Question 1

Suppose the current account balance of an economy is -$50 billion and the capital account balance of the economy is $61 billion.Given the information, it can be said that the balance in the official settlement account is:

Accepted Answer

The balance in the official settlement account is the sum of the current account balance and the capital account balance. Thus, 
Official settlement account balance = Current account balance + Capital account balance
= -$50 billion + $61 billion
= $11 billion
Since the official settlement account balance is positive, the correct answer is B) $11 billion.

Question 2

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Accepted Answer

Referring to Image 18.2, we can see that the exchange rate between CAD and EUR in October 2017 is approximately 0.68. Therefore, one Canadian dollar could buy 0.68 Euros.

Question 3

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Accepted Answer

From Image 18.2 it can be seen that in October 2017, the exchange rate between Canadian dollars and U.S. dollars was approximately 0.80. Therefore, one Canadian dollar could buy 0.80 U.S. dollars.

Question 4

Suppose the current account balance of an economy is -$50 billion and the stock of official international reserves is -$11 billion.Given the information, it can be said that the balance in the capital account is:

Accepted Answer

The current account balance and the capital account balance should sum to zero when considering the change in official reserves. Therefore, if the current account is -$50 billion and the reserves change by -$11 billion, the capital account must be $61 billion to balance the equation: -$50 billion + $61 billion = $11 billion (change in reserves).

Question 5

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

Accepted Answer

Critics argue that the managed floating exchange rate system is a "non-system" because it lacks clear rules and guidelines, making it unpredictable and unstable. This can lead to volatility and uncertainty in international trade and investments.

Question 6

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Accepted Answer

Looking at the map, we can see that the exchange rate between CAD and GBP is approximately 0.60, so one Canadian dollar can buy 0.60 British pounds.

Question 7

Imports cause:

Accepted Answer

Imports result in an outflow of money from the domestic economy as payment is made to foreign producers, and an inflow of goods and services as these are brought into the domestic market.

Question 8

Exports cause:

Accepted Answer

Exports result in an inflow of money as foreign buyers pay for the goods and services, and an outflow of goods and services as they are sent to foreign markets.

Question 9

Suppose the capital account balance of an economy is -61 billion and the stock of official international reserves is -$11 billion.Given the scenario, the balance in the current account is:

Accepted Answer

The answer of Suppose the capital account balance of an...

Question 10

Proponents of the managed floating exchange rate system argue that it has:

Accepted Answer

Proponents argue that the managed floating exchange rate system has been sufficiently flexible to weather major economic turbulence. It allows for some degree of government intervention to prevent extreme fluctuations, but still allows for market forces to play a role in determining exchange rates.

Question 11

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

Accepted Answer

Under a managed floating exchange rate system, the government has some control over the value of its currency. In order to reduce the international value of its currency, the government can sell its currency in the foreign exchange market. This increases the supply of its currency, which in turn can lower its value relative to other currencies. Buying its own currency or selling foreign currencies would have the opposite effect of what is desired (i.e. increasing the value of its currency). Increasing domestic interest rates may attract foreign investment, but this would strengthen the currency rather than weaken it.

Question 12

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollars bought:

Accepted Answer

The answer of Using Image 18.2 Global Perspective, In October...

Question 13

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

Accepted Answer

Russia faced a financial crisis in 1998 and received a bailout from the International Monetary Fund. The United States faced a financial crisis in 2008 and also received a significant bailout from the International Monetary Fund. Canada and China have not required a significant financial bailout from the International Monetary Fund in recent history.

Quiz 18: B: The Balance of Payments and Exchange Rates

Suppose the current account balance of an economy is -$50 billion and the capital account balance of the economy is $61 billion.Given the information, it can be said that the balance in the official settlement account is:

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Suppose the current account balance of an economy is -$50 billion and the stock of official international reserves is -$11 billion.Given the information, it can be said that the balance in the capital account is:

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

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Imports cause:

Exports cause:

Suppose the capital account balance of an economy is -61 billion and the stock of official international reserves is -$11 billion.Given the scenario, the balance in the current account is:

Proponents of the managed floating exchange rate system argue that it has:

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

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollars bought:

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