S.goods,services,and financial assets.
C)Foreign demand for U.S.holdings of gold.

Question 7

Changes in the value of the euro affect the economies of

A)Only those countries using the euro as currency.
B)All European countries,but there would be no significant impact on countries outside Europe.
C)Potentially the entire world.

Question 8

The exchange rate is the price of

A)One good in terms of another.
B)An import purchased at the local electronics store.
C)One currency in terms of another.

Question 9

The exchange rate is the

A)Opportunity cost at which goods are produced domestically.
B)Balance-of-trade ratio of one country to another.
C)Price of one country's currency expressed in terms of another country's currency.

Question 10

The demand for dollars in the foreign exchange market

A)Is represented by a point in a diagram of foreign exchange supply and demand.
B)Depends in part on the foreign demand for U.S.goods.
C)Depends on U.S.demand for foreign goods and services.

Question 11

Which of the following generates demand for foreign currencies?

A)Expenditures by Americans traveling abroad.
B)Exports from the United States to foreign countries.
C)The purchase by foreigners of bonds issued by the U.S.government.

Question 12

The supply of U.S.dollars originates from

A)Demand by foreigners for U.S.-produced goods.
B)Demand for U.S.dollars for speculative purposes.
C)Foreign investments in America.
D)American demand for imported goods.Whenever U.S.consumers purchase goods or services from abroad or foreign assets,they create a demand for the foreign currency and a supply of dollars.AACSB: Analytic

Question 13

The U.S.desire for foreign currency represents

A)A demand for U.S.dollars.
B)A supply of U.S.dollars.
C)The foreign demand for U.S.exports.

Question 14

When a Japanese businesswoman traveling in the United States asks,"How many U.S.dollars can I get for these yen?" she wants to know the

A)Gold standard rate.
B)Exchange rate.
C)Terms of trade.

Question 15

The supply of U.S.dollars is determined by all of the following except

A)Foreign demand for American exports.
B)American demand for imports.
C)American investments in foreign nations.

Question 16

Which of the following generates a supply of U.S.dollars?

A)The demand for U.S.exports to foreign countries.
B)Foreign tourists visiting the United States.
C)The construction of a plant abroad by a U.S.corporation.

Question 17

When foreign countries buy wheat grown in the United States,they are generating a

A)Demand for U.S.dollars and a demand for a foreign currency.
B)Demand for U.S.dollars and a supply of a foreign currency.
C)Supply of U.S.dollars and a demand for a foreign currency.

Question 18

Which of the following generates demand for foreign currencies?

A)Exports from the United States to foreign countries.
B)Imports of foreign goods by firms located in the United States.
C)The building of plants by foreign corporations in the United States.

Question 19

When reality show participants travel through foreign countries,they are generating a

A)Demand for U.S.dollars and a demand for a foreign currency.
B)Supply of U.S.dollars and a supply of a foreign currency.
C)Demand for U.S.dollars and a supply of a foreign currency.
D)Supply of U.S.dollars and a demand for a foreign currency.

Question 20

Which of the following generates a demand for dollars in the foreign exchange market?

A)Transfers of money by foreign workers in the United States to relatives abroad.
B)U.S.military installations abroad.
C)Foreign aid given by the United States.
D)Travel by foreign visitors in the United States.

Question 21

The current account balance is equal to

A)Trade balance + services balance - capital account balance.
B)Trade balance + services balance + capital account balance.
C)Trade balance + unilateral transfers.

Question 22

A summary record of a country's international economic transactions in a given time period is the

A)Balance of payments.
B)Current account.
C)Capital account.

Question 23

The current account balance is equal to

A)Imports minus exports.
B)Exports minus imports.
C)The trade balance plus unilateral transfers.

Question 24

The capital account includes

A)Trade in goods.
B)Trade in services.
C)Unilateral transfers.
D)Foreign purchases of U.S.assets.

Question 25

Exports minus imports define a country's

A)Current account balance.
B)Capital account balance.
C)Balance of payments.
D)Trade balance.

Question 26

Suppose a men's suit produced in Moldavia sells for 250 euros.If the exchange rate between euros and dollars is €1 = $1.38,how much will an American pay for the suit?

A)$345.00.
B)$181.16.
C)$250.00.

Question 27

If the exchange rate between the U.S.dollar and Japanese yen changes from $1 = 100 yen to $1 = 90 yen,then

A)All Japanese producers and consumers will lose.
B)U.S.auto producers and autoworkers will lose.
C)U.S.consumers of Japanese TV sets will benefit.
D)Japanese tourists to the United States will benefit.

Question 28

Suppose a U.S.firm purchases some English china.The china costs 1,000 British pounds.At the exchange rate of $1.45 = 1 pound,the dollar price of the china is

A)$250.
B)$690.
C)$1,450.

Question 29

In a floating exchange rate system,the capital account balance equals

A)The current account balance minus imports.
B)Foreign purchases of U.S.assets plus U.S.purchases of foreign assets.
C)The balance of payments plus the sum of the merchandise balance,the services balance,and unilateral transfers.
D)The negative of the current account balance.

Question 30

Under floating exchange rates,the capital account balance is equal to the negative of

A)Trade balance + unilateral transfers.
B)Trade balance + current account balance + services balance.
C)Current account balance + exports + unilateral transfers.

Question 31

The trade balance for the United States equals

A)The difference between service exports and service imports.
B)The difference between the dollar value of exports and the dollar value of imports.
C)Exports plus imports.

Question 32

The net balance of payments is

A)The difference between exports and imports.
B)The difference between the current account balance and the capital account balance.
C)The sum of the current account balance and the trade account balance.
D)The sum of the current account balance and the capital account balance.

Question 33

Which of the following does not involve exports and imports?

A)Net exports.
B)Current account.
C)Balance of trade.
D)Capital account.

Question 34

Except for a statistical error under flexible exchange rates,any current account deficit

A)Can be only partially offset by capital account surpluses and unilateral transfers.
B)Must be completely offset by unilateral transfers.
C)Must be completely offset by a capital account surplus.

Question 35

A change in the exchange rate for a country's currency alters the prices of

A)Exports only.
B)Imports only.
C)Both exports and imports.

Question 36

If one euro is equal to 0.60 U.S.dollars,what would be the euro price of a car that costs $10,000?

A)5,000 euros.
B)16,667 euros.
C)60,000 euros.

Question 37

An increase in the price of the U.S.dollar in terms of euros will cause,ceteris paribus,

A)A lower European inflation rate.
B)Higher interest rates in the United States.
C)European goods to be cheaper to residents of the United States.

Question 38

Depreciation of the dollar refers to

A)A loss of foreign exchange reserves.
B)An increase in the dollar price of foreign currency.
C)Intervention in international money markets.

Question 39

Suppose a bottle of wine produced in France sells for 35 euros.If the exchange rate between euros and dollars is €1 = $1.30,how much will an American pay for the bottle of wine in America?

A)$130.00.
B)$35.00.
C)$45.50.

Question 40

Theoretically,the net balance of payments is

A)Foreign demand for a country's currency minus foreign supply.
B)The current account plus the capital account.
C)A country's capital inflow minus its capital outflow.

Question 41

Which of the following events would result in a greater demand for U.S.dollars in the foreign exchange market,ceteris paribus?

A)An increase in interest rates in the United States.
B)An increase in interest rates in Japan.
C)Higher tariffs imposed by the United States on imports.

Question 42

Generally speaking,a country whose currency depreciates will experience,as a result,

A)Increasing unemployment in export sectors.
B)Reduced aggregate demand.
C)Inflationary pressure because the prices of imports rise.

Question 43

A good time for an American to hold German stocks,ceteris paribus,is when the

A)Euro is stable compared to the U.S.dollar.
B)U.S.dollar depreciates in value compared to the euro.
C)U.S.dollar appreciates in value compared to the euro.

Question 44

American citizens planning a vacation abroad would welcome: =

A)Appreciation of the dollar.
B)Depreciation of the dollar.
C)Devaluation of the dollar.

Question 45

Which of the following groups would be aided by a depreciation of the American dollar?

A)Foreign producers of goods imported by the United States.
B)American producers of goods for export.
C)U.S.importers of goods from abroad.

Question 46

Appreciation of the U.S.dollar can be caused by

A)A decrease in the demand for dollars.
B)An increase in the demand for dollars.
C)An increase in the supply of dollars.

Question 47

Suppose that today 1 British pound exchanges for $1.60.If next week 1 pound exchanges for $1.70,it is clear that

A)The pound has depreciated relative to the dollar.
B)The dollar has appreciated relative to the pound.
C)Both currencies have appreciated.
D)The dollar has depreciated relative to the pound.

Question 48

The depreciation of a country's currency causes the price of imports to

A)Rise and the prices of exports to rise.
B)Rise and the prices of exports to fall.
C)Fall and the prices of exports to rise.

Question 49

Import-competing industries in the United States are likely to resist

A)Evaluation of the dollar.
B)Depreciation of the dollar.
C)Devaluation of the dollar.
D)Appreciation of the dollar.

Question 50

Generally speaking,a country whose currency appreciates will experience,as a result,

A)Reduced aggregate demand because of a decrease in exports.
B)Inflationary pressure from higher import prices.
C)Increasing interest rates from capital inflow.

Question 51

If speculators with Swiss francs believed the yen was going to depreciate against the dollar,they would most likely: =

A)Purchase euros.
B)Purchase dollars.
C)Purchase yen.

Question 52

A depreciation of the Korean won against the U.S.dollar will

A)Raise the dollar price of Korean goods.
B)Lower the dollar price of U.S.goods.
C)Raise the won price of U.S.goods.

Question 53

Which of the following might cause a depreciation of the U.S.dollar versus the Japanese yen?

A)A recession in Japan.
B)A recession in the United States.
C)More Japanese visitors to Hawaii.

Question 54

Ceteris paribus,if incomes increase faster in the United States than in less developed countries,then the currencies of less developed countries should

A)Appreciate,and the dollar should appreciate.
B)Appreciate,and the dollar should depreciate.
C)Depreciate,and the dollar should appreciate.

Question 55

Which of the following could be responsible for the depreciation of a country's currency?

A)The country expands its tourist industry.
B)Speculators anticipate economic growth in that nation.
C)The country experiences a sudden drop in the rate of inflation while other nations do not.
D)The country defaults on bonds held by foreigners.

Question 56

If the U.S.dollar depreciates,in the long run the United States should experience a

A)Lower inflation rate.
B)Smaller deficit in the U.S.trade balance.
C)Larger deficit in the U.S.current account.

Question 57

An increase in the U.S.trade deficit could be caused by

A)An increase in the rate of inflation in other countries.
B)An appreciation of the dollar in terms of other currencies.
C)The imposition of a tariff on imported goods.

Question 58

Ceteris paribus,if African countries experience a drought and purchase food from the United States,the currencies of the African countries should

A)Appreciate,and the dollar should appreciate.
B)Appreciate,and the dollar should depreciate.
C)Depreciate,and the dollar should appreciate.

Question 59

Appreciation of the dollar refers to

A)A loss of foreign exchange reserves.
B)An increase in the dollar price of foreign currency.
C)Intervention in international money markets.
D)A fall in the dollar price of a foreign currency.

Question 60

When foreign residents increase their demand for U.S.dollars,ceteris paribus,

A)The dollar price of foreign currency will rise.
B)Foreign residents,at the same time,reduce their supply of foreign currency to the foreign exchange market.
C)The dollar will appreciate in value.

Question 61

The quantity of foreign currency demanded or supplied by residents of any country depends mainly on

A)The exchange rate.
B)The balance of payments.
C)The terms of trade.

Question 62

During the Asian Crisis of 1997-1998,U.S.hog farmers experienced decreased demand and lower prices for their products because of

A)A decrease in the value of Southeast Asian currencies relative to the U.S.dollar.
B)Protectionist trade policies in Southeast Asia that set quotas on U.S.farm imports.
C)A general Asia-wide depreciation of the U.S.dollar.

Question 63

Suppose the supply of dollars decreased from S₂ to S₁ in Figure 36.3.As a result of this change,

A)Swiss chocolate imports to the United States will be lower-priced.
B)U.S.computer exports to Switzerland will be lower-priced.
C)A trade deficit will be created in Switzerland.

Question 64

Which of the following is not likely to occur because of exchange rate fluctuations?

A)An end to flexible exchange rates worldwide.
B)A decrease in the demand for exports.
C)An increase in the demand for imports.

Question 65

A mechanism for fixing exchange rates is the

A)Flexible exchange standard.
B)WTO agreement.
C)Gold standard.

Question 66

Choose the letter of the diagram in Figure 36.2 that represents the shift in the foreign exchange market for dollars given the following situation,ceteris paribus: A sudden,unexpected surge in inflation in the United States causes reduced purchases of U.S.goods by foreigners.

A)a.
B)b.
C)c.

Question 67

Places where foreign currencies are bought and sold are

A)Capital account markets.
B)Foreign exchange reserves.
C)Foreign exchange markets.

Question 68

A result of the Asian Crisis of 1997-1998 was

A)An increase in the value of the U.S.dollar relative to Southeast Asian currencies.
B)A major increase in the level of U.S.exports to Southeast Asia.
C)Political stability in many Southeast Asian countries.

Question 69

You have decided to purchase,directly from the French manufacturer,a helicopter that costs 800,000 euros.At the equilibrium exchange rate between dollars and euros in Figure 36.1,this purchase will cost you

A)$1,600,000.
B)$800,000.
C)$400,000.

Question 70

Refer to Figure 36.3 for the dollar-Swiss franc foreign exchange market.Which of the following is true?

A)The U.S.dollar appreciates in value compared to the franc when supply increases from S₁ to S_2.
B)The Swiss franc appreciates in value compared to the U.S.dollar when supply decreases from S₂ to S_1.
C)An increase in supply from S₁ to S₂ could be caused by an increase in the U.S.demand for Swiss chocolate.

Question 71

A gold standard has the advantage of

A)Providing adequate exchange reserves.
B)Providing a politically dependable source of exchange reserves.
C)Providing greater stability for exchange rates in the short run.

Question 72

Exchange rates change because of relative

A)Income changes but not relative price changes.
B)Price changes but not relative interest rate changes.
C)Interest rate changes but not relative income changes.
D)Income,relative price,and relative interest rates of countries.

Question 73

Suppose the U.S.dollar is defined by law as being equal to 0.1 ounce of gold.Further suppose the British pound is defined as being equal to 0.05 ounce of gold.The implied exchange rate between the pound and the dollar is

A)A flexible rate at which $1 = 2 pounds.
B)A fixed rate at which $1 = 2 pounds.
C)A fixed rate at which $2 = 1 pound.

Question 74

Refer to Figure 36.4 for the dollar-yen foreign exchange market.A decrease in demand from D₁ to D₂ could have been caused by

A)A decrease in the demand for U.S.computers.
B)An increase in the number of Japanese visitors to the United States.
C)A quota placed on Japanese television imports to the United States.

Question 75

Suppose the supply of dollars increased from S₁ to S₂ in Figure 36.3.As a result of this change,

A)Swiss chocolate imports to the United States will be lower-priced.
B)U.S.computer exports to Switzerland will be lower-priced.
C)A trade surplus will be created in Switzerland.

Question 76

Ceteris paribus,if interest rates in the United States rise relative to those abroad,then the surplus in the U.S.capital account would

A)Become smaller and the dollar would appreciate.
B)Become smaller and the dollar would depreciate.
C)Grow larger and the dollar would appreciate.

Question 77

Ceteris paribus,an increase in the U.S.demand for Greek goods in Figure 36.1 will

A)Result in a movement from M to R on the supply curve for dollars.
B)Result in a movement from M to N on the demand curve for dollars.
C)Increase the dollar price of euros above $2 = 1 euro.

Question 78

Choose the letter of the diagram in Figure 36.2 that represents the shift in the foreign exchange market for dollars given the following situation,ceteris paribus: The U.S.economy suddenly experiences a recession.

A)a.
B)b.
C)c.

Question 79

There is resistance to exchange rate fluctuations because changes in the value of a currency are likely to cause all of the following except

A)Uncertainty for people who invest in world markets.
B)The return to a worldwide gold standard.
C)A change in the price of exports.

Question 80

At an exchange rate of $1 = €1 in Figure 36.1,there is

A)Equilibrium in the foreign exchange market.
B)A surplus of dollars.
C)A shortage of euros.
D)An excess demand for dollars.