Question 1

In 2014, the United States' balance-of-trade deficit with China was about 10 times as large as the balance-of-trade deficit with Canada.

Accepted Answer

According to data from the U.S. Census Bureau, in 2014 the U.S. had a trade deficit of approximately $343 billion with China, while the trade deficit with Canada was approximately $35 billion, making the deficit with China about 10 times larger.

Question 2

In the United States, imports have exceeded exports every year since 1979.

Accepted Answer

According to the U.S. Census Bureau, the United States has run a trade deficit (imports exceeding exports) every year since 1976.

Question 3

Speculators profit by taking risks, while the actions of arbitrageurs involve no risk.

Accepted Answer

The answer of Speculators profit by taking risks, while the...

Question 4

If an American citizen is planning to visit wildlife reserves in Kenya, he will hope that the U.S. dollar appreciates against Kenyan shillings.

Accepted Answer

If the U.S. dollar appreciates against the Kenyan shilling, it will increase the purchasing power of the American citizen in Kenya, allowing them to get more for their money when exchanging currency or making purchases in Kenya. This would be beneficial for someone visiting wildlife reserves in Kenya as they may need to pay for accommodations, transportation, and other expenses while there.

Question 5

Between 1917 and 1982, the U.S. ran a financial account deficit.

Accepted Answer

The U.S. ran a financial account deficit for 65 years straight from 1917 to 1982.

Question 6

The purchasing power parity theory helps explain long-run trends in exchange rates, but not short-run fluctuations.

Accepted Answer

The purchasing power parity theory is based on the idea that in the long run, exchange rates should adjust so that the same basket of goods should have the same cost in different countries. This theory can explain long-run trends and changes in exchange rates over time. However, it does not account for short-term fluctuations in exchange rates, which can be influenced by factors such as political events, economic crises, and speculations.

Question 7

Since 1983, the United States has typically run a financial account surplus.

Accepted Answer

Since 1983, the United States has generally experienced a financial account surplus, which means it has attracted more foreign investment into the country than it has invested abroad. This is often reflected in the capital inflow exceeding the capital outflow, balancing the current account deficit the U.S. typically runs by importing more goods and services than it exports.

Question 8

If the current account is in deficit, imports of goods and services exceed exports of goods and services, plus net unilateral transfers.

Accepted Answer

A current account deficit means that a country is importing more goods and services than it is exporting, which includes net unilateral transfers (such as foreign aid and remittances).

Question 9

If the British pound appreciates, U.S. television stations need fewer dollars to buy episodes of a British sitcom from the British Broadcasting Company.

Accepted Answer

If the British pound appreciates, it means that the value of the pound increases relative to the dollar. Therefore, U.S. television stations would need more dollars to buy the same amount of pounds to pay for episodes of a British sitcom, making the purchase more expensive in dollar terms.

Question 10

U.S. capital outflows occur when foreigners purchase U.S. assets.

Accepted Answer

U.S. capital outflows occur when U.S. residents purchase foreign assets, not when foreigners purchase U.S. assets.

Question 11

An exchange rate is the price of one commodity (e.g., corn) measured in terms of another commodity (e.g., wheat).

Accepted Answer

An exchange rate is the price of one currency measured in terms of another currency.

Question 12

Under a floating rate system, exchange rates are determined by supply and demand in the foreign exchange market without government intervention.

Accepted Answer

Under a floating rate system, exchange rates are determined by the market forces of supply and demand without any significant government intervention. However, some governments may intervene in the foreign exchange market to influence the exchange rate.

Question 13

If the U.S. dollar appreciates, it becomes cheaper for Australians to visit their relatives in the United States.

Accepted Answer

If the U.S. dollar appreciates, it becomes more expensive for Australians to visit their relatives in the United States as they will need to exchange more Australian dollars to get the same amount of U.S. dollars.

Question 14

If Europe and the United States were the only two regions in the world, then the U.S. government would buy euros to improve the U.S. balance of payments.

Accepted Answer

If Europe and the United States were the only two regions in the world, then the U.S. government would buy euros to improve the U.S. balance of payments because the euro would be the only foreign currency available to purchase.

Question 15

Current account transactions are records of the incomes and expenditures from exports and imports, plus international financial investments and borrowing.

Accepted Answer

Current account transactions record the trade of goods and services, income from foreign investments minus payments made to foreign investors, and cash transfers, but do not include international financial investments and borrowing, which are part of the capital account.

Question 16

The exchange rate is the price of a currency in terms of another currency for exchanges of goods and services but not for financial transactions.

Accepted Answer

The exchange rate is the price of a currency in terms of another currency for both exchanges of goods and services and for financial transactions.

Question 17

In the United States, imports have exceeded exports every year since 1966.

Accepted Answer

The answer of In the United States, imports have exceeded...

Question 18

The purchasing power parity (PPP) theory suggests that the prices of identical items will equalize internationally. An illustration that supports this theory is the fact that the price of a McDonald's "Big Mac" is the same around the world.

Accepted Answer

The Big Mac Index, which compares the price of a Big Mac across different countries, often shows significant price differences, illustrating that prices do not always equalize internationally due to factors like currency valuation, cost of living, and local wages, which contradicts the absolute interpretation of PPP theory.

Question 19

The term foreign exchange is used to denote the value of domestic currency held to finance international trade.

Accepted Answer

The term foreign exchange refers to the exchange of one currency for another in the international market. It can also refer to the global market where currencies are traded. It does not specifically refer to the value of domestic currency held to finance international trade.

Question 20

If on Monday of a week $1 = 146 Japanese yen and on Friday of the same week $1 = 147 yen, the dollar is said to have appreciated and the yen is said to have depreciated.

Accepted Answer

The exchange rate indicates that the yen is now worth fewer dollars, meaning it has depreciated, while the dollar is worth more yen, meaning it has appreciated.

Quiz 18: International Finance.