Quiz 9: The Exchange Rate and the Balance of Payments

The term "foreign currency" refers to foreign I) coins II) notes III) bank deposits A) I only B) II only C) I and II only D) I, II, and III

If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with A) US dollars. B) yuan, the Chinese currency. C) international monetary credits. D) euros, or any other third currency.

If the United States sells beef to Japan, the U.S. beef producer is paid with A) US dollars. B) yen, the Japanese currency. C) international monetary credits. D) euros, or any other third currency.

When Safeway supermarkets in the United States buys strawberries from Mexico A) it uses dollars to pay Mexican farmers. B) it uses pesos to pay Mexican farmers. C) it may use any currency it chooses. D) the transaction shows up in the U.S. capital account.

Americans demand Japanese yen in order to A) buy Japanese products. B) supply American goods in Japanese markets. C) allow the Japanese to buy U.S. products. D) balance the current account.

Which of the following statements is CORRECT? I) The exchange rate is a price. II) The exchange rate is different from other prices because it is NOT determined by supply and demand. A) only I B) only II C) I and II D) neither I nor II

The exchange rate is the A) opportunity cost of pursuing a nation's comparative advantage. B) price of one country's currency expressed in terms of another country's currency. C) ratio between imports and exports. D) interest rate that is charged on risk-free international capital flows.

The exchange rate is the price at which the ________ of one country exchanges for the ________ of another country. A) currency; goods B) goods; goods C) currency; currency D) currency; financial instruments

A decrease in the value of a currency in terms of other currencies is known as A) an appreciation. B) a depreciation. C) a par value. D) a gold point.

When the value of one currency falls relative to another currency, the exchange rate for the first currency has A) depreciated. B) appreciated. C) demanded. D) revalued.

By definition, currency depreciation occurs when the value of A) all currencies fall relative to gold. B) one currency falls relative to another currency. C) one currency rises relative to another currency. D) gold falls relative to the value of currencies.

Suppose that the exchange rate between the dollar and the peso changed from 6 pesos per dollar to 8 pesos per dollar. This change means that the A) peso appreciated. B) dollar depreciated. C) peso depreciated. D) Both answers A and B are correct.

If the dollar's value changes from 120 yen per dollar to 110 yen per dollar, the dollar has A) depreciated. B) appreciated. C) demanded. D) devalued.

Which of the following examples definitely illustrates a depreciation of the U.S. dollar? A) The dollar exchanges for 120 euros and then exchanges for 100 euros. B) The dollar exchanges for 100 euros and then exchanges for 110 euros. C) The dollar exchanges for 275 euros and then exchanges for 250 yen. D) The dollar exchanges for 250 yen and then exchanges for 275 euros.

When the U.S. dollar depreciates against the yen, the yen becomes ________ expensive and the U.S. exchange rate ________. A) more; rises B) less; rises C) more; falls D) less; falls

When the U.S. dollar depreciates against the yen, the yen ________ and the exchange rate ________. A) appreciates; rises B) depreciates; rises C) appreciates; falls D) depreciates; falls

Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. Today is it 11 pesos per dollar. Here, the dollar ________ against the peso, and the peso ________ against the dollar A) appreciated; depreciated B) depreciated; appreciated C) appreciated; appreciated D) depreciated; depreciated

Suppose the exchange rate of the U.S. dollar was 1.50 British pounds = $1.00 (U.S.) on Wednesday, and on the following Monday the exchange rate was $0.75 (U.S.) = 1.00 British pound. Which of the following best describes what happened between Wednesday and the following Monday? A) The U.S. dollar appreciated against the British pound. B) The British pound appreciated against the U.S. dollar. C) The U.S. dollar depreciated against the British pound. D) Both answers B and C are correct.

An increase in the value of a domestic currency in terms of other currencies is known as A) an appreciation. B) a depreciation. C) a flexible exchange rate. D) a term not given in the above answers.

Which of the following examples definitely illustrates an appreciation of the U.S. dollar? A) The dollar exchanges for 120 euros and then exchanges for 100 euros. B) The dollar exchanges for 100 yen and then exchanges for 125 euros. C) The dollar exchanges for 1 pound and then exchanges for 1.2 pounds. D) none of the above

Suppose the exchange rate of the U.S. dollar was 1.00 euro = $0.50 on Thursday, and on Friday the exchange rate was $1.00 = 2.10 euros. Which of the following best explains what has happened between Thursday and Friday? A) The U.S. dollar appreciated against the euro. B) The euro appreciated against the U.S. dollar. C) The U.S. dollar depreciated against the euro. D) Both answers B and C are correct.

If the pound-dollar exchange rate changes from £0.60 per dollar to £0.65 per dollar, then the pound has ________ against the dollar and the dollar has ________ against the pound. A) depreciated; depreciated B) appreciated; depreciated C) appreciated; appreciated D) depreciated; appreciated

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has ________ and the yen has ________. A) depreciated; appreciated B) appreciated; depreciated C) depreciated; depreciated D) appreciated; appreciated

If the value of a dollar rises in terms of yen, the dollar has ________ and the yen has ________. A) appreciated; appreciated B) appreciated; depreciated C) depreciated; appreciated D) depreciated; depreciated

If the Japanese yen was 123 per dollar and now it is 114 yen per dollar, it can be said that A) the yen has appreciated against the dollar. B) the yen has depreciated against the dollar. C) the dollar has appreciated against the yen. D) Both answers C and B are correct

If the exchange rate falls from 120 yen per dollar to 100 yen per dollar, the dollar has ________ and the yen has ________. A) depreciated; appreciated B) appreciated; depreciated C) depreciated; depreciated D) appreciated; appreciated

Suppose $1 buys 1.20 euros in January and then it buys 1.10 euros in the following December. As a result A) the dollar has appreciated. B) the euro has appreciated. C) the euro has depreciated. D) both answers A and C are correct.

-The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2015 and 2016, the U.S. dollar ________ against the Euro and ________ against the Japanese yen. A) depreciated; depreciated B) appreciated; appreciated C) appreciated; depreciated D) depreciated; appreciated

-The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2015 and 2016, the Japanese yen ________ against the U.S dollar and the Euro ________ against the U.S. dollar. A) appreciated; appreciated B) depreciated; appreciated C) depreciated; depreciated D) appreciated; depreciated

-The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2015 and 2016, the U.S. dollar ________ against the Canadian dollar and the Euro ________ against the U.S. dollar A) appreciated; depreciated B) appreciated; appreciated C) depreciated; appreciated D) depreciated; depreciated

-The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2015 and 2016, the Canadian dollar ________ against the U.S. dollar and the Japanese yen ________ against the U.S. dollar A) depreciated; depreciated B) appreciated; appreciated C) appreciated; depreciated D) depreciated; appreciated

-The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2015 and 2016, the Euro ________ against the U.S. dollar, the Japanese yen ________ against the U.S. dollar and the Canadian dollar ________ against the U.S. dollar A) depreciated; depreciated; depreciated B) appreciated; depreciated; appreciated C) appreciated; appreciated; appreciated D) depreciated; depreciated; appreciated

-The table above shows the exchange rates between various currencies and the U.S. dollar. Between 2015 and 2016, the Euro ________ against the U.S. dollar, the U.S. dollar ________ against the Japanese yen and the U.S. dollar ________ against the Canadian dollar A) depreciated; appreciated; appreciated B) depreciated; depreciated; appreciated C) appreciated; appreciated; appreciated D) appreciated; depreciated; depreciated

When people who are holding the money of some other country want to exchange it for U.S. dollars, they ________ U.S. dollars and ________ that other country's money. A) demand; supply B) supply; supply C) supply; demand D) demand; demand

Which of the following creates a demand for U.S. dollars? A) Toyota, a Japanese firm, purchasing land in Texas B) a U.S. restaurant purchasing Mexican tomatoes C) a U.S. tourist catching a show in London D) a Japanese tourist catching a show in London

When the exchange rate falls, in the foreign exchange market the A) quantity demanded of the currency increases. B) demand for the currency increases. C) quantity demanded of the currency decreases. D) demand for the currency decreases.

The law of demand for U.S. dollars in the foreign exchange market refers to the relationship between the A) exchange rate and the quantity of U.S. dollars demanded. B) interest rate and the exchange rate. C) interest rate and the quantity of U.S. dollars demanded. D) U.S. price level and the exchange rate.

The law of demand for dollars in the foreign exchange market means that the A) lower the exchange rate, the greater the quantity of dollars demanded. B) higher the exchange rate, the smaller the quantity of dollars demanded. C) lower the exchange rate, the smaller the quantity of U.S. exports demanded. D) Both answers A and B are correct.

With everything else the same, in the foreign exchange market the A) larger the value of U.S. exports, the greater is the quantity of dollars demanded. B) lower the exchange rate, the smaller the amount of U.S. exports. C) the lower the exchange rate, the smaller is the expected profit from buying dollars. D) the higher the exchange rate, the cheaper are U.S.-produced goods and services.

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for U.S. dollars? A) the exchange rate B) the U.S. interest rate C) the interest rate in the foreign country D) the expected future exchange rate

The U.S. dollar is regarded as the "safe haven" currency; investors flock to it when they are worried about the outlook for the global economy. Fears were at their greatest in late 2008 and early 2009 after the collapse of the Lehman Brothers investment bank in September 2008. As investors flocked to the dollar A) the demand for dollars increased and the exchange rate increased. B) the demand for dollars decreased and the exchange rate decreased. C) the supply of dollars increased and the exchange rate decreased. D) the supply of dollars decreased and the exchange rate increased.

The U.S. dollar is regarded as the "safe haven" currency; investors flock to it when they are worried about the outlook for the global economy. Fears were at their greatest in late 2008 and early 2009 after the collapse of the Lehman Brothers investment bank in September 2008. If investors flocked to the dollar A) the exchange rate would increase. B) the exchange rate would decrease. C) the exchange rate would not change. D) the exchange rate could increase or decrease.

The demand curve for U.S. dollars slopes downward because as the dollar ________ U.S. goods become ________ expensive to foreign residents, so they purchase fewer U.S. goods, and the quantity of dollars demanded decreases. A) appreciates; more B) appreciates; less C) depreciates; more D) depreciates; less

When the U.S. exchange rate falls, U.S. goods become ________ to foreign residents and U.S. exports ________. A) less expensive; increase B) less expensive; decrease C) more expensive; decrease D) more expensive; increase

As the exchange rate ________, the ________ is the value of U.S. ________. A) falls; greater; imports B) falls; greater; exports C) rises; greater; exports D) rises; smaller; imports

As the value of U.S. exports ________, the quantity of ________ demanded increases. A) increases; foreign currencies B) increases; dollars C) decreases; dollars D) None of the above is correct because the value of U.S. exports has nothing to do with the quantity of dollars or foreign currency demanded.

The quantity of U.S. dollars demanded by foreign nations increases as A) U.S. residents purchase more foreign goods. B) foreigners purchase more U.S. goods. C) more U.S. residents travel abroad. D) U.S. exports fall.

Exports of U.S. goods create a ________ U.S. dollars and create a ________ foreign currencies. A) demand for; demand for. B) supply of; supply of C) demand for; supply of D) supply of; demand for

Suppose China Airlines wants to purchase a French Airbus A300. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 10 yuan, the price of this airplane to China Airlines is A) 950 million yuan. B) 10.52 million yuan. C) 10 million yuan. D) 9.5 million yuan.

Suppose China Airlines wants to purchase a French Airbus A300. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 9 yuan, the price of this airplane to China Airlines is A) 855 million yuan. B) 85.5 million yuan. C) 11.11 million yuan. D) 10.6 million yuan.

If nothing else changes, the ________ the current exchange rate, the ________ is the expected profit from holding dollars, all other things remaining the same. A) higher; larger B) lower; smaller C) lower; larger D) The premise of the question is wrong because the exchange rate has nothing to do with expected profit from holding dollars.

A factor that helps to determine the demand for U.S. dollars in the foreign exchange market is A) the expected future exchange rate. B) the expected future interest rate. C) the amount of U.S. imports. D) the supply of U.S. dollars.

If the exchange rate falls, then the expected profit from holding the domestic currency A) does not change. B) increases. C) decreases. D) can either increase or decrease.

As the expected profit from holding dollars ________, the quantity of ________. A) increases; dollars demanded increases B) increases; dollars demanded decreases C) decrease; foreign currency demanded decreases D) None of the above answers is correct.

The lower the exchange rate today, ceteris paribus, the A) greater is the expected profit from buying U.S. dollars today and holding them. B) smaller is the expected profit from buying U.S. dollars today and holding them. C) greater is the expected profit from buying foreign currency today and holding it. D) smaller the quantity of U.S. dollars demanded in the foreign exchange market today.

The higher the exchange rate today, the A) smaller is the expected profit from buying U.S. dollars today and holding them. B) greater is the expected profit from buying U.S. dollars today and holding them. C) smaller is the expected profit from buying foreign currency today and holding it. D) greater the quantity of U.S. dollars demanded in the foreign exchange market today.

When the U.S. exchange rate rises and the expected future exchange rate does not change, the expected profit from buying U.S. dollars today A) also rises. B) falls. C) does not change. D) may rise, fall, or stay the same.

Suppose Mitsubishi Bank (a Japanese bank) expects the exchange rate to be 125 yen per U.S. dollar at the end of the year. If today's exchange rate is 120 yen per U.S. dollar, Mitsubishi bank A) buys U.S. dollars today because it expects profit from buying U.S. dollars and holding them. B) sells U.S. dollars today because it expects losses from buying U.S. dollars and holding them. C) does not buy or sell any U.S. dollars today because it expects zero profit from buying U.S. dollars and holding them. D) None of the above answers is correct because a foreign commercial bank cannot buy or sell U.S. dollars.

-Using the table above, if the current market value of the dollar is 125 francs per dollar A) investor A expects dollar appreciation, but B and C expect depreciation. B) investor A expects dollar depreciation, but B and C expect appreciation. C) all three investors expect the dollar to appreciate. D) all three investors expect the dollar to depreciate.

-Using the table above, if the current market value of the dollar is 125 francs A) investor A holds dollars, but B and C hold francs. B) investor A holds francs, but B and C hold dollars. C) all three investors hold francs. D) all three investors hold dollars.

-Using the table above, if the current market value of the dollar is 70 francs A) investor A expects dollar appreciation, but B and C expect depreciation. B) investor A expects dollar depreciation, but B and C expect appreciation. C) all three investors expect the dollar to appreciate. D) all three investors expect the dollar to depreciate.

-Using the table above, if the current market value of the dollar is 70 francs A) investor A holds dollars, but B and C hold francs. B) investor A holds francs, but B and C hold dollars. C) all three investors hold francs. D) all three investors hold dollars.

-Using the table above, if the current market value of the dollar is 90 francs A) investor A expects dollar appreciation, but B and C expect depreciation. B) investor C expects dollar depreciation, but A and B expect appreciation. C) all three investors expect the dollar to appreciate. D) all three investors expect the dollar to depreciate.

-Using the table above, if the current market value of the dollar is 110 francs A) investor A expects dollar appreciation, but B and C expect depreciation. B) investor C expects dollar depreciation, but A and B expect appreciation. C) all three investors expect the dollar to appreciate. D) all three investors expect the dollar to depreciate.

When you arrive at the airport in Paris and go to the bank window to exchange dollars into euros, you are A) selling euros to the French. B) avoiding the use of foreign exchange markets. C) contributing to U.S. exports. D) None of the above answers is correct.

In the foreign exchange market, the higher the dollar's exchange rate, the A) larger the supply of dollars. B) smaller the quantity supplied of dollars. C) smaller the supply of dollars. D) larger the quantity supplied of dollars.

When the U.S. exchange rate rises, foreign goods become ________ and U.S. imports ________. A) less expensive; increase B) more expensive; decrease C) less expensive; decrease D) more expensive; increase

Other things remaining the same, the ________ the exchange rate for dollars, the greater the ________ in the foreign exchange market. A) higher; quantity of dollars supplied B) higher; quantity of dollars demanded C) lower; value of U.S. imports D) higher; expected profits from holding dollars

The demand for Mexican tomatoes by an American food grocery chain creates a A) demand for the U.S. dollar. B) demand for an interest rate differential. C) supply of Mexican pesos. D) supply of U.S. dollars.

Consider the market for dollars. If the exchange rate rises from 2 pesos per dollar to 4 pesos per dollar A) the supply curve of dollars shifts leftward. B) the supply curve of dollars shifts rightward. C) there is an upward movement along the supply curve for dollars. D) there is a downward movement along the supply curve for dollars.

As the exchange rate ________, the quantity of dollars ________ in the foreign exchange market ________. A) rises; supplied; increases B) falls; supplied; increases C) rises; demanded; increases D) falls; demanded; decreases

In the foreign exchange market, the supply curve for dollars slopes upwards because A) as the exchange rate rises, imports become more expensive, and more dollars are supplied to pay for the imports. B) as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports. C) as the exchange rate rises, more dollars are supplied since the profit from selling dollars falls. D) as the exchange rate rises, exports become cheaper and more dollars are supplied to pay for the exports.

In the foreign exchange market, which of the following results in a movement along the supply curve of dollars? A) a change in the expected future exchange rate B) a change in the U.S. interest rate C) a change in the current exchange rate D) None of the above answers are correct.

When a good is imported into the United States, a ________ is created. A) supply of foreign currency with no effect on the market for the dollar B) demand for dollars with no effect on markets for foreign currencies C) supply of foreign currencies and a demand for dollars D) demand for foreign currencies and a supply of dollars

Other things remaining the same, the A) larger the value of U.S. imports, the smaller is the quantity of foreign currency demanded. B) larger the value of U.S. imports, the greater is the quantity of U.S. dollars supplied to the foreign exchange market. C) lower the exchange rate, the cheaper are foreign-produced goods and services. D) higher the exchange rate, the greater is the expected profit from selling dollars.

The larger the value of U.S. imports, the greater the quantity of ________ causing the quantity supplied of dollars to ________. A) U.S. dollars demanded; increase B) U.S. dollars demanded; decrease C) foreign currency demanded; increase D) foreign currency demanded; decrease

The ________ the exchange rate, the ________ are foreign-produced goods and hence the greater the quantity of dollars supplied. A) higher; cheaper B) lower; cheaper C) higher; more expensive D) lower; more expensive

The ________ the exchange rate, the ________ are foreign-produced goods and hence the smaller the quantity of dollars supplied. A) lower; more expensive B) lower; cheaper C) greater; cheaper D) greater; more expensive

A factor determining the supply of U.S. dollars in the foreign exchange market is the A) expected future exchange rate. B) expected future interest rate in the United States. C) U.S. supply of exports. D) expected future interest rate in foreign countries.

The ________ the expected profit from holding a foreign currency, the greater is the ________ in the foreign exchange market. A) larger; quantity demanded of dollars B) smaller; quantity demanded of foreign currency C) larger; quantity supplied of dollars D) None of the above is correct because the expected profit has nothing to do with the supply and demand for dollars or foreign currency.

The higher the dollar's exchange rate, the ________ the expected profit from holding dollars and so ________ dollars are supplied. A) larger; more B) larger; fewer C) smaller; more D) smaller; fewer

Consider the market for dollars. The higher the exchange rate, the ________ is the expected profit from holding foreign currency and the greater is the ________. A) larger; quantity of dollars supplied B) larger; leftward shift in the demand curve for dollars C) smaller; quantity of dollars supplied D) smaller; leftward shift in the demand curve for dollars

If the equilibrium exchange rate for the dollar is 110 yen per dollar and the current exchange rate is 120 yen per dollar, then the A) supply curve of U.S. dollars shifts rightward. B) dollar will depreciate. C) dollar will appreciate. D) demand curve for U.S. dollars shifts rightward.

Consider the market for euros. Suppose the exchange rate is ________ its equilibrium. This means that the quantity of euros ________ is greater than the quantity of euros ________ and the exchange rate will ________. A) above; supplied; demanded; fall B) below; supplied; demanded; rise C) above; demanded; supplied; fall D) below; demanded; supplied; fall

-In the figure above, the equilibrium exchange rate is expressed as $1 U.S. equals A) $2.00 Canadian. B) $1.50 Canadian. C) $0.50 Canadian. D) none of the above

-In the figure above, if the exchange rate is equal to 2 Canadian dollars per U.S. dollar, there is a ________ of ________currency and the exchange rate will________. A) surplus; domestic; fall B) surplus; foreign; fall C) surplus; domestic; rise D) shortage; domestic; fall

-In the figure above, if the exchange rate is equal to 1 Canadian dollar per U.S. dollar, there is a ________ of ________currency and the exchange rate will________. A) shortage; domestic; rise B) surplus; domestic; rise C) shortage; foreign; rise D) surplus; foreign; fall

If the exchange rate between the dollar and Japanese yen is below the equilibrium exchange rate, there will be a ________ of dollars, and the exchange rate will ________. A) surplus; fall to the equilibrium level B) shortage; change only when the supply curve shifts leftward C) shortage; rise to the equilibrium level D) surplus; rise to the equilibrium level

If the exchange rate is above equilibrium, there will be ________ in the foreign exchange market. A) a surplus B) a shortage C) a decrease in the demand for domestic currency D) an increase in the demand for domestic currency

Suppose the exchange rate between the U.S. dollar and the French franc is 0.25 francs per dollar. If a television sells for 100 francs in France, what is the dollar price of the television set? A) $400 B) $25 C) $50 D) $200

Suppose that a dollar buys 120 yen. If a DVD player sells for 18,600 yen in Japan, the price of the DVD player in dollars is A) $186.00. B) $223.20. C) $120.00. D) $155.00

Suppose that the yen-dollar foreign exchange rate changes from 130 yen per dollar to 140 yen per dollar. Then the yen has A) depreciated against the dollar, and the dollar has appreciated against the yen. B) depreciated against the dollar, and the dollar has depreciated against the yen. C) appreciated against the dollar, and the dollar has appreciated against the yen. D) appreciated against the dollar, and the dollar has depreciated against the yen.

Suppose the peso-dollar foreign exchange rate changes from 50 pesos per dollar to 30 pesos per dollar. Then the peso has ________ against the dollar and the dollar has ________ against the peso. A) appreciated; depreciated B) appreciated; appreciated C) depreciated; appreciated D) depreciated; depreciated

If the U.S. exchange rate rises, the price to foreigners of U.S.-produced goods and services ________ and the quantity of U.S. dollars demanded ________. A) rises; decreases B) rises; increases C) falls; decreases D) falls; increases

Important factors that change the demand for dollars and hence shift the demand curve for dollars include which of the following? I) interest rates around the world II) the current exchange rate III) the expected future exchange rate A) I and II B) I and III C) II D) I, II, and III

With everything else the same, which of the following would increase the demand for U.S. dollars in the foreign exchange market? I) a rise in the U.S. interest rate II) a fall in interest rates in foreign countries III) a rise in the expected future exchange rate A) I only B) I and II only C) I and III only D) I, II, and III

The demand for dollars in the foreign exchange market will increase (so that the demand curve shifts rightward) if A) the U.S. interest rate differential falls. B) the expected future exchange rate falls. C) the exchange rate for the dollar falls. D) None of the above answers is correct.

In the foreign exchange market, an increase in the world demand for U.S. exports shifts the A) demand curve for U.S. dollars rightward. B) demand curve for U.S. dollars leftward. C) supply curve for U.S. dollars leftward. D) supply curve for U.S. dollars rightward.

Airbus is an European jet airline producer. Indian Airlines wants to buy 23 Airbus planes from Airbus, due to increased demand for world travel. As a result, the A) demand curve for euros shifts rightward. B) demand curve for euros shifts leftward. C) supply curve for euros shifts rightward. D) quantity demanded for euros decreases.

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the A) demand curve for U.S. Dollars shifts rightward. B) demand curve for U.S. Dollars shifts leftward. C) demand curve for South Korean Won shifts rightward. D) demand curve for South Korean Won shifts leftward.

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from the U.S. Steel company. As a result, the demand curve for U.S. Dollars ________ and the demand curve for South Korean Won (i.e. the South Korean currency) ________. A) shifts rightward; does not shift B) shifts rightward; shifts leftward C) does not shift; shifts leftward D) shifts leftward; shifts rightward

Airbus is an European jet airline producer. Indian Airlines wants to buy 23 Airbus planes from Airbus, due to increased demand for world travel. As a result A) the demand curve for European euros and the supply curve for Indian rupees both shift rightward. B) the demand curve for European euros shifts rightward and the supply curve for Indian rupees shifts leftward. C) only the demand curve for Indian rupees shifts rightward. D) only the demand curve for European euros shifts rightward.

The U.S. interest rate minus the foreign interest rate is called the A) foreign interest rate differential. B) U.S. bond rate differential. C) U.S. interest rate differential. D) U.S. stock yield differential.

Suppose the U.S. interest rate is 6 percent and the world interest rate is 5 percent. The U.S. interest rate differential is A) -1 percent. B) 1.2 percent. C) 1 percent. D) -0.83 percent.

Other things remaining the same, the U.S. interest rate differential increases if the U.S. interest rate A) rises and foreign interest rates remain constant. B) falls and foreign interest rates remain constant. C) falls and foreign interest rates rise. D) remains constant and foreign interest rates rise.

Other things remaining the same, the U.S. interest rate differential increases if the U.S. interest rate A) remains constant and foreign interest rates fall. B) falls and foreign interest rates remain constant. C) falls and foreign interest rates rise. D) remains constant and foreign interest rates rise.

Which of the following occurrences would NOT shift the demand curve for U.S. dollars in the foreign exchange market? A) an increase in the U.S. exchange rate B) an increase in the expected future U.S. exchange rate C) an increase in U.S. interest rates D) an increase in foreign interest rates

The interest rate in Canada rises while the interest rate in the United States does not change. The A) demand curve for Canadian dollars will shift leftward. B) demand curve for Canadian dollars will shift rightward. C) demand curve for U.S. dollars will shift rightward. D) demand curves for both Canadian and U.S. dollars will remain unchanged.

If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher U.S. interest rate A) decreases the demand for dollars. B) increases the demand for dollars. C) has no effect on the demand for dollars. D) will stop all trading between the currencies of the U.S. and other countries.

An increase in the interest rate in the United States compared to the interest rate in Great Britain will A) increase the U.S. interest rate differential. B) increase the demand for pounds. C) shift the demand curve for dollars rightward. D) Both answers A and C are correct.

The demand for dollars in the foreign exchange market will decrease and hence the demand curve for dollars will shift leftward if A) the U.S. interest rate differential decreases. B) the expected future exchange rate rises. C) the exchange rate for the dollar rises. D) the U.S. interest rate differential increases.

Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar. If interest rates in the United States increase and interest rates in Europe remain unchanged then A) the demand for dollars will increase. B) the demand for dollars will decrease. C) the demand for euros will increase. D) None of the above answers is correct.

Everything else being the same, if the interest rate in the United States increases, then in the foreign exchange market the A) demand for U.S. dollars will remain unchanged. B) demand for U.S. dollars will increase. C) demand for U.S. dollars will decrease. D) supply of U.S. dollars will increase.

If the interest rate on Japanese yen assets falls while interest rates in the United States remain constant, the A) quantity of dollars demanded will increase. B) quantity of dollars demanded will decrease. C) demand for dollars will increase. D) demand for dollars will decrease.

If the interest rate on Swiss franc assets increases while interest rates in the United States remain constant, the A) quantity of dollars demanded will decrease. B) demand for dollars will increase. C) demand for dollars will decrease. D) quantity of dollars demanded will increase.

Today, the dollar is worth 1.15 euros. Due to changes in economic conditions, people expect that the dollar will be worth 1.20 euros in the next month. This belief A) increases the demand for dollars. B) decreases the demand for dollars. C) increases the demand for euros. D) increases the value of exports to Europe.

If there is an increase in the expected future U.S. exchange rate, there is A) an upward movement along the demand curve for dollars. B) a downward movement along the demand curve for dollars. C) a leftward shift of the demand curve for dollars. D) a rightward shift of the demand curve for dollars.

If people expect the foreign exchange rate for dollars to rise in the future A) the demand for dollars today decreases. B) the demand for dollars today increases. C) the demand for dollars today is unaffected. D) there is a movement along the demand curve for dollars.

U.S. residents come to believe that the dollar will depreciate in the future, that is, the exchange rate in the future will be lower than the current exchange rate. As a result A) the demand curve for dollars shifts rightward. B) the demand curve for dollars shifts leftward. C) there is a movement upward along the demand curve for dollars. D) None of the above answers are correct.

U.S. residents come to believe that the dollar will appreciate in the future, that is, the exchange rate in the future will be higher than the current exchange rate. As a result A) the demand curve for dollars shifts rightward. B) the demand curve for dollars shifts leftward. C) there is a movement downward along the demand curve for dollars. D) None of the above answers are correct.

If growth in the United States speeds up so that investors believe they can make a bigger profit from U.S. assets, the ________ U.S. dollars will ________. A) demand for; increase B) demand for; decrease C) supply of; increase D) supply of; decrease

Today the U.S. dollar is worth 1.5 Canadian dollars. Because of changes in economic conditions, people come to believe that by the end of the month the U.S. dollar will be worth 1.2 Canadian dollars. This belief A) increases the demand for U.S. dollars today. B) decreases the demand for U.S. dollars today. C) decreases the demand for Canadian dollars today. D) decreases the value of exports to Canada.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₁ could occur when A) the expected future exchange rate decreases. B) the U.S. interest rate rises. C) people expect that the dollar will depreciate. D) foreign interest rates increase.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₁ could occur when A) the expected future exchange rate falls. B) the U.S. interest rate drops. C) people expect that the dollar will depreciate. D) foreign interest rates drop.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₂ could occur when A) the U.S. interest rate falls. B) the U.S. interest rate rises. C) people expect that the dollar will appreciate. D) foreign interest rates fall.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₂ could occur when A) the expected future exchange rate increases. B) the U.S. interest rate falls. C) people expect that the dollar will appreciate. D) foreign interest rates fall.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₂ could occur when A) the expected future exchange rate increases. B) the U.S. interest rate rises. C) people expect that the dollar will appreciate. D) foreign interest rates rise.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₁ could occur when A) foreign interest rates increase. B) the U.S. interest rate falls. C) people expect that the dollar will depreciate. D) the expected future exchange rate increases.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₁ could occur when A) the expected future exchange rate falls. B) the U.S. interest rate decreases. C) people expect that the dollar will appreciate. D) foreign interest rates increase.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₂ could occur when A) the expected future exchange rate increases. B) the U.S. interest rate rises. C) people expect that the dollar will depreciate. D) foreign interest rates fall.

-The above figure shows the demand curve for dollars in the yen/dollar exchange market. A movement from point A to point B means that the A) quantity supplied of dollars has increased. B) quantity demanded of dollars has increased. C) quantity demanded of dollars has decreased. D) quantity demanded of yen has decreased.

-In the above figure, suppose the economy is initially at point A. The interest rate in Japan rises relative to the interest rate in the United States. As a result, there will be a change from point A to a point such as A) point B. B) point C. C) point D. D) point E.

-In the above figure, suppose the economy is initially at point A. People come to expect the future U.S. exchange rate to be lower. As a result, there is a change from point A to a point such as A) point B. B) point C. C) point D. D) point E.

-In the above figure, suppose the economy is initially at point A. People come to expect the future U.S. exchange rate to be higher. As a result there is a change from point A to a point such as A) point B. B) point C. C) point D. D) point E.

A change in which of the following changes the supply of dollars and shifts the supply curve of dollars? I) an increase in the exchange rate II) a change in interest rates III) a decrease in the expected future exchange rate A) I B) I and II C) II and III D) I, II, and III

Interest rates in the United States rise relative to interest rates in other countries. As a result, in the foreign exchange market A) the supply curve of dollars shifts leftward. B) the supply curve of dollars shifts rightward. C) the demand curve for dollars shifts leftward. D) there is a downward movement along the supply curve of dollars.

With everything else the same, in the foreign exchange market which of the following increases the supply of U.S. dollars? I) a fall in the U.S. interest rate II) a fall in interest rates in foreign countries III) a rise in expected future exchange rate A) I only B) I and II only C) I and III only D) I, II, and III

If interest rates in Mexico decrease while interest rates in the United States remain unchanged then A) the supply of Mexican pesos will increase. B) the supply of Mexican pesos will decrease. C) the supply of U.S. dollars will increase. D) None of the above answers is correct.

If interest rates in Japan rise and those in the United States do not change, there is A) a decrease in the supply of dollars. B) an increase in the supply of dollars. C) an upward movement along the supply curve for dollars. D) None of the above answers is correct.

If the U.S. interest rate differential increases, then in the foreign exchange market the A) quantity of U.S. dollars supplied increases. B) supply of U.S. dollars decreases. C) demand for U.S. dollars does not change. D) supply of U.S. dollars increases.

The supply curve of U.S. dollars shifts leftward. This could have been influenced by A) a rise in the U.S. interest rate differential. B) a fall in the expected future exchange rate. C) an increase in the U.S. exchange rate. D) a decrease in the U.S. exchange rate.

As the expected future exchange rate for dollars increases A) the demand for U.S. dollars increases. B) the supply of U.S. dollars decreases. C) both the demand for U.S. dollars and the supply of U.S. dollars increase D) Both answers A and B are correct.

People expect that the exchange rate for the dollar will rise from 90 yen per dollar to 111 yen per dollar in a month. As a result A) the supply curve of dollars shifts leftward. B) the supply curve of dollars shifts rightward. C) the demand curve for dollars shifts leftward. D) there is a downward movement along the supply curve of dollars.

If the expected future exchange rate rises, the currency's A) quantity supplied increases. B) supply decreases. C) supply increases. D) exchange rate falls.

The supply of dollars in the foreign exchange market decreases and that means that the supply curve of dollars shifts leftward if A) the U.S. interest rate differential decreases. B) the expected future exchange rate rises. C) the exchange rate for the dollar rises. D) the U.S. interest rate decreases.

-In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in the United States. This change ________ the supply of dollars and the market moves to a point such as ________. A) decreases; A B) decreases; E C) increases; D D) increases; C

-In the figure above, suppose the economy is initially at point B. If people come to believe that the exchange rate will fall in the future, the supply of dollars ________ and the market moves to point such as ________. A) decreases; A B) decreases; E C) increases; D D) increases; C

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₁ could occur when A) the U.S. interest rate differential increases. B) the U.S. interest rate differential decreases. C) the expected future exchange rate falls. D) the current exchange rate falls.

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₁ could occur when A) the U.S. interest rate falls. B) foreign interest rates fall. C) the expected future exchange rate falls. D) the current exchange rate falls.

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₁ could occur when A) the U.S. interest rate rises. B) foreign interest rates rise. C) the expected future exchange rate falls. D) the current exchange rate rises.

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₂ could occur when A) the U.S. interest rate falls. B) the expected future exchange rate rises. C) the U.S. interest rate differential increases. D) the current exchange rate falls.

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₂ could occur when A) the foreign interest rates rises. B) the expected future exchange rate rises. C) the U.S. interest rate rises. D) the current exchange rate falls.

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₁ could occur when A) the expected future exchange rate rises. B) the U.S. interest rate differential decreases. C) the expected future exchange rate falls. D) the current exchange rate falls.

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₂ could occur when A) the current exchange rate rises. B) the current exchange rate falls. C) the expected future exchange rate rises. D) the expected future exchange rate falls.

-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₂ could occur when A) the expected future exchange rate falls. B) the U.S. interest rate differential increases. C) the expected future exchange rate rises. D) the current exchange rate falls.

If the U.S. interest rate differential increases, in the foreign exchange market the demand for U.S. dollars ________ and the supply of U.S. dollars ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

When the U.S. interest rate rises relative to that in other counties, in the foreign exchange market the demand for U.S. dollars ________ and the supply of U.S. dollars ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

Other things remaining the same, if the U.S. interest rate differential increases, the demand curve for U.S. dollars shifts ________ and the supply curve of U.S. dollars shifts ________. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward

If the Federal Reserve increases U.S. interest rates A) the demand curve for U.S. dollars shifts rightward and the supply curve of U.S. dollars shifts leftward. B) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S. dollars shifts rightward. C) the demand curve for U.S. dollars and the demand curve for European euros both shift rightward. D) the demand curve for U.S dollars shifts leftward and the demand curve for European euros shifts rightward.

If the Federal Reserve increases U.S. interest rates, ceteris paribus A) the supply curve of U.S. dollars shifts leftward and the supply curve of European euros shifts rightward. B) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S. dollars shifts rightward. C) the demand curve for U.S. dollars and the demand curve for European euros both shift rightward. D) the supply curve of U.S. dollars shifts rightward and the supply curve of European euros shifts leftward.

If the European Central Bank increases European interest rates A) the demand curve for European euros shifts rightward and the supply curve of European euros shifts leftward. B) the demand curve for European euros shifts leftward and the supply curve of European euros shifts rightward. C) the demand curve for European euros and the demand curve for U.S. dollars both shift rightward. D) the demand curve for European euros shifts leftward and the demand curve for U.S. dollars shifts rightward.

Other things remaining the same, if the expected future exchange rate rises, the demand curve for U.S. dollars shifts ________ and the supply curve of U.S. dollars shifts ________. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward

Relative to the yen, from 2007-2012 the U.S. dollar A) appreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. B) appreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate. C) depreciated due to an increase in the interest rate differential and expectations of a higher future exchange rate. D) depreciated due to a decrease in the interest rate differential and expectations of a lower future exchange rate.

Relative to the yen, from 2012-2015 the U.S. dollar A) depreciated due to an anticipated decrease in the interest rate differential and expectations of a lower future exchange rate. B) appreciated due to an anticipated decrease in the interest rate differential and expectations of a lower future exchange rate. C) depreciated due to an anticipated increase in the interest rate differential and expectations of a higher future exchange rate. D) appreciated due to an anticipated increase in the interest rate differential and expectations of a higher future exchange rate.

The U.S. dollar will depreciate in value if A) the demand curve for U.S. dollars shifts rightward. B) the demand curve for U.S. dollars shifts leftward. C) the supply curve of U.S. dollars shifts rightward. D) Both answers B and C are correct.

The U.S. dollar will depreciate in value if A) the demand for the dollar increases. B) the demand for the dollar decreases. C) the supply of foreign exchange decreases. D) U.S. citizens choose to buy fewer foreign goods.

The U.S. dollar will appreciate in value if A) the demand curve for U.S. dollars shifts rightward. B) the demand curve for U.S. dollars shifts leftward. C) the supply curve of U.S. dollars shifts rightward. D) U.S. residents choose to buy more foreign goods.

Suppose $1 will buy 150 yen in January and 200 yen the following December. This change could have occurred if the A) demand curve for dollars shifted rightward. B) demand curve for dollars shifted leftward. C) supply curve of dollars shifted rightward. D) demand curve for yen shifted rightward.

If the demand for a country's currency increases, the currency A) appreciates. B) depreciates. C) stays the same. D) could either appreciate, depreciate, or stay the same.

An increase in the U.S. demand for imports will ________ the supply of dollars and lead the dollar to ________. A) increase; appreciate B) decrease; appreciate C) increase; depreciate D) decrease; depreciate

Which of the following will lead to an appreciation of the U.S. dollar against the British pound? A) an increase in British demand for U.S. imports B) an increase in U.S. demand for British imports C) an increase in British interest rates D) a decrease in British demand for U.S. assets

Assume that there is an increased demand in the United States for European wines. If all other factors are held constant, this change will result in A) an increase in the exchange rate for euros. B) an appreciation of the dollar. C) a movement along the demand curve for euros. D) a decrease in the value of the euro.

An increase in foreign demand for U.S. exports will ________ the demand for dollars and lead the dollar to ________. A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate

An increase in the Japanese interest rate will ________ the demand for dollars and lead the dollar to ________. A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate

An increase in the Japanese interest rate will ________ the supply of dollars and lead the dollar to ________. A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate

Which of the following will lead to a depreciation of the dollar against the British pound? A) an increase in British demand for U.S. imports B) an increase in U.S. interest rates C) a decrease in British demand for U.S. assets D) a decrease in U.S. demand for British goods

If the Federal Reserve raises the U.S. interest rate, foreigners' A) demand for U.S. dollars will increase and the exchange rate will rise. B) demand for U.S. dollars will decrease and the exchange rate will fall. C) demand for U.S. dollars will increase and the exchange rate will fall. D) demand for U.S. dollars will decrease and the exchange rate will rise.

Suppose the exchange rate for the U.S. dollar rises. This could be caused by A) an increase in U.S. import demand. B) a decrease in the world demand for U.S. exports. C) a fall in the expected future exchange rate. D) an increase in the U.S. interest rate differential.

Suppose that the U.S. exchange rate is expected to fall in the future. As a result, in the foreign exchange market, there will be A) an increase in the demand for dollars, a decrease in the supply of dollars, and a rise in the equilibrium exchange rate. B) an increase in the demand for dollars, a decrease in the supply of dollars, and a fall in the equilibrium exchange rate. C) a decrease in the demand for dollars, an increase in the supply of dollars, and a rise in the equilibrium exchange rate. D) a decrease in the demand for dollars, an increase in the supply of dollars, and a fall in the equilibrium exchange rate.

Suppose the market for dollars is in equilibrium, then the expected future exchange rate rises. What effect does this change have on the current exchange rate? A) It will rise. B) It will fall. C) It will remain unchanged. D) Because both the supply and demand curves shift, the effect on the exchange rate is unpredictable.

If people expect the dollar to depreciate, then the A) demand for dollars will decrease, the supply of dollars will increase, and the exchange rate will fall. B) demand for dollars will decrease, the supply of dollars will not change, and the exchange rate will fall. C) supply of dollars will increase, the demand for dollars will not change, and the exchange rate will fall. D) demand for dollars will increase, the supply of dollars will decrease, and the exchange rate will rise.

Suppose the exchange rate for the U.S. dollar falls. This could be caused by A) a decrease in U.S. import demand. B) an increase in the world demand for U.S. exports. C) an increase in the U.S. interest rate differential. D) a fall in the expected future exchange rate.

-In the figure above, an increase in the U.S. interest rate relative to that in Canada shifts the demand curve for U.S. dollars ________ and shifts the supply curve of U.S. dollars ________. A) leftward; leftward B) leftward; rightward C) rightward; leftward D) rightward; rightward

-Using the above figure, which of the following is CORRECT? A) 1 guilder will sell for $2. B) 1 dollar will sell for 1/2 guilder. C) A shortage of guilders exists at an exchange rate above $0.60. D) A surplus of guilders exists at an exchange rate above $0.60.

-Using the above figure, an increase in the demand for Dutch goods by U. S. consumers will lead to A) a depreciation in the Dutch currency (i.e. the guilder). B) an appreciation in the Dutch currency. C) an increase in the supply of Dutch currency as foreign exchange. D) a decrease in the supply of Dutch currency as foreign exchange.

Arbitrage in the foreign exchange market, international loans markets, and goods markets results in A) purchasing power parity, interest rate parity and law of one price. B) purchasing power parity, interest rate parity and price parity. C) purchasing power parity, interest rate parity and round-trip profit. D) purchasing power parity, price parity and no round-trip profit.

What factors can change expectations about the exchange rate? A) interest rate parity B) purchasing power parity C) real GDP parity D) Both answers A and B are correct.

Adjusted for risk, interest rate parity A) holds only for larger countries. B) holds only between the U.S. and Canada. C) holds only when purchasing parity holds. D) always holds.

If there are equal rates of return between assets in two currencies, then there is A) purchasing power parity. B) interest rate parity. C) parity of exchange. D) foreign exchange parity.

If in Chicago, U.S., the interest rate is 5 percent a year and in Vancouver, Canada, it is 4 percent a year, then A) the quantity of Canadian dollars purchased will increase. B) the Canadian dollar is expected to depreciate. C) interest rate parity does not exist. D) the U.S. dollar is expected to depreciate.

Suppose that the U.S. interest rate is 5 percent and the Turkish interest rate is 50 percent. The effect of this difference in the foreign exchange market is that A) financial capital stops moving. B) an American investor is guaranteed to make an additional 45 percent in dollar terms by investing in Turkey. C) investors expect the Turkish currency to rise in value (appreciate) against the dollar. D) investors expect the Turkish currency to fall in value (depreciate) against the dollar.

Suppose that the U.S. interest rate is 5 percent and the Japanese interest rate is 1 percent. The effect of this difference in the foreign exchange market is that A) financial capital stops moving. B) a Japanese investor is guaranteed to make an additional 4 percent in yen terms by investing in the United States. C) investors expect the yen to appreciate against the dollar. D) investors expect the yen to depreciate against the dollar.

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the A) U.S. dollar appreciates by 2 percent a year. B) U.S. dollar depreciates by 2 percent a year. C) U.K. pound depreciates by 2 percent a year. D) None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries.

Suppose a British bank offers a 3 percent interest rate while a U.S. bank offers a 7 percent interest rate. People must expect the U.S. dollar will A) depreciate by 4 percent. B) appreciate by 4 percent. C) appreciate by 10 percent. D) depreciate by 10 percent.

According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be A) 4 percent. B) 3 percent. C) 2 percent. D) 1 percent.

Suppose a Japanese bank offers a 4 percent interest rate and U.S. banks offer a 2 percent interest rate. People must expect the yen to A) depreciate by 2 percent. B) appreciate by 2 percent. C) depreciate by 6 percent. D) appreciate by 6 percent.

The idea that the value of money is equal across countries is known as A) interest rate parity. B) the expected profit parity effect. C) purchasing power parity. D) exchange rate parity.

If the prices in the United States rise faster than those in other countries, A) the exchange rate rises. B) the exchange rate falls. C) then interest rate parity must not hold. D) the interest rate in the United States falls.

Suppose the exchange rate between the U.S. dollar and the Mexican peso was $1 = 5 pesos. A can of Pepsi sells for $2 in Boston and for 12 pesos in Mexico City. A) Purchasing power parity prevails with these prices. B) Purchasing power parity does not prevail with these prices. C) The U.S. dollar would be expected to depreciate. D) None of the above answers is correct.

Suppose the exchange rate between the U.S. dollar and the Jamaican dollar was $1 U.S. = $40 Jamaican dollars. A beach towel sells for $20 in Miami and $60 Jamaican in Negril. A) Purchasing power parity does not prevail with these prices. B) The U.S. dollar would be expected to depreciate. C) The Jamaican dollar would be expected to appreciate. D) All of the above are correct.

If the price level rises in the United States but not in foreign nations and the current exchange rate does not change, the expected future exchange rate A) rises. B) falls. C) stays the same. D) is impossible to predict in terms of how it will change, from the information given.

According to purchasing power parity, a rise in inflation in the United States. relative to the rest of the world will lead to A) a balance of payments surplus. B) a balance of payments deficit. C) an exchange rate appreciation. D) an exchange rate depreciation.

Suppose that U.S. inflation is 3 percent and Turkish inflation is 70 percent. The effect of this discrepancy on the foreign exchange market is that A) the Turkish currency will depreciate. B) the dollar will depreciate. C) it is impossible for interest rate parity to hold. D) the Turkish currency will appreciate.

According to purchasing power parity, the foreign exchange market will A) undervalue the dollar if inflation in the United States is greater than it is elsewhere. B) no longer demand dollars if the inflation rate in the United States exceeds that of other nations. C) adjust the value of the exchange rate to reflect differing inflation rates between nations. D) result in a flow of dollars out of the United States whenever its rate of inflation is below that of other nations.

When a nation's currency depreciates, the country might A) have an inflation rate that exceeds the inflation rate in nations with which it trades. B) have an inflation rate below the inflation rate in nations with which it trades. C) be responding to an increase in the demand for its currency. D) be responding to a decrease in the domestic demand for foreign currencies.

Suppose that the price of an identical sport-utility vehicle is $32,000 in U.S. dollars in the United States and $32,000 in Canadian dollars in Canada. Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals $0.75 U.S. dollar. Does purchasing power parity hold for SUVs between the United States and Canada? A) Yes, because SUVs have the same price in each local currency. B) No, because SUVs are more expensive in Canada than in the United States. C) No, because SUVs are more expensive in the United States than in Canada. D) Without knowing interest rates, we can't say.

Suppose that the price of an identical sport-utility vehicle is $32,000 in U.S. dollars in the United States and $32,000 in Canadian dollars in Canada. Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals $0.75 U.S. dollar. Based on this information what will happen to the exchange rate between the United States and Canada? A) The value of the U.S. dollar will fall as U.S. residents purchase SUVs in Canada. B) The value of the Canadian dollar will fall as Canadians purchase SUVs in the United States. C) The exchange rate will stay the same because purchasing power parity already holds. D) The value of the Canadian dollar will fall because Canadian prices are lower than U.S. prices.

Suppose that $1 U.S. costs $1.50 Canadian. If in St. Louis a CD costs $10 U.S. and in Montreal it costs $15 Canadian, then A) purchasing power parity holds. B) Canadians will buy CDs in St. Louis. C) Americans will buy CDs in Montreal. D) Virgin Records will have an incentive to build more stores in North America.

"The Big Mac index is The Economist's burger-based measure of whether currencies are over- or undervalued.... [E]xchange rates should eventually adjust to make the price of a basket of goods the same in each country. Our basket contains just one item: the Big Mac hamburger, which is pretty much the Same around the world." The Economist, July 28, 2012 Which principle is The Economist relying on when using the Big Mac to value exchange rates? A) interest rate parity B) market price parity C) purchasing power parity D) exchange rate parity

The nominal exchange rate is A) the value of the U.S. dollar expressed in units of foreign currency per U.S. dollar. B) the real exchange rate multiplied by the ratio of the U.S. price level to the foreign price level. C) the relative price of U.S. produced goods to foreign produced goods. D) a measure of the quantity of the nominal GDP of other countries per unit of U.S. nominal GDP.

The real exchange rate is the A) relative price of U.S. produced output relative to foreign-produced output. B) price of foreign goods relative to the price of domestic goods. C) trade-weighted index. D) current account balance.

The real exchange rate is A) the relative price of U.S. produced goods to foreign produced goods. B) the nominal exchange rate multiplied by the ratio of the foreign price level to the U.S. price level. C) the money price of foreign produced goods relative to the money price of U.S. produced goods. D) a measure of how much currency exchanges for a unit of another currency.

If the nominal exchange rate rises and price levels stay constant, the real exchange rate will A) rise. B) fall. C) stay constant. D) could rise, fall or stay constant.

Given the U.S. price level P, the foreign country price level P*, and the nominal exchange rate E expressed in foreign currency per U.S. dollar, the real exchange rate RER is given by A) RER = E × (P/P*). B) RER = E × (P*/P). C) RER = (P/P*) / E. D) RER = P / (E/P*).

Given the U.S. price level P, the foreign country price level P*, and the real exchange rate RER in foreign currency per U.S. dollar, the nominal exchange rate E would be given by A) E = RER × (P/P*). B) E = RER × (P*/P). C) E = (P/P*) / RER. D) E = P × (RER/P*).

Initially the nominal exchange rate between the South Korean won and the U.S. dollar is 950 won per dollar. If the nominal exchange rate increases to 1000 won per dollar and the U.S and Korean price levels do not change, the real exchange rate A) is the same as before. B) is greater than before. C) is less than before. D) More information is needed to answer the question.

If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African rands per dollar, then the real exchange rate is A) 6 South African goods per U.S. good. B) 8.4 South African goods per U.S. good. C) 9.8 South African goods per U.S. good. D) 1.4 South African goods per U.S. good.

Suppose that your firm wants to import sugarcane from Brazil. The exchange rate is 3 Brazilian reals per U.S. dollar and sugarcane costs 36 reals per ton. How much is a ton of sugarcane in U.S. dollars? A) $12 B) $39 C) $108 D) $109

In the long run, the nominal exchange rate A) is a monetary phenomenon, determined by the quantities of money in two countries. B) is not related to the real exchange rate, since the real exchange rate is the true value of currencies. C) will not change if prices in one country change, since prices are nominal variables. D) is fixed by world central banks, as indicated by the fixed exchange rate system.

A decrease in the demand for U.S. exports ________ the demand for U.S. dollars and shifts the demand curve for U.S. dollars ________. A) increases; rightward B) decreases; rightward C) decreases; leftward D) increases; leftward

A decrease in the expected future exchange rate ________ the demand for U.S. dollars and shifts the demand curve for U.S. dollars ________. A) increases; rightward B) decreases; rightward C) decreases; leftward D) increases; leftward

Of the following, when would the U.S. exchange rate rise the most? A) when the supply of and demand for U.S. dollars increase B) when the supply of U.S. dollars increases and the demand for them decreases C) when the supply of U.S. dollars decreases and the demand for them increases D) when the supply of and demand for U.S. dollars decrease

The Fed in the U.S. A) allows a flexible exchange rate, though their actions can impact the exchange rate. B) has no influence on the exchange rate. C) sells U.S. dollars to China in an attempt to depreciate the U.S. dollar. D) alternates between a flexible, fixed, and crawling peg exchange rate policy depending on economic conditions.

Which of the following exchange rate policies uses a target exchange rate, but allows the target to change? A) crawling peg B) flexible exchange rate C) fixed exchange rate D) moving target

________ can intervene directly in the foreign exchange market by buying or selling dollars. A) Congress B) The Fed C) The International Monetary Fund D) The U.S. Treasury department

The Federal Reserve can influence the exchange rate by A) changing interest rates. B) buying or selling dollars. C) Both answers A and B are correct. D) None of the above answers is correct.

The Fed ________ intervene in the foreign exchange market by supplying dollars and the Fed ________ intervene in the foreign exchange market by demanding dollars. A) can; can B) cannot; can C) can; cannot D) cannot; cannot

How does a country maintain a fixed exchange rate? A) By intervening in the foreign exchange markets and buying or selling currency as needed to achieve the desired exchange rate. B) By forbidding foreign exchange markets to trade currency at anything other than the official exchange rate. C) By setting domestic interest rates to achieve purchasing power parity as the desired exchange rate. D) By intervening in import and export markets to achieve the desired current account and exchange rate.

Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can A) buy dollars. B) sell dollars. C) attempt to freeze all sales of dollars. D) Any of the above actions could take place.

Suppose the target exchange rate set by the Fed is 100 yen per dollar. If the demand for dollars temporarily increases, to maintain the target exchange rate, the Fed can A) sell dollars. B) buy dollars. C) violate interest rate parity. D) violate purchasing power parity.

Suppose the target exchange rate set by the Fed is 100 guilders per dollar. If the demand for dollars temporarily decreases, to maintain the target exchange rate, the Fed can A) sell dollars. B) buy dollars. C) increase U.S. exports. D) increase U.S. imports.

Suppose the target exchange rate set by the Fed is 150 yen per dollar. If the demand for dollars permanently decreases, then the Fed A) can permanently meet the target by selling dollars. B) can permanently meet the target by buying dollars. C) must violate both interest rate parity and purchasing power parity to permanently meet the target. D) cannot permanently maintain the target rate.

If the Fed sets a target exchange rate that is higher than the current exchange rate, then A) the Fed must sell dollars. B) the Fed must buy dollars. C) the Fed can do nothing in the short run. D) will try to print more dollars for foreign distribution.

If the current exchange rate is higher than the Fed's target exchange rate, the Fed would A) implement purchasing power parity. B) implement interest rate parity. C) buy dollars. D) sell dollars.

If the Fed wants to depreciate the dollar against the yen, the Fed will A) increase the supply of dollars by selling yen. B) increase the demand for dollars by selling yen. C) decrease the supply of dollars by selling yen. D) increase the supply of dollars by buying yen.

Suppose the current exchange rate between the Chinese yuan and the United States dollar is 7 yuan per dollar. If the Fed sought to drive up the exchange rate to 8 yuan per dollar then it would A) buy dollars. B) sell dollars. C) buy yuan. D) sell dollars and buy yuan.

If the target exchange rate is 100 yen per dollar and the current exchange rate is 90 yen per dollar, the Fed will A) sell dollars and the demand for dollars will increase. B) sell dollars and the demand for dollars will decrease. C) buy dollars and the demand for dollars will increase. D) buy dollars and the demand for dollars will decrease.

-In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D₁. To maintain the target exchange rate, the Fed A) can sell dollars. B) can buy dollars. C) must violate interest rate parity but not purchasing power parity. D) cannot maintain the target exchange rate.

-In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve shifts to D₂. To maintain the target exchange rate, the Fed A) can sell dollars. B) can buy dollars. C) must violate both interest rate parity and purchasing power parity. D) cannot maintain the target exchange rate.

-In the above figure, suppose the demand for dollars permanently decreases to D₂. To maintain the target, the Fed A) can buy dollars. B) can sell dollars. C) must decrease the nation's net exports. D) cannot permanently maintain the exchange rate target of 150 yen per dollar.

If the Fed raises the U.S. interest rate, the demand for dollars ________ and the exchange rate ________. A) increases; rises B) increases; falls C) decreases; rises D) decreases; falls

Epsilon is a country whose unit of currency is the omega. New information leads people to expect that the omega will appreciate next year. To keep the foreign exchange value of the omega fairly steady, the Bank of Epsilon will ________ enough omegas on the foreign exchange market so that the ________ omegas will ________. A) buy; demand for; increase B) sell; supply of; increase C) buy; demand for; decrease D) buy; supply of; decrease

If the Fed wants to depreciate the U.S. dollar against the British pound, it will A) sell foreign exchange. B) decrease the money supply. C) sell British pounds. D) sell U.S. dollars.

If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was a A) a flexible exchange rate. B) a fixed exchange rate. C) a crawling peg. D) a nominally fixed exchange rate.

China has used a fixed yuan exchange rate and a crawling peg exchange rate. In both cases, China pegs its currency to the A) U.S. dollar. B) Japanese yen. C) euro. D) Mexican peso.

The People's Bank of China has A) allowed a flexible exchange rate to boost exports. B) managed its exchange rate to help control inflation. C) strictly followed a fixed exchange rate to boost exports. D) purchased U.S. dollars to appreciate the yuan.

By fixing its exchange rate, China is most likely A) achieving a low inflation rate by anchoring to the U.S. inflation rate. B) keeping its export prices low. C) making it easier to compete in world markets. D) Both B and C.

All of the following statements are correct EXCEPT A) China's exchange rate policy boosts exports in the long run. B) China's exchange rate policy is mainly an attempt to control inflation. C) China's exchange rate policy results in a depreciated yuan. D) China's exchange rate policy does not impact the real exchange rate in the long run.

If a country's central bank does not intervene in the foreign exchange market, the country has A) a crawling peg exchange rate policy. B) a fixed exchange rate policy. C) a flexible exchange rate policy. D) no exchange rate policy.

If the Fed sells U.S. dollars, the exchange rate A) rises. B) does not change. C) falls. D) changes, but the direction depends on whether the Fed affected the demand for dollars or the supply of dollars.

A country's balance of payments accounts record A) the country's net indebtedness to foreigners. B) its international trading, borrowing, and lending. C) the flow of human and nonhuman resources between it and its trading partners. D) only its official transactions with other governments.

When the United States imports goods and services from the rest of the world A) the U.S. receives payments from the rest of the world. B) the U.S. makes payments to the rest of the world. C) the U.S inflation rate increases. D) the U.S inflation rate decreases.

When the U.S. exports goods to foreign countries, the U.S. A) receives payments from the rest of the world. B) makes payments to the rest of the world. C) inflation rate rises. D) inflation rate falls.

Balance of payments accounts include A) the net interest income account. B) the current account. C) Both answers A and B are correct. D) Neither answer A nor B is correct.

Which of the following is recorded in the U.S. balance of payments account? I) foreign investment in the United States II) U.S. investment abroad III) the U.S. government deficit or surplus A) III only B) I and II C) I and III D) I, II and III

A country's balance of payments accounts records A) only the goods and services purchases among countries over a period of time. B) the international trading, borrowing, and lending positions of a country over a period of time. C) the flow of human and non-human capital among countries over a period of time. D) only official transactions between governments over a period of time.

A country's balance of payments accounts include all of the following EXCEPT the A) military account. B) current account. C) capital and financial account. D) official settlements account.

In part, a country's current account measures A) its current debt as opposed to its long-term debt. B) borrowing and lending activity between the country's residents and foreigners. C) net increases and decreases in a country's holdings of foreign currency. D) receipts from the sale of goods and services to foreigners and payments for goods and services bought from foreigners.

The account that records the receipts from the exports of goods and services sold abroad, the payments for imports of goods and services from abroad, net interest income paid abroad, and net transfers is the A) current account. B) official settlements account. C) international capital account. D) capital and financial account.

Which international account is used to record payments for imports, receipts from exports, net interest paid abroad and net transfers? A) the capital and financial account B) the current account C) the official settlements account D) the trade account

Which of the following is included in a nation's current account? I) the import of services II) a change of foreign currency holdings III) net transfers, such as foreign aid payments A) I and III B) I and II C) II and III D) III only

The largest part of the U.S. current account consists of A) Fed transfers of U.S. dollars to other central banks. B) net transfer payments between the United States and Mexico. C) receipts from exports and payments for imports. D) net borrowing between the United States and other countries.

Suppose that the U.S. government gives foreign aid to Turkey. This transaction would directly A) increase the U.S. current account. B) decrease the U.S. current account. C) increase the U.S. capital and financial account. D) decrease the U.S. capital and financial account.

An American consumer buys a French luxury product in New York. In the U.S. balance of payments accounts, this transaction directly appears in A) the official settlements account. B) the imports part of the current account. C) the net transfers part of the current account. D) the capital and financial account.

Which of the following contributes to a current account surplus for a country? A) having tourists visit the country B) importing textiles C) having foreigners buy government securities from the country's government D) importing financial services

The current account records all transactions below EXCEPT for A) net exports of goods and services. B) net interest income. C) net foreign investment. D) net transfers.

Which of the following is NOT included in the U.S. current account? A) U.S. investment abroad B) net interest income C) net transfers D) imports of goods and services

The balance of payments account which records foreign investment in the United States and U.S. investments abroad is the A) capital and financial account. B) current account. C) official settlements account. D) None of the above because foreign investment in the United States is included in one account and U.S. investment abroad is included in another account.

The account that records foreign investment in the United States minus U.S. investment abroad is the A) capital and financial account. B) official settlements account. C) current account. D) U.S. official reserves account.

The capital and financial account measures A) foreign investment in the United States minus U.S. investment abroad. B) capital produced outside of the United States minus capital produced inside the United States. C) capital used inside the United States but manufactured outside the United States. D) capital used outside the United States but manufactured inside the United States.

Which of the following is included in a nation's capital and financial account? I) the purchase of foreign stocks and bonds II) the sale of foreign stocks and bonds III) importing a piece of capital equipment A) I only B) I and II C) III only D) I, II and III

Which of the following transactions is NOT recorded in the capital and financial account? A) foreign investment in the United States B) U.S. investment abroad C) statistical discrepancy D) net interest income

A negative balance in the capital and financial account means the economy is A) lending to the rest of the world. B) running a capital account surplus. C) borrowing from the rest of the world. D) importing more than it is exporting.

Which of the following transactions directly leads to a surplus on the U.S. capital and financial account? A) An American purchases a share of stock on the Tokyo exchange. B) An American sells wheat to an African nation. C) A Japanese resident purchases a U.S. government bond. D) A resident of France visits the United States.

A German publishing company buys an American publishing company based in New York. In the U.S. balance of payments accounts, this transaction directly appears in A) the official settlements account. B) the imports part of the current account. C) the net transfers part of the current account. D) the capital and financial account.

The official settlements account records the change in A) international trade. B) U.S. official reserves. C) foreign investment and domestic investment. D) the reserves held by banks and the Fed.

Which of the following accounts records the change in U.S. official reserves? A) current account B) capital and financial account C) official settlements account D) none of the above

The account that records changes in the U.S. government's holdings of foreign currency is the A) capital and financial account. B) official settlements account. C) current account. D) U.S. official reserves account.

If the U.S. government increased its holdings of British pounds, definitely A) the capital and financial account would increase. B) the capital and financial account would decrease. C) there would be an increase in U.S. official reserves. D) there would be a decrease in U.S. official reserves.

If the U.S. government decreased its holdings of Mexican pesos, definitely A) the capital and financial account would increase. B) the capital and financial account would decrease. C) there would be an increase in U.S. official reserves. D) there would be a decrease in U.S. official reserves.

Which of the following statements is INCORRECT? A) Payments for imports and receipts from exports are recorded in the current account. B) Foreign investment in the United States and U.S. investment abroad are recorded in the capital and financial account. C) A change in U.S. official reserves is recorded in the official settlements account. D) Net interest income is recorded in the official settlements account.

The official settlements account of a country measures A) the receipts from goods and services bought and sold and transfers to and from foreigners. B) borrowing and lending between the country's residents and foreigners. C) the net increase or decrease in the country's official reserves. D) net transfer payments between the country's citizens and foreigners.

U.S. official reserves are the A) reserves of U.S. dollars held by the World Bank. B) U.S. government's holdings of foreign currency. C) reserves of U.S. dollars held by foreign banks. D) holdings of foreign currency by the public and the banks.

The change in U.S. official reserves is equal to A) borrowing from abroad plus the current account deficit. B) the current account balance plus the capital and financial account balance. C) the current account balance minus the capital and financial account balance. D) foreign investment in the United States minus U.S. investment abroad.

An official settlements account balance of -$5,000 means A) official reserves of foreign currency increased by $5,000. B) official reserves of foreign currency decreased by $5,000. C) the country is exporting more than it is importing. D) the country is importing more than it is exporting.

To pay for a current account deficit, a country can A) borrow money from abroad. B) lend money abroad. C) increase official reserves to cover the shortfall. D) transfer money from the capital account to the official settlements account.

If a country is importing more than they are exporting, the current account will have a ________ balance and the capital and financial account will have a ________ balance. A) negative; positive B) negative; negative C) positive; negative D) positive; positive

If foreign investment in the United States exceeds U.S. investment abroad, there is a ________; and when U.S. investment abroad exceeds foreign investment in the United States, there is ________. A) current account surplus; a current account deficit B) current account surplus; an official accounts surplus C) capital and financial account surplus; a capital and financial account deficit D) capital and financial account deficit; a capital and financial account surplus

When there is a current account deficit and the official settlements account equals zero, then A) exports exceed imports for the country. B) the country is an exporter of capital. C) the capital and financial account has a surplus. D) the country has a budget surplus.

If U.S. imports increase, the sum of the balance of payments accounts (the sum of the current account plus capital and financial account plus official settlements account) A) becomes negative. B) becomes positive. C) becomes negative or positive depending on the government budget deficit or surplus. D) does not change.

The sum of the current account, capital and financial account, and official settlements account is A) a positive number if the country has a trade surplus. B) a negative number if the country has a trade deficit. C) positive or negative depending on whether the domestic exchange rate is appreciating or depreciating. D) always equal to zero.

Suppose the current account of a country is in balance and the official settlements account equals zero. A new transaction occurs so that the current account is now in surplus, but the official settlements account does not change. From this we know that A) the balance of trade is now in surplus. B) the government is running a budget deficit. C) the capital and financial account is now in deficit. D) the government must make official reserve transactions.

If the current account balance is $30 billion, and the capital and financial account balance is $35 billion, then the official settlements account balance is ________ billion, and the official reserves ________. A) $5 billion; increase B) -$5 billion; increase C) $5 billion; decrease D) -$5 billion; decrease

If the current account balance is -$100 billion and the capital and financial account balance is $80 billion, then the official settlement account balance is A) -$20 billion. B) $20 billion. C) always 0. D) impossible to determine with the information given.

If the U.S. current account balance is -$500 billion and the capital and financial account balance is +$510 billion A) the U.S. official settlements account balance is $10 billion. B) the U.S. government's holdings of foreign currency increases by $10 billion. C) foreign investment in the United States is smaller than the U.S. investment abroad. D) U.S. exports are greater than U.S. imports.

If the current account has a negative balance of $100 and the capital and financial account has a positive balance of $80, there will be ________ in official reserves of ________. A) a decrease; $20 B) an increase; $20 C) an increase; $180 D) a decrease; $180

If the current account has a positive balance of $100 and the capital and financial account has a negative balance of $90, there will be ________ in official reserves of ________. A) a decrease; $10 B) an increase; $10 C) an increase; $190 D) a decrease; $190

-The data in the table above illustrates items from the U.S. balance of payments accounts. Given this information, the current account balance is A) $140 billion. B) $155 billion. C) $170 billion. D) -$45 billion.

-The data in the table above illustrates items from the U.S. balance of payments accounts. The data show that A) the United States has a current account surplus. B) the United States has a capital and financial account surplus. C) The United States loaned $400 billion to the rest of the world. D) Both answers A and B are correct.

-The data in the table above illustrates items from the U.S. balance of payments accounts. The capital and financial account balance is A) $0. B) -$80 billion. C) -$200 billion. D) +$200 billion.

-The data in the table above illustrates items from the U.S. balance of payments accounts. The sum of the current account plus capital and financial account plus official settlements account is equal to A) $0. B) -$335 billion. C) $140 billion. D) -$60 billion.

-The data in the table above illustrates items from the U.S. balance of payments accounts. What is the current account balance? A) $0 B) $150 billion C) -$100 billion D) -$150 billion

-The data in the table above illustrates items from the U.S. balance of payments accounts. What is the capital and financial account balance? A) $0 B) $150 billion C) -$350 billion D) -$150 billion

-The data in the table above illustrates items from the U.S. balance of payments accounts. If there is no statistical discrepancy, what is the balance in the official settlements account? A) $150 billion B) -$150 billion C) $50 billion D) $0

-The above table shows some of the balance of payments accounts for Urland. What is Urland's balance on the current account? A) $80 billion B) $62 billion C) $84 billion D) $47 billion

-The above table shows some of the balance of payments accounts for Urland. What is Urland's balance on the capital and financial account? A) -$146 billion B) -$183 billion C) -$99 billion D) $142 billion

-The above table shows some of the balance of payments accounts for Urland. What is Urland's balance in the official settlements account? A) $405 billion B) $62 billion C) $99 billion D) $37 billion

When a country has a negative current account, that country is A) borrowing from the rest of the world. B) lending to the rest of the world. C) running a government budget surplus. D) None of the above is correct.

Which of the following statements about the balance of payments accounts is CORRECT? A) The current account must be greater than the capital and financial account. B) The sum of all three accounts is always zero. C) The official settlements account is typically larger than both the capital and financial account and the current account. D) Typically the capital and financial account is near zero because it equals the difference between the current account and the official settlements account.

The European Commission believes that in 2020 exports of goods and services from Spain will be 22 times larger than in 2010. Irish exports are expected to have grown by 15 percent over the same period. If imports remain constant A) the current account balance in both countries will become more positive. B) the current account balance in both countries will become more negative. C) there will be no change in the current account balance of both countries. D) in both countries the capital and financial account balance will become more positive.