international trade & finance: chapter 12 (Quiz 5), Econ Final, Econ, Ch12, Chapter 11: Foreign Exchange, EC3100 Final, Econ 335 final exam ch.10, econ practice: balance-of-payments

Suppose that the exchange value of the dollar currently equals 100 yen. As a result of changing economic conditions, suppose that people anticipate that the dollar will be worth 120 yen in three months. This expectation results in​:
(a) ​an increase in the value of U.S. exports to Japan
(b) ​an increase in the demand for the yen
(c)​ a decrease in the demand for dollars
(d)​ an increase in the demand for dollars
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Suppose that the exchange value of the dollar currently equals 100 yen. As a result of changing economic conditions, suppose that people anticipate that the dollar will be worth 120 yen in three months. This expectation results in​:
(a) ​an increase in the value of U.S. exports to Japan
(b) ​an increase in the demand for the yen
(c)​ a decrease in the demand for dollars
(d)​ an increase in the demand for dollars
​an increase in the demand for dollars
Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:
(a)An increase in the demand for imports and an increase in the demand for foreign currency
(b)An increase in the demand for imports and a decrease in the demand for foreign currency
(c)A decrease in the demand for imports and an increase in the demand for foreign currency
(d)A decrease in the demand for imports and a decrease in the demand for foreign currency
An increase in the demand for imports and an increase in the demand for foreign currency
In the foreign exchange market, the exchange value of the U.S. dollar will depreciate if​
(a)​the demand for the dollar increases (shifts to the right)
(b)​the demand for the dollar decreases (shifts to the left)
(c)​the supply curve of the dollar decreases (shifts to the left)
(d)​the supply curve of the dollar remains constant
​the demand for the dollar decreases (shifts to the left)
The demand curve for euros in the foreign exchange market will increase (shift rightward) if​
(a)European interest rates fall relative to foreign interest rates
(b)​the current exchange value of the euro depreciates
(c)Europe increases tariffs and applies more stringent quotas on imported goods
(d)​the rate of inflation in Europe is less than the rate of inflation throughout the world
​the rate of inflation in Europe is less than the rate of inflation throughout the world
If Mexico's labor productivity rises relative to Europe's labor productivity:
(a)The peso tends to depreciate against the euro in the short run
(b)The peso tends to appreciate against the euro in the short run
(c)The peso tends to depreciate against the euro in the long run
(d)The peso tends to appreciate against the euro in the long run
The peso tends to appreciate against the euro in the long run
If economic growth perks up in the United States so that investors think they can realize larger profits from American assets, the
(a)​ supply of U.S. dollars will increase in the foreign exchange market
(b) ​the demand for U.S. dollars will increase in the foreign exchange market
(c) ​the demand for U.S. dollars will decrease in the foreign exchange market
(d) the demand for U.S. dollars will remain constant in the foreign exchange market
​the demand for U.S. dollars will increase in the foreign exchange market
Long-run determinants of the dollar's exchange value include all of the following except:
(a) Preferences of Americans for foreign produced goods
(b) U.S. tariffs placed on imports of foreign produced goods
(c) Productivity of the American worker
(d) Interest rates in U.S. financial markets
Interest rates in U.S. financial markets
Assume that interest rates in the United States and Britain are the same. If a U.S. resident anticipates that the exchange value of the dollar is going to appreciate against the pound, she should:
(a) Borrow needed funds from British banks rather than U.S. banks
(b)Borrow needed funds from U.S. banks rather than British banks
(c) Convert U.S. dollars into British pounds
(d) Any of the above
Borrow needed funds from British banks rather than U.S. banks
Hyundai Inc is a South Korean company that manufactures automobiles. If Hyundai purchases sheet steel from U.S. Steel Inc.,​
(a) ​the demand for dollars increases and the dollar appreciates against the won
(b) ​the demand for dollars increases and the dollar depreciates against the won
(c)​the demand for dollars decreases and the dollar appreciates against the won
(d) ​the demand for dollars decreases and the dollar depreciates against the won
​the demand for dollars increases and the dollar appreciates against the won
Which of the following will result in a depreciation of the U.S. dollar against the Mexican peso?​
(a) ​an increase in the Mexican demand for U.S. imports
(b)​a decrease in the Mexican demand for U.S. imports
(c)​a decrease in the U.S. demand for Mexican imports
(d)​no change in the U.S. demand for Mexican imports
​a decrease in the Mexican demand for U.S. imports
In the foreign exchange market, a decrease in the world demand for Japanese exports​ (a)​shifts the demand curve for yen leftward that causes the yen to depreciate (b)shifts the demand curve for yen leftward that causes the yen to appreciate (c)shifts the demand curve for yen rightward that causes the yen to depreciate (d)shifts the demand curve for yen rightward that causes the yen to appreciate​shifts the demand curve for yen leftward that causes the yen to depreciateA relatively high rate of inflation in the United States will result in​ (a) ​an appreciation of the dollar against foreign currencies in the long run (b) ​a depreciation of the dollar against foreign currencies in the long run (c) ​an appreciation of the dollar against foreign currencies in the short run (d) ​a depreciation of the dollar against foreign currencies in the short run​a depreciation of the dollar against foreign currencies in the long runSuppose that the exchange value of the dollar equals 2 British pounds. If in San Francisco a computer costs $1,000 and in London it costs 2,000 pounds, then​ (a)​British consumers will buy computers in San Francisco (b)​Americans will buy computers in London (c)​purchasing power parity prevails (d)​purchasing power parity does not prevail​purchasing power parity prevailsFor the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from: (a) The United States to Japan, causing the dollar to depreciate (b) The United States to Japan, causing the dollar to appreciate (c) Japan to the United States, causing the yen to depreciate (d) Japan to the United States, causing the yen to appreciateJapan to the United States, causing the yen to depreciateA shift in the U.S. supply curve of dollars in the foreign exchange market could be caused by all of the following except a change in​ (a) ​the current exchange rate of the dollar (b) ​the expected future exchange rate of the dollar (c) the rate of inflation in the United States (d) ​productivity of the U.S. labor force​the current exchange rate of the dollarLow real interest rates in the United States tend to: (a)Decrease the demand for dollars, causing the dollar to depreciate (b)Decrease the demand for dollars, causing the dollar to appreciate (c)Increase the demand for dollars, causing the dollar to depreciate (d)Increase the demand for dollars, causing the dollar to appreciateDecrease the demand for dollars, causing the dollar to depreciateIn the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost: (a)200 pounds (b)400 pounds (c)600 pounds (d)800 pounds800 poundsIf wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be: (a)$.50 per pound (b)$1.00 per pound (c)$2.00 per pound (d)$8.00 per pound$2.00 per pound​Suppose that Barclays Bank of the United Kingdom expects the exchange rate to be $1.40 per pound at the end of the year. If today's exchange rate is $1.50 per pound, Barclays will (a)​sell dollars today since it anticipates losses from buying dollars and holding them (b)​buy dollars today since it anticipates profits from buying dollars and holding them (c)​not buy dollars nor sell dollars because no profits can be realized (d)​none of the above​buy dollars today since it anticipates profits from buying dollars and holding themSuppose that trade barriers and transportation costs are nonexistent. If the exchange rate is 0.9 Swiss francs per dollar, then according to the law of one price, a refrigerator that costs $1,000 in the United States will cost​ (a) ​1,900 francs in Switzerland (b) ​900 francs in Switzerland (c) ​1,300 francs in Switzerland (d) ​1,000 francs in Switzerland​900 francs in SwitzerlandSuppose that the interest rate in Great Britain increases while the interest rate in the United States remains constant. As a result,​ (a)​the demand curve for pounds decreases and the pound depreciates against the dollar (b)​the demand curve for pounds increases and the pound depreciates against the dollar (c)​the demand curve for pounds increases and the pound appreciates against the dollar (d)​the demand curve for pounds decreases and the pound appreciates against the dollar​the demand curve for pounds increases and the pound appreciates against the dollarGiven a system of floating exchange rates, weaker U.S. preferences for imports would trigger: (a)An increase in the demand for imports and an increase in the demand for foreign currency (b)An increase in the demand for imports and a decrease in the demand for foreign currency (c)A decrease in the demand for imports and an increase in the demand for foreign currency (d)A decrease in the demand for imports and a decrease in the demand for foreign currencyA decrease in the demand for imports and a decrease in the demand for foreign currencyWhich example of market expectations causes the dollar to appreciate against the yen--expectations that the U.S. economy will have: (a)Faster economic growth than Japan (b)Higher future interest rates than Japan (c)More rapid money supply growth than Japan (d)Higher inflation rates than JapanHigher future interest rates than JapanThe relationship between the exchange rate and the prices of tradable goods is known as the:Purchasing-power-parity theoryIf the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals:40 poundsAssume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to:Depreciate by 8 percent against the yenIn the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost:800 poundsThe high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by:Additional investment funds made available from overseasWhen the price of foreign currency (i.e., the exchange rate) is below the equilibrium level:An excess demand for that currency exists in the foreign exchange marketSuppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that:Mexico's current account is in deficitIf Canada runs a trade surplus with Mexico and exchange rates are floating:The peso will depreciate relative to the dollarFor the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from:Japan to the United States, causing the yen to depreciateFor the United States, suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause investment funds to flow from:The United States to Japan, causing the dollar to depreciateUnder a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in:An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollarUnder a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in:A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollarFor an American investor, the expected rate of return on European securities depends on all of the following factors except the:Rate of return on equivalent American securitiesWhich of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro?Stronger American preferences for goods produced in EuropeWhich theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?Asset-markets approachAccording to the purchasing-power-parity theory, the U.S. dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of:U.S. inflation over foreign inflationConcerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements.Technical analysisConcerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values.Fundamental analysisExchange rate determination in the short run is underlied by which of the following assumptions:Expected returns on financial assets affect investment flows in the short runThat identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the:Law of one priceGiven floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to:Appreciate, depreciate, or remain constant against the dollarGiven floating exchange rates, assume that the Swiss decrease their import purchases from Italy while at the same time the Italians increase their purchases of Swiss government securities. The first action by itself would lead to a (an) ____ of the franc against the lira while the second action by itself would lead to a (an) ____ of the franc against the lira.Appreciation, appreciationSuppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 10 percent in the United States and remains constant in Japan, the exchange rate will become81 yen per dollarWhen deciding between U.S. and British government securities, an American investor typically considers:U.S. and British interest rates and anticipated changes in the exchange rateAll of the following are important long-run determinants of exchange rates exceptInterest ratesWhich of the following could partially explain why the terms of trade of developing countries might deteriorate over time?c. Commodity export prices are determined in highly competitive marketsConsider Figure 7.3. Under a profit-maximizing cartel, producers realize:a. Profits totaling $280Which of the following is considered a capital inflow?a. A sale of U.S. financial assets to a foreign buyerIn a country's balance of payments, which of the following transactions are debits?a. Domestic bank balances owned by foreigners are decreasedReferring to Table 10.1, the current account balance equalsa. $5 billion. The U.S. balance of trade is determined by:d. All of the aboveReducing a current account deficit requires a country to:d. Decrease the government's deficit and decrease private investment relative to savingWhich of the following tends to cause the U.S. dollar to appreciate in value?b. Rapid economic growth in foreign countriesWhen short-term interest rates become lower in Tokyo than in New York, interest arbitrage operations will most likely result in a(n):c. Sale of dollars in the forward market. Suppose that real incomes increase more rapidly in the United States than in Mexico. In the United States, this situation would likely result in a (an):a. Increase in the demand for pesosAn increase in the dollar price of other currencies tends to cause:a. U.S. goods to be cheaper than foreign goodsWhich of the following would not induce the U.S. demand curve for foreign exchange to shift backward to the left?d. A depreciation in the U.S. dollar against foreign currenciesIn the early 1980s, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact of that policy was to ____ interest rates in the United States relative to those in Europe and cause the dollar to ____ against European currencies.d. Increase, appreciateDuring the era of dollar appreciation, from 1981 to 1985, a main reason why the dollar did not fall in value wasa. Flows of foreign investment into the United StatesAssume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to:b. Depreciate by 8 percent against the yen. A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is:d. Relatively high interest rates in the United StatesThe appreciation in the value of the dollar in the early 1980s is explained by all of the following except:d. Relatively high inflation rates in the United StatesSuppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that:b. Mexico's current account is in deficitWhich example of market expectations causes the dollar to appreciate against the yen--expectations that the U.S. economy will have:b. Higher future interest rates than JapanWhich example of market expectations causes the dollar to depreciate against the yen--expectations that the U.S. economy will have:a. Faster economic growth than JapanLong-run determinants of the dollar's exchange value include all of the following except:d. Interest rates in U.S. financial marketsAn exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run responsea. OvershootSuppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing power parity, if the price of traded goods falls by 5 percent in the United States and rises by 5 percent in Japan, the exchange rate will become:b. 81 yen per dollar70. Relatively high interest rates in the United States causes the dollar to ____ in the ____. a. Appreciate, long runc. Appreciate, short runConsider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose the domestic price level rises rapidly in the United States but stays relatively constant in the United Kingdom, which supply and demand curves depict the new situation?a. S1 and D2Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose US productivity growth is faster than the UK, which supply and demand curves depict the new situation?b. S2 and D1Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose US consumers develop stronger preferences for UK made goods, which supply and demand curves depict the new situation?c. S0 and D2Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose the US government raises tariffs for UK made goods, which supply and demand curves depict the new situation?d. S0 and D1The appropriate expenditure-switching policy to correct a current account surplus is:a. Currency revaluationThe appropriate expenditure-switching policy to correct a current account deficit is:c. Currency devaluation. Suppose the United States faces domestic recession and a current account deficit. Should the United States devalue the dollar, one would expect the:a. Recession to become less severe--deficit to become less severeSuppose the United States faces domestic inflation and a current account surplus. Should the United States revalue the dollar, one would expect the:b. Inflation to become less severe--surplus to become less severeSuppose Brazil faces domestic recession and a current account surplus. Should Brazil revalue its currency, one would expect the:c. Recession to become more severe--surplus to become less severe16. Suppose that Brazil faces domestic inflation and a current account deficit. Should Brazil devalue its currency, one would expect the:a. Inflation to become more severe--deficit to become less severeA system of floating exchange rates and high capital mobility strengthens which policy in combating a recession:b. Expansionary monetary policySuppose a central bank prevents a depreciation of its currency by intervening in the foreign exchange market and buying its currency with foreign currency. This causes thea. domestic money supply to decrease and a decline in aggregate demand33, Under a fixed exchange-rate system and high capital mobility, an expansion in the domestic money supply leads to:b. Trade-account deficit and a capital-account deficit36. Under a fixed exchange-rate system and high capital mobility, a contractionary fiscal policy leads to a:d. Trade-account surplus and a capital-account deficit37. Suppose a central bank prevents a depreciation of its currency by intervening in the foreign exchange market and buying its currency with foreign currency. This causes thea. domestic money supply to decrease and a decline in aggregate demand38. Suppose a central bank prevents an appreciation of its currency by intervening in the foreign exchange market and selling its currency for foreign currency. This causes thec. domestic money supply to decrease and a rise in aggregate demand1. The relationship between the exchange rate and the prices of trad-able goods is known as the: a. Purchasing-power-parity theory b. Asset-markets theory c. Monetary theory d. Balance-of-payments theorya2. If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals: a. 20 pounds b. 40 pounds c. 60 pounds d. 80 poundsb3. Low real interest rates in the United States tend to: a. Decrease the demand for dollars, causing the dollar to depreciate b. Decrease the demand for dollars, causing the dollar to appreciate c. Increase the demand for dollars, causing the dollar to depreciate d. Increase the demand for dollars, causing the dollar to appreciatea4. High real interest rates in the United States tend to: a. Decrease the demand for dollars, causing the dollar to depreciate b. Decrease the demand for dollars, causing the dollar to appreciate c. Increase the demand for dollars, causing the dollar to depreciate d. Increase the demand for dollars, causing the dollar to appreciated5. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to: a. Appreciate by 8 percent against the yen b. Depreciate by 8 percent against the yen c. Remain at its existing exchange rate d. None of the aboveb6. In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost: a. 200 pounds b. 400 pounds c. 600 pounds d. 800 poundsd7. If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be: a. $.50 per pound b. $1.00 per pound c. $2.00 per pound d. $8.00 per poundc8. A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is: a. Large trade surpluses for the United States b. Relatively high inflation rates in the United States c. Lack of investor confidence in the U.S. monetary policy d. Relatively high interest rates in the United Statesd9. The high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by: a. Additional investment funds made available from overseas b. Lack of investor confidence in U.S. fiscal policy c. Market expectations of rising inflation in the United States d. American tourists overseas finding costs increasinga10. When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level: a. An excess demand for that currency exists in the foreign exchange market b. An excess supply of that currency exists in the foreign exchange market c. The demand for foreign exchange shifts outward to the right d. The demand for foreign exchange shifts backward to the lefta11. When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level: a. An excess supply of that currency exists in the foreign exchange market b. An excess demand for that currency exists in the foreign exchange market c. The supply of foreign exchange shifts outward to the right d. The supply of foreign exchange shifts backward to the lefta12. The appreciation in the value of the dollar in the early 1980s is explained by all of the following except: a. The United States being considered a safe haven by foreign investors b. Relatively high real interest rates in the United States c. Confidence of foreign investors in the U.S. economy d. Relatively high inflation rates in the United Statesd13. Suppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that: a. Mexico's current account is in surplus b. Mexico's current account is in deficit c. The U.S. current account is in deficit d. The U.S. current account is in equilibriumb14. If Canada runs a trade surplus with Mexico and exchange rates are floating: a. The peso will depreciate relative to the dollar b. The dollar will depreciate relative to the peso c. The prices of all foreign goods will fall for Canadians d. The prices of all foreign goods will rise for Canadiansa15. If Mexico's labor productivity rises relative to Europe's labor productivity: a. The peso tends to depreciate against the euro in the short run b. The peso tends to appreciate against the euro in the short run c. The peso tends to depreciate against the euro in the long run d. The peso tends to appreciate against the euro in the long rund16. The international exchange value of the U.S. dollar is determined by: a. The rate of inflation in the United States b. The number of dollars printed by the U.S. government c. The international demand and supply for dollars d. The monetary value of gold held at Fort Knox, Kentuckyc17. For the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from: a. The United States to Japan, causing the dollar to depreciate b. The United States to Japan, causing the dollar to appreciate c. Japan to the United States, causing the yen to depreciate d. Japan to the United States, causing the yen to appreciatec18. For the United States, suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause investment funds to flow from: a. The United States to Japan, causing the dollar to depreciate b. The United States to Japan, causing the dollar to appreciate c. Japan to the United States, causing the yen to depreciate d. Japan to the United States, causing the yen to appreciatea19. Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger: a. An increase in the demand for imports and an increase in the demand for foreign currency b. An increase in the demand for imports and a decrease in the demand for foreign currency c. A decrease in the demand for imports and an increase in the demand for foreign currency d. A decrease in the demand for imports and a decrease in the demand for foreign currencya20. Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger: a. An increase in the demand for imports and an increase in the demand for foreign currency b. An increase in the demand for imports and a decrease in the demand for foreign currency c. A decrease in the demand for imports and an increase in the demand for foreign currency d. A decrease in the demand for imports and a decrease in the demand for foreign currencyd21. Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in: a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollara22. Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in: a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollard23. Which example of market expectations causes the dollar to appreciate against the yen--expectations that the U.S. economy will have: a. Faster economic growth than Japan b. Higher future interest rates than Japan c. More rapid money supply growth than Japan d. Higher inflation rates than Japanb24. Which example of market expectations causes the dollar to depreciate against the yen--expectations that the U.S. economy will have: a. Faster economic growth than Japan b. Higher future interest rates than Japan c. Less rapid money supply growth than Japan d. Lower inflation rates than Japana25. For an American investor, the expected rate of return on European securities depends on all of the following factors except the: a. Rate of return on equivalent American securities b. The current exchange rate between the dollar and the pound c. Exchange rate anticipated to prevail when the securities mature d. Interest rate paid on European securitiesa26. Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro? a. Relatively low interest rates in the United States b. Relatively high labor productivity in the United States c. Tariffs levied by the United States on steel imports from Europe d. Stronger American preferences for goods produced in Europed27. Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso? a. Relatively high interest rates in Mexico b. Relatively high labor productivity in Mexico c. Tariffs applied by Mexico on computer imports from the United States d. Stronger Mexican preferences for goods produced in the United Statesd28. Long-run determinants of the dollar's exchange value include all of the following except: a. Preferences of Americans for foreign produced goods b. U.S. tariffs placed on imports of foreign produced goods c. Productivity of the American worker d. Interest rates in U.S. financial markets29. Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile? a. Balance-of-payments approach b. Purchasing-power-parity approach c. Asset-markets approach d. Monetary approachc30. According to the purchasing-power-parity theory, the U.S. dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of: a. U.S. interest rates over foreign interest rates b. Foreign interest rates over U.S. interest rates c. U.S. inflation over foreign inflation d. Foreign inflation over U.S. inflationc31. An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response. a. Overshoot b. Undershoot c. Depreciate d. Appreciatea32. Concerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and economic data. a. Econometric analysis b. Technical analysis c. Judgmental analysis d. Sunspot analysisc33. Concerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements. a. Econometric analysis b. Judgmental analysis c. Technical analysis d. Sunspot analysisc34. Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values. a. Fundamental analysis b. Technical analysis c. Judgmental analysis d. Sunspot analysisa35. Concerning exchange-rate determination, "market fundamentals" include all of the following except: a. Monetary policy and fiscal policy b. Profitability and riskiness of investments c. Speculative opinion about future exchange rates d. Productivity changes affecting production costsc36. In the short run, exchange rates respond to market forces such as: a. Inflation rates b. Expectations of future exchange rates c. Investment profitability d. Government trade policyb37. Long-run exchange rate movements are governed by all of the following except: a. National productivity levels b. Consumer tastes and preferences c. Rates of inflation d. Interest rate levelsd38. Exchange rate determination in the short run is underlied by which of the following assumptions: a. Tariffs and quotas affect trade patterns only in the short run b. Prices of goods and services affect trade patterns only in the short run c. Expected returns on financial assets affect investment flows in the short run d. Preferences for goods and services affect trade flows only in the short runc39. That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the: a. Monetary approach to exchange-rate determination b. Law of one price c. Fundamentalist approach to exchange-rate determination d. Exchange-rate-overshooting principleb40. The Canadian dollar would depreciate on the foreign exchange market if: a. Canadian consumer tastes change in favor of goods produced domestically b. The profitability of assets in Canada rises relative to the profitability of assets abroad c. Canada experiences a disastrous wheat-crop failure, leading to imports of more wheat d. Canada realizes technological improvements in the production of manufactured goods, leading to relatively low costs for CanadacAssume the following: (1) the interest rate on 6-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485. Refer to Exhibit 11.1. If the price of the 6-month forward pound were to ____, U.S. investors would no longer earn an extra return by shifting funds to the United Kingdom.Fall to $1.47Answer the next question on the basis of the table below that shows the exchange rate between various currencies and the U.S. dollar December 2015 Exchange Rate > December 2016 Exchange Rate Currency Mexican peso $0.07 > $0.09 Swiss franc $1.10 > $1.05 Japanese yen $0.010 > $0.012 British pound $1.64 > $1.58 ​ ​Between 2015 and 2016, the dollar​Depreciated against the peso; appreciated against the pound.In a supply-and-demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the demand schedule for yen is drawn sloping:Downward.The next 5 questions refer to the table below that shows the supply and demand schedules of British pounds. Exchange Rate: Quantity of Pounds Supplied > Dollars Per Pound > Quantity of Pounds Demanded 100 > $2.50 > 20 80 > $2.00 > 40 60 > $1.50 > 60 40 > $1.00 > 80 20 > $0.50 > 100 ​In the table above, if the exchange rate is equal to $2.00 per pound, there is a ______ and the exchange rate will______.Surplus of pounds; Decrease.​In 1987, currency speculator Andy Krieger made a lucrative currency trade. Believing that the New Zealand dollar was overvalued, Krieger bet on its fall, selling hundreds of millions of dollars at a time and pushing its value down. He profited by re-buying New Zealand dollars when the price bottomed out. What Krieger was engaging in was a (an):Short Position.If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, you could remove the risk of loss due to the appreciation of the pound by:Buying the pounds in the forward market for delivery in 30 days.A corporation dealing in foreign exchange may desire to obtain an exchange quote between the pound and franc, whose values are both expressed relative to the dollar. ____ are used to determine such a relationship.Cross exchange rates.When the real exchange rate of Japan's yen appreciates:None of the above: (the Yen's nominal exchange rate must stay constant, the Yen's nominal exchange rate must depreciate, the Yen's nominal exchange rate must also appreciate).The next 5 questions refer to the table below that shows the supply and demand schedules of British pounds. Exchange Rate: Quantity of Pounds Supplied > Dollars Per Pound > Quantity of Pounds Demanded 100 > $2.50 > 20 80 > 2.00 > 40 60 > 1.50 > 60 40 > 1.00 > 80 20 > 0.50 > 100 ​ ​In the table above, the equilibrium exchange rate is shown as$1.50 per pound.A (An) ____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future.Swap.Suppose there occurs an increase in the Canadian demand for Japanese computers. This results in:An increase in the demand for Yen.The next 5 questions refer to the table below that shows the supply and demand schedules of British pounds. Exchange Rate: Quantity of Pounds Supplied > Dollars Per Pound > Quantity of Pounds Demanded 100 > $2.50 > 20 80 > 2.00 > 40 60 > 1.50 > 60 40 > 1.00 > 80 20 > 0.50 > 100 ​ ​In the table above, if the exchange rate is equal to $1.00 per pound, there is a ______ and the exchange rate will______Shortage of pounds; Increase.Over time, a depreciation in the value of a nation's currency in the foreign exchange market will result in:Exports rising and imports falling.Given the foreign currency market for the Swiss franc, the supply of francs slopes upward, because as the dollar price of the franc rises:Switzerland's demand for American merchandise rises.Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is:2 francs per dollar.Switzerland (Franc) = .6598 30-day Forward =.6592 Refer to Table 11.4. On Wednesday, the 30-day forward franc was selling at a:1 percent discount per annum against the dollar.In the interbank market for foreign exchange, the ____ refers to the difference between the offer rate and the bid rate.Spread.The exchange rate is kept the same in all parts of the market by:Exchange arbitrage.Refer to Figure 11.1. Suppose the exchange rate is $.30 per franc. At this exchange rate there is an ____ of francs which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs supplied, and a (an) ____ in the quantity of francs demanded.excess demand, rise, increase, decrease.​When you arrive at Heathrow Airport in London and go to the foreign exchange kiosk to exchange dollars for pounds, you are trading in the:Spot market.Concerning the covering of exchange market risks--assuming that a depreciation of the domestic currency is anticipated, one can say that there is an incentive for:Importers to rush to cover their future needs.You are engaging in a ______ if you initially sell a currency (that you do not own) at a high price, then buy it back later on at a low price.Short position.​The pound shows a forward discount against the dollar (the forward rate is less than the spot rate) when:Interest rates in the UK are higher than those in the US.A shift in the demand for francs from D0 to D2, or a shift in the supply of francs from S0 to S1, would result in a (an): (less dollars for more francs)Appreciation in the dollar against the franc.Refer to Table 11.2. At the exchange rate of $1.40 per pound, there is an ____ for pounds. This imbalance causes ____ in the price of the pound, which leads to ____ in the quantity of pounds supplied and ____ in the quantity of pounds demanded.Excess demand, and increase, an increase, a decrease.Refer to Figure 11.1. Suppose the exchange rate is $.70 per franc. At this exchange rate there is an ____ of francs which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs supplied, and a (an) ____ in the quantity of francs demanded.Excess supply, fall, increase, decrease.A depreciation of the dollar refers to:An increase in the dollar price of foreign currency.The supply of foreign currency may be:None of the above: (Backward-sloping, Upward-sloping Incorrect, Vertical)​When the exchange rate (dollars per pound) falls, the:supply curve of pounds shifts leftward.​Concerning foreign exchange trading, a "forward contract":​All of the above: (Is issued by a major commercial bank, like Citibank or Barclays, has a definite expiration date at which settlement must occur, ​has contract costs based on the bid-offer spread).Suppose the exchange value of the British pound is $2 per pound while the exchange value of the Swiss franc is 50 cents per pound. The cross exchange rate between the pound and the franc is:4 francs per pound.Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days. You can remove the risk of loss due to a devaluation of the pound sterling by:Selling sterling in the forward market for 60-day delivery.Question text ​The demand curve for British pounds slopes downward because as the dollar ______ British goods become ______ for Americans. Therefore, Americans purchase ______ British goods and the quantity of pounds demanded decreases.​Depreciates against the pound; more expensive; fewer.​Concerning the foreign exchange market, which of the following is false?Virtually all foreign exchange trading takes place in London and Zurich Correct. (True: foreign exchange trading is dominated by the dollar, euro, yen, and pound, the foreign exchange market has no centralized meeting place and no formal requirements for participation, ​individual households, businesses, governments, and banks buy and sell foreign currencies and other debt instruments)​A call option provides an options holder:the right to buy foreign currency at a specific price.​The supply curve of British pounds slopes upward because as the dollar _____ American goods become ______ for the British. Therefore, the British purchase ______ American goods and the quantity of pounds supplied increases:depreciates against the pound; less expensive; more.In the early 1980s, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact of that policy was to ____ interest rates in the United States relative to those in Europe and cause the dollar to ____ against European currencies.Increase, appreciate.If Canadian speculators believed the Swiss franc was going to appreciate against the U.S. dollar, they would:Purchase Swiss francs.Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days. You can remove the risk of loss due to a devaluation of the pound sterling by:Selling sterling in the forward market for 60-day deliveryWhen short-term interest rates become lower in Tokyo than in New York, interest arbitrage operations will most likely result in a:Sale of dollars in the forward marketAn appreciation in the value of the U.S. dollar against the British pound would tend to:Discourage the British from buying American goodsSuppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice. This finding would likely result in a (an):Decrease in the demand for Swiss francsSuppose that real incomes increase more rapidly in the United States than in Mexico. In the United States, this situation would likely result in a (an):Increase in the demand for pesosA depreciation of the dollar refers to:An increase in the dollar price of foreign currencyIf Canadian speculators believed the Swiss franc was going to appreciate against the U.S. dollar, they would:Purchase Swiss francsA major difference between the spot market and the forward market is that the spot market deals with:The immediate delivery of currenciesThe exchange rate is kept the same in all parts of the market by:Exchange arbitrageIf you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, you could remove the risk of loss due to the appreciation of the pound by:Buying the pounds in the forward market for delivery in 30 daysA U.S. export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by:Selling today 1 million pounds in the forward market for delivery in six monthsOver time, a depreciation in the value of a nation's currency in the foreign exchange market will result in:Exports rising and imports fallingGrain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:Increase the demand for dollarsSuppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. A Japanese stereo with a price of 60,000 yen will cost:$600Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is:2 francs per dollarUnder a system of floating exchange rates, the Swiss franc would depreciate in value if which of the following occurs?Falling interest rates in SwitzerlandA depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is:ElasticWhich financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price, within a few days to a couple of years?Foreign currency optionIn a supply-and-demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the demand schedule for yen is drawn sloping:DownwardSuppose there occurs an increase in the Canadian demand for Japanese computers. This results in:An increase in the demand for yenConsider Table 11.1. If one were to buy pounds for immediate delivery, on Tuesday the dollar cost of each pound would be:$1.4270Consider Table 11.1. Concerning the Tuesday quotations: compared to the cost of buying 100 pounds on the spot market, if 100 pounds were bought for future delivery in 180 days the dollar cost of the pounds would be:$3.40 lowerA corporation dealing in foreign exchange may desire to obtain an exchange quote between the pound and franc, whose values are both expressed relative to the dollar. ____ are used to determine such a relationship.Cross exchange ratesRefer to Exhibit 11.1. By investing in U.K. treasury bills rather than U.S. treasury bills, and not covering exchange rate risk, U.S. investors earn an extra return of:4 percent per year, 2 percent for the 6 monthsRefer to Exhibit 11.1. If U.S. investors cover their exchange rate risk, the extra return for the 6 months on the U.K. treasury bills is:1.0 percentRefer to Figure 11.1. At the equilibrium exchange rate of ____ per franc, ____ francs will be purchased at a total dollar cost of ____.$.50, 5 million, $2.5 millionRefer to Figure 11.1. Suppose the exchange rate is $.70 per franc. At this exchange rate there is an ____ of francs which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs supplied, and a (an) ____ in the quantity of francs demanded.Excess supply, fall, decrease, increaseRefer to Figure 11.1. Suppose the exchange rate is $.30 per franc. At this exchange rate there is an ____ of francs which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs supplied, and a (an) ____ in the quantity of francs demanded.Excess demand, rise, increase, decreaseRefer to Figure 11.1. Suppose the exchange rate is $.70 per franc. Free-market forces would lead to a (an) ____ of the dollar against the franc and a (an) ____ in U.S. international competitiveness.Appreciation, worseningRefer to Figure 11.1. Suppose the exchange rate is $.30 per franc. Free-market forces would lead to a (an) ____ of the dollar against the franc and a (an) ____ in U.S. international competitiveness:Depreciation, improvementA (An) ____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future:SwapReferring to Table 11.3, the cross exchange rate between the euro and Swiss franc is approximately:.68 euros per francReferring to Table 11.3, the yen cost of purchasing 100 British pounds is roughly:18,000 yenRefer to Table 11.4. On Wednesday, the 30-day forward franc was selling at a:1 percent discount per annum against the dollarRefer to Table 11.4. On Wednesday, the 180-day forward franc was selling at a:0.6 percent discount per annum against the dollarThe offer rateIs the price at which the bank is willing to sell a unit of foreign currencyWhen the dollar gets strongerForeign tourists travel in the U.S. at a higher costMost foreign exchange transactions are conducted between commercial banks and household customers.FalseA person needing foreign exchange immediately would purchase it on the spot market.TrueMost foreign exchange trading is carried out in the forward market.FalseThe bid rate refers to the price at which a bank is willing to sell a unit of foreign currency; the offer rate is the price at which a bank is willing to buy a unit of foreign currency.FalseThe "spread" is a bank's profit margin on foreign exchange trading and equals the difference between the bid rate and the offer rate.TrueIf Citibank quoted bid and offer rates for the Swiss franc at $.4850/$.4854, the bank would be prepared to buy, say, 1 million francs for $485,000 and sell them for $485,400.TrueIf it takes 113.28 yen to buy $1, it takes $.009624 to buy 1 yen.False"Futures" currency contracts are issued by commercial banks and are tailored in size to the needs of the exporter or importer, while "forward" currency contracts are issued by the International Monetary Market in standardized round lots.FalseA "call" option gives General Motors the right to sell pounds at a specified price, while a put option gives General Motors the right to buy pounds at a specified price.FalseGiven an upward-sloping supply schedule of pounds and a downward-sloping demand schedule for pounds, a decrease in the demand schedule causes an appreciation of the dollar against the pound.TrueGiven an upward-sloping supply schedule of pounds and a downward-sloping demand schedule for pounds, an increase in the supply schedule causes an appreciation of the dollar against the pound.TrueThe trade-weighted dollar is the weighted average of the exchange rates between the dollar and the most important industrial-country trading partners of the United States.TrueIf the trade-weighted dollar moves from an index value to 100 to 110, the dollar depreciates by 10 percent against the trade-weighted averages of the exchange rates of the major trading partners of the United States.FalseArbitrage results in a riskless profit since a trader purchases a currency at a low price and simultaneously resells it at a higher price.TrueIf the exchange rate is $0.01 per yen in New York and $0.015 per yen in Tokyo, an arbitrager could profit by buying yen in Tokyo and simultaneously sell them in New York.FalseIn the forward market, the exchange rate is agreed on at the time of the currency contract, but payment is not made until the future delivery of the currency actually takes place.TrueAssume that Boeing anticipates receiving 20 million yen in 3 months from exports of jumbo jets to a Japanese airline. The firm could hedge against the risk of a depreciation of the dollar against the yen by contracting to sell its expected yen proceeds for dollars in the forward market at today's forward rate.FalseA U.S. investor's extra rate of return on an investment in France, as compared to the United States, equals the interest-rate differential adjusted for any change in the dollar/franc exchange rate.TrueHmwk 8: If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals:40 poundsLow real interest rates in the United States tend to:Decrease the demand for dollars, causing the dollar to depreciateAssume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to:Depreciate by 8 percent against the yenIf wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:$2.00 per poundWhen the price of foreign currency (i.e., the exchange rate) is below the equilibrium level:An excess demand for that currency exists in the foreign exchange marketSuppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that:Mexico's current account is in deficitIf Mexico's labor productivity rises relative to Europe's labor productivity:The peso tends to appreciate against the euro in the long runThe international exchange value of the U.S. dollar is determined by:The international demand and supply for dollarsAn exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response.OvershootConcerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and economic data.Judgmental analysisConcerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements.Technical analysisConcerning exchange-rate determination, "market fundamentals" include all of the following except:Speculative opinion about future exchange ratesRefer to Figure 12.1. Should preferences for imports rise in the United States and fall in Switzerland, there would occur a (an):Increase in the demand for francs--decrease in the supply of francs-depreciation of the dollarRefer to Figure 12.1. Should real interest rates in the United States rise relative to real interest rates in Switzerland, there would occur a (an):Decrease in the demand for francs--increase in the supply of francs-appreciation of the dollarRefer to Figure 12.1. Should the U.S. price level rise relative to the Swiss price level, there would occur a (an):Decrease in the supply of francs--increase in the demand for francs-depreciation of the dollarRefer to Figure 12.1. Should the United States impose tariffs on imports from Switzerland, there would occur a (an):Decrease in the demand for francs and an appreciation of the dollarRefer to Figure 12.1. Should Swiss labor productivity rise, leading to a decrease in Swiss manufacturing costs, there would occur a (an):Increase in the demand for francs and a depreciation of the dollarRefer to Figure 12.1. If Switzerland experienced a disastrous wheat-crop failure, leading to additional wheat imports from the United States, there would occur an:Increase in the supply of francs and an appreciation of the dollarGiven floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to:Appreciate, depreciate, or remain constant against the dollarAssume that interest rates in the United States and Britain are the same. If a U.S. resident anticipates that the exchange value of the dollar is going to appreciate against the pound, she should:Borrow needed funds from British banks rather than U.S. banksSuppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 10 percent in the United States and remains constant in Japan, the exchange rate will become81 yen per dollarSuppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar. One can say that the:Yen has appreciated against the dollar and the dollar has depreciated against the yenGiven a floating exchange rate system an increase in ____ would cause the dollar to appreciate against the euro.U.S. real interest ratesWhich approach to balance-of-payments adjustment suggests that balance-of-payments surpluses are the result of excess money demand in the home country?Monetary approachAccording to the quantity theory of money, a change in the domestic money supply will bring about:Direct and proportionate changes in the price levelAccording to the absorption approach, the economic circumstances that best warrant a currency devaluation is where the domestic economy faces:Unemployment coupled with a payments deficitAccording to the J-curve effect, when the exchange value of a country's currency appreciates, the country's trade balance:First moves toward surplus, then later toward deficitAccording to the Marshall-Lerner approach, a currency depreciation will best lead to an improvement on the home country's trade balance when the:Home demand for imports is elastic--foreign export demand is elasticWhich of the following is true for the J-curve effect? It:Suggests that demand tends to be most elastic over the long runAmerican citizens planning a vacation abroad would welcome:Appreciation of the dollarAssume the Canadian demand elasticity for imports equals 0.2, while the foreign demand elasticity for Canadian exports equals 0.3. Responding to a trade deficit, suppose the Canadian dollar depreciates by 20 percent. For Canada, the depreciation would lead to a:Worsening trade balance--a larger deficitAssume the Canadian demand elasticity for imports equals 1.2, while the foreign demand elasticity for Canadian exports equals 1.8. Responding to a trade deficit, suppose the Canadian dollar depreciates by 10 percent. For Canada, the depreciation would lead to a(n):Improving trade balance--a smaller deficitComplete currency pass-through arises when a 10 percent depreciation in the value of the dollar causes U.S.:Import prices to rise by 10 percentAssume that Ford Motor Company obtains all of its inputs in the United States and all of its costs are denominated in dollars. An appreciation of the dollar's exchange value:Worsens its international competitivenessAssume that Ford Motor Company obtains some of its inputs in Mexico (foreign sourcing). As the peso becomes a larger portion of Ford's total costs, a dollar depreciation leads to a (an) ____ in the peso cost of a Ford vehicle and a (an) ____ in the dollar cost of a Ford compared to the cost changes that occur when all input costs are dollar denominated.Decrease, increaseAccording to the Marshall-Lerner condition, currency depreciation has no effect on a country's trade balance if the elasticity of demand for its exports plus the elasticity of demand for its imports equals:1.0The time period that it takes for companies to form new business connections and place new orders in response to currency depreciation is known as the:Decision lagThe time period that it takes for companies to increase output of commodities for which demand has increased due to currency depreciation is known as the:Production lagAccording to the J-curve effect, currency depreciation:Increases a trade deficit before decreasing a trade deficitThe analysis of the effects of currency depreciation include all of the following except the:Fiscal approachAccording to the absorption approach (B = Y - A), currency devaluation improves a nation's trade balance if:Y increases and/or A decreasesThe effect of currency depreciation on the purchasing power of money balances and the resulting impact on domestic expenditures is emphasized by the:Monetary approachThe lag that occurs between changes in relative prices and the quantities of goods traded is theRecognition lagThe absorption approach to currency depreciation focuses on theIncome effectsIn a free market, exchange rates are determined by market fundamentals and market expectations.TrueExchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as central banks do not intervene in the foreign exchange markets.TrueUnder floating exchange rates, short-run exchange rates are primarily determined by national differences in real interest rates and shifting expectations of future exchange rates.TrueEconomies with relatively high growth rates in labor productivity tend to find their currencies' exchange values appreciating under a floating exchange-rate system.TrueSuppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent while tight monetary policy in Switzerland leads to interest rates rising to 8 percent. With floating exchange rates, the dollar would appreciate against the franc.FalseIf consumer tastes in the United States change in favor of goods produced in France, the demand for francs will increase which causes an appreciation of the dollar against the franc under a floating exchange rate system.FalseIf Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise and the yen's exchange value will appreciate under a system of floating exchange rates.TrueAccording to the principle of exchange-rate overshooting, a short-run depreciation of a currency is likely to be greater than a long-run depreciation of that currency.TrueExchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.FalseConcerning exchange rate forecasting, fundamental analysis involves consideration of a variety of macroeconomic variables and policies that tend to affect currency values.TrueConcerning exchange rate forecasting, technical analysis extrapolates from past exchange-rate trends while ignoring economic and political determinants of exchange rates.TrueAccording to the Keynesian income-adjustment mechanism, income differentials among nations guarantee current-account equilibrium in a world of fixed exchange rates.FalseThe purpose of currency revaluation is to cause an appreciation in a currency's exchange value.TrueAs yen-denominated costs become a larger portion of Ford's total costs, a dollar appreciation results in a smaller increase in the yen-denominated cost of a Ford auto than occurs when all input costs are dollar denominated.TrueThe Marshall-Lerner condition suggests that if the sum of a country's elasticity of demand for imports and the foreign elasticity of demand for the country's exports exceeds 1.0, an appreciation of the country's exchange rate will worsen its balance of trade.TrueThe J-curve effect implies that in the short run a currency depreciation will result in a balance of trade surplus for the home country. As time passes, however, the home country's balance of trade will move toward deficit.FalseOn the balance-of-payments statements, merchandise imports are classified in the: a. Current account b. Capital account c. Unilateral transfer account d. Official settlements accounta. Current accountThe balance of international indebtedness is a record of a country's international: a. Investment position over a period of time b. Investment position at a fixed point in time c. Trade position over a period of time d. Trade position at a fixed point in timeb. Investment position at a fixed point in timeWhich balance-of-payments item does not directly enter into the calculation of the U.S. gross domestic product? a. Merchandise imports b. Shipping and transportation receipts c. Direct foreign investment d. Service exportsc. Direct foreign investmentWhich of the following is considered a capital inflow? a. A sale of U.S. financial assets to a foreign buyer b. A loan from a U.S. bank to a foreign borrower c. A purchase of foreign financial assets by a U.S. buyer d. A U.S. citizen's repayment of a loan from a foreign banka. A sale of U.S. financial assets to a foreign buyerWhich of the following would call for inpayments to the United States? a. American imports of German steel b. Gold flowing out of the United States c. American unilateral transfers to less-developed countries d. American firms selling insurance to British shipping companiesd. American firms selling insurance to British shipping companiesIn a country's balance of payments, which of the following transactions are debits? a. Domestic bank balances owned by foreigners are decreased b. Foreign bank balances owned by domestic residents are decreased c. Assets owned by domestic residents are sold to nonresidents d. Securities are sold by domestic residents to nonresidentsa. Domestic bank balances owned by foreigners are decreasedWhich of the following is classified as a credit in the U.S. balance of payments? a. U.S. exports b. U.S. gifts to other countries c. A flow of gold out of the U.S. d. Foreign loans made by U.S. companiesa. U.S. exportsUnlike the balance of payments, the balance of international indebtedness indicates the international: a. Investment position of a country at a given moment in time b. Investment position of a country over a one-year period c. Trade position of a country at a given moment in time d. Trade position of a country over a one-year perioda. Investment position of a country at a given moment in timeWhich of the following indicates the international investment position of a country at a given moment in time? a. The balance of payments b. The capital account of the balance of payments c. The current account of the balance of payments d. The balance of international indebtednessd. The balance of international indebtednessConcerning the U.S. balance of payments, which account is defined in essentially the same way as the net export of goods and services, which comprises part of the country's gross domestic product? a. Merchandise trade account b. Goods and services account c. Current account d. Capital accountb. Goods and services accountIf an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the transaction would be recorded on the U.S. balance of payments as a: a. Capital account debit b. Capital account credit c. Current account debit d. Current account creditd. Current account creditIf the United States government sells military hardware to Saudi Arabia, the transaction would be recorded on the U.S. balance of payments as a: a. Current account debit b. Current account credit c. Capital account debit d. Capital account creditb. Current account creditThe U.S. balance of trade is determined by: a. Exchange rates b. Growth of economies overseas c. Relative prices in world markets d. All of the aboved. All of the aboveU.S. military aid granted to foreign countries is entered in the: a. Merchandise trade account b. Capital account c. Current account d. Official settlements accountc. Current accountIf the U.S. faces a balance-of-payments deficit on the current account, it must run a surplus on: a. The official settlements account b. The capital account c. Either the official settlements account or the capital account d. Both the official settlements account and the capital accountc. Either the official settlements account or the capital accountThe current account of the U.S. balance of payments does not include: a. Investment income b. Merchandise exports and imports c. The sale of securities to foreigners d. Unilateral transfersc. The sale of securities to foreignersThe U.S. has a balance of trade deficit when its: a. Merchandise exports exceed its merchandise imports b. Merchandise imports exceed its merchandise exports c. Goods and services exports exceed its goods and services imports d. Goods and services imports exceed its goods and services exportsb. Merchandise imports exceed its merchandise exportsThe value to American residents of income earned from overseas investments shows up in which account in the U.S. balance of payments? a. Current account b. Trade account c. Unilateral transfers account d. Capital accounta. Current accountFor the first time since World War I, in 1985 the United States became a net international: a. Exporter b. Importer c. Debtor d. Creditorc. DebtorA country that is a net international debtor initially experiences: a. An augmented savings pool available to finance domestic spending b. A higher interest rate, which leads to lower domestic investment c. A loss of funds to trading partners overseas d. A decrease in its services exports to other countriesa. An augmented savings pool available to finance domestic spendingCredit (+) items in the balance of payments correspond to anything that: a. Involves receipts from foreigners b. Involves payments to foreigners c. Decreases the domestic money supply d. Increases the demand for foreign exchangea. Involves receipts from foreignersDebt (-) items in the balance of payments correspond to anything that: a. Involves receipts from foreigners b. Involves payments to foreigners c. Increases the domestic money supply d. Decreases the demand for foreign exchangeb. Involves payments to foreignersWhen all of the debit or credit items in the balance of payments are combined: a. Merchandise imports equal merchandise exports b. Capital imports equal capital exports c. Services exports equal services imports d. The total surplus or deficit equals zerod. The total surplus or deficit equals zeroIn the balance of payments, the statistical discrepancy is used to: a. Ensure that the sum of all debits matches the sum of all credits b. Ensure that trade imports equal the value of trade exports c. Obtain an accurate account of a balance-of-payments deficit d. Obtain an accurate account of a balance-of-payments surplusa. Ensure that the sum of all debits matches the sum of all creditsAll of the following are credit items in the balance of payments, except: a. Investment inflows b. Merchandise exports c. Payments for American services to foreigners d. Private gifts to foreign residentsd. Private gifts to foreign residentsAll of the following are debit items in the balance of payments, except: a. Capital outflows b. Merchandise exports c. Private gifts to foreigners d. Foreign aid granted to other nationsb. Merchandise exportsThe role of ____ is to direct one nation's savings into another nation's investments: a. Merchandise trade flows b. Services flows c. Current account flows d. Capital flowsd. Capital flowsWhen a country realizes a deficit on its current account: a. Its net foreign investment position becomes positive b. It becomes a net demander of funds from other countries c. It realizes an excess of imports over exports on goods and services d. It becomes a net supplier of funds to other countriesb. It becomes a net demander of funds from other countriesReducing a current account deficit requires a country to: a. Increase private saving relative to investment b. Increase private consumption relative to saving c. Increase private investment relative to consumption d. Increase private investment relative to savinga. Increase private saving relative to investmentReducing a current account deficit requires a country to: a. Increase the government's deficit and increase private investment relative to saving b. Increase the government's deficit and decrease private investment relative to saving c. Decrease the government's deficit increase private investment relative to saving d. Decrease the government's deficit and decrease private investment relative to savingd. Decrease the government's deficit and decrease private investment relative to savingReducing a current account surplus requires a country to: a. Increase the government's deficit and increase private investment relative to saving b. Increase the government's deficit and decrease private investment relative to saving c. Decrease the government's deficit and increase private investment relative to saving d. Decrease the government's deficit and decrease private investment relative to savinga. Increase the government's deficit and increase private investment relative to savingConcerning a country's business cycle, rapid growth of production and employment is commonly associated with: a. Large or growing trade deficits and current account deficits b. Large or growing trade deficits and current account surpluses c. Small or shrinking trade deficits and current account deficits d. Small or shrinking trade deficits and current account surplusesa. Large or growing trade deficits and current account deficitsThe burden of a current account deficit would be the least if a nation uses what it borrows to finance: a. Unemployment compensation benefits b. Social Security benefits c. Expenditures on food and recreation d. Investment on plant and equipmentd. Investment on plant and equipmentConcerning a country's business cycle, ____ is commonly associated with large or growing current account deficits: a. Rapid growth rates of production and employment b. Slow growth rates of production and employment c. Falling interest rates on government securities d. Falling interest rates on corporate securitiesa. Rapid growth rates of production and employmentAccording to researchers at the Federal Reserve, the loss of jobs associated with a deficit in the current account tends to be: a. Offset by the increase of jobs associated with a surplus in the capital account b. Reinforced by the decrease of jobs associated with a surplus in the capital account c. A threat to the level of employment for the economy as a whole d. Of no long-run economic consequence for workers who lose their jobsa. Offset by the increase of jobs associated with a surplus in the capital accountIf an American purchases a ticket from Scandinavian Airlines, paying by a personal check, which entries result in the balance-of-payments accounts of Norway or the United States? a. ​a credit in Norway's service account b. ​a debit in Norway's service account c. ​a credit in the U.S. unilateral transfers account d. ​a debit in the U.S. unilateral transfers account ANSWER: aa. ​a credit in Norway's service accountIf a resident of Japan purchases a ticket from American Airlines, paying by a personal check, which entries result in the balance-of-payments accounts of Japan or the United States? a. ​a debit in the U.S. service account b. ​a credit in the U.S. service account c. ​a credit in Japan's unilateral transfers account d. ​a debit in Japan's unilateral transfers accountb. ​a credit in the U.S. service accountA credit transaction would appear on the balance of payments as a result of a. ​the import of goods and services b. ​domestic residents touring overseas c. ​transfer payments made to foreign relatives d. ​an inflow of investment capitald. ​an inflow of investment capitalA debit transaction would appear on the balance of payments as a result of a. ​the export of goods abroad b. ​the export of services abroad c. ​transfer payments received by domestic residents d. ​outflows of investment capitald. ​outflows of investment capitalThe current account of the United States includes all of the following except a. ​trade in goods and services b. ​unilateral transfers c. ​income receipts and payments d. ​gold flows between the United States and foreign central banksd. ​gold flows between the United States and foreign central banksThe _____ tabulates the U.S. Balance of Payments a. ​U.S. International Trade Commission b. ​U.S. Department of Labor c. ​Council of Advisors to the Presidents d. ​U.S. Department of Commerced. ​U.S. Department of CommerceCredit items on the U.S. balance of payments statement result in a. ​a deficit on the current account of the United States b. ​a deficit on the capital and financial account of the United States c. ​an inflow of foreign exchange for the United States d. ​an outflow of foreign exchange for the United Statesc. ​an inflow of foreign exchange for the United StatesIf Japanese investors purchase Treasury Bills of the U.S. government, this results in a a. ​debit transaction in the U.S. current account b. ​credit transaction in the U.S. current account c. ​debit transaction in the U.S. capital and financial account d. ​credit transaction in the U.S. capital and financial accountd. ​credit transaction in the U.S. capital and financial accountIf U.S. investors purchase Treasury Bills of the British government, this results in a a. ​debit transaction in the U.S. current account b. ​credit transaction in the U.S. current account c. ​debit transaction in the U.S. capital and financial account d. ​credit transaction in the U.S. capital and financial accountc. ​debit transaction in the U.S. capital and financial accountA deficit in the U.S. current account is offset by a surplus a. ​in the U.S. trade account b. ​in the U.S. balance of payments c. ​in the U.S. capital and financial account d. ​in the U.S. official reserve assetsc. ​in the U.S. capital and financial accountIn recent years, ______ has been the world's largest international debtor a. ​the United States b. ​China c. ​Japan d. ​the United Kingdoma. ​the United StatesA debit in the U.S. current account would be represented by a. ​earnings on U.S. investments abroad flowing into the United States b. ​gifts that Americans make to the poor in Africa c. ​Chinese investors purchasing the securities of the U.S. government d. ​exports of Boeing jetliners to South Koreab. ​gifts that Americans make to the poor in AfricaIf General Electric Inc. pays dividends to its Canadian stockholders, this represents a a. ​debit in the U.S. current account b. ​credit in the U.S. current account c. ​debit in the U.S. capital and financial account d. ​credit in the U.S. capital and financial accounta. ​debit in the U.S. current account​If the United States is a net borrower-from or lender-to the rest of the world, this is best indicated by the U.S. a. ​balance of payments position b. ​current account balance c. ​merchandise trade balance d. ​net export balanceb. ​current account balanceThe value of direct investment by Ford Motor Co. in Canada is included in the U.S. a. ​capital and financial account b. ​current account c. ​net export account d. ​merchandise trade accounta. ​capital and financial accountTo "balance" the U.S. balance of payments, U.S. Commerce Department statisticians employ a. ​accounting transactions b. ​inflows or outflows of gold reserves c. ​statistical discrepancy d. ​inflows or outflows of government securitiesc. ​statistical discrepancyConcerning the U.S. balance of payments statement, the sum of debits and credits on all transactions will always a. ​be equal b. ​show a deficit c. ​show a surplus d. ​be unequala. ​be equalWhen the United States imports goods and services from other countries, the United States a. ​makes payments to other countries b. ​receives payments from other countries c. ​becomes a net lender to other countries d. ​receives interest income from other countriesa. ​makes payments to other countriesThe balance of payments statement records a. ​only changes in a country's official reserve assets that occur over a period of time b. ​only changes in a country's trade flows that occur over a period of time c. ​only the flow of labor and capital among countries over a period of time d. ​the international trading, lending, and borrowing transactions among countries over a period of timed. ​the international trading, lending, and borrowing transactions among countries over a period of timeConcerning the balance of payments statement, the ______ indicates the receipts from exports of goods and services sold overseas, the payments for imports of goods and services from overseas, unilateral transfers (net), and income receipts and payments (net) a. ​capital and financial account b. ​current account c. ​official reserve asset account d. ​monetary gold accountb. ​current accountFor the United States, the largest component of its current account transactions consists of a. ​payments for imports of goods and services and receipts from exports of goods and services b. ​payments for military transactions with other countries c. ​travel and transportations payments and receipts with other countries d. ​unilateral transfers to other countries and from other countriesa. ​payments for imports of goods and services and receipts from exports of goods and servicesMary Smith, a resident of Denver Colorado, purchases a Swiss watch in Chicago. On the U.S. balance of payments statement, this transaction appears on the a. ​official reserve asset account b. ​net borrowing and lending account c. ​current account d. ​services accountc. ​current accountThe current account of the United States would move toward a surplus as a result of a. ​U.S. households importing beer from German breweries b. ​Chinese investors purchasing securities of the U.S. government c. ​German tourists visiting Yellowstone National Park d. ​U.S. construction firms contracting with Japanese architects to design their buildingsc. ​German tourists visiting Yellowstone National ParkFor the U.S. balance of payments statement, which of the following is not recorded in the capital and financial account? a. ​net interest income from international investments b. ​purchases of Chinese stocks and bonds c. ​sales of Mexican stocks and bonds d. ​the acquiring of a business firm in another countrya. ​net interest income from international investmentsA negative balance in the capital and financial account suggests that a country a. ​is realizing a surplus on its current account b. ​is realizing a deficit on its current account c. ​borrowing from the rest of the world d. ​imports more goods and services than it exportsa. ​is realizing a surplus on its current accountA positive balance in the capital and financial account suggests that a country a. ​is realizing a surplus on its current account b. ​is realizing a deficit on its current account c. ​lending to the rest of the world d. ​exports more goods and services than it importsb. ​is realizing a deficit on its current accountA Canadian lumber company purchases a saw mill in the state of Washington. On the U.S. balance of payments statement, this transaction appears in the a. ​current account b. ​net exports account c. ​net imports account d. ​capital and financial accountd. ​capital and financial account​If the United States has a negative balance on its current account, it a. ​is a net lender to the rest of the world b. ​is a net borrower from the rest of the world c. ​realizes a negative balance on its capital and financial account d. ​runs a surplus in the budget of the federal governmentb. ​is a net borrower from the rest of the worldConcerning the U.S. balance of payments statement, throughout the past 30 years a. ​the current account balance and the capital account balance have moved in the opposite direction b. ​the current account balance and the capital account balance have moved in the same direction c. ​the official reserve assets of the U.S. government have shrunk to zero d. ​the official reserve assets of the U.S. government have increased in infinite amountsa. ​the current account balance and the capital account balance have moved in the opposite directionThroughout the past 30 years, the U.S. balance-of-payments statement has indicated a. ​a positive balance on the current account; a positive balance on the capital and financial account b. ​a negative balance on the current account; a negative balance on the capital and financial account c. ​a positive balance on the current account; a negative balance on the capital and financial account d. ​a negative balance on the current account; a positive balance on the capital and financial accountd. ​a negative balance on the current account; a positive balance on the capital and financial account​If Japan lends more to the rest of the world than it borrows from the rest of the world, Japan is a a. ​net borrowing country b. ​net lending country c. ​net exporting country of goods and services d. ​net importing country of goods and servicesb. ​net lending countryIn recent years, the United States has been an example of a. ​a net exporter of goods b. ​a net importer of services c. ​a net lending country d. ​a net borrowing countryd. ​a net borrowing country​If Germany has invested over its history more in other countries than other countries have invested in Germany, then Germany is a a. ​net creditor nation b. ​net debtor nation c. ​net importer of goods and services d. ​net exporter of stocks and bondsa. ​net creditor nationOver its history, suppose that France has borrowed more from the rest of the world than it has lent to the rest of the world. This means that France a. ​has realized continuous surpluses in its current account b. ​has realized continuous surpluses in its goods and services account c. ​is a net debtor nation d. ​is a net creditor nationc. ​is a net debtor nationIf the U.S current account balance is negative a. ​the United States lends to other countries who purchase goods and services from the United States b. ​the United States borrows from other countries to pay for the goods and services that the United States buys from them c. ​the U.S. balance of international indebtedness shows that the United States is a net creditor nation d. ​the U.S. balance of international indebtedness shows that the United States is a net exporting nationb. ​the United States borrows from other countries to pay for the goods and services that the United States buys from themThe United States realizes several benefits from the dollar serving as the main reserve currency of the world, including a. ​Americans can buy goods at a marginally cheaper price than households in other nations who must exchange their currency with each purchase and pay a transaction cost b. ​Americans can borrow at lower interest rates for homes and automobiles c. ​the U.S. government can finance larger deficits longer and at lower interest rates d. ​all of the aboved. ​all of the aboveIn recent years, the two largest holders of U.S. government securities have been a. ​China and Japan b. ​Mexico and Canada c. ​Brazil and Spain d. ​Germany and Francea. ​China and JapanAdopting the Special Drawing Right (SDR) as a reserve currency might possibly occur if the United States was to operate continuous bad economic policy in the form of a. ​deficit spending b. ​high inflation c. ​currency depreciation d. ​all of the aboved. ​all of the aboveFor the United States, a loss in its reserve currency position would likely result in several costs, including all of the above a. ​Americans would have to pay more for imported goods as the dollar depreciates b. ​interest rates on both private and governmental debt would increase c. ​the economic supremacy of the United States would be lessened d. ​all of the aboved. ​all of the aboveThe ______ is currently the main reserve currency of the global trading and financial system a. ​Euro b. ​U.S. dollar c. ​British pound d. ​Chinese yuanb. ​U.S. dollarAs the world's main reserve currency, the U.S. dollar is used throughout the world as a a. ​medium of exchange b. ​unit of account c. ​store of value d. ​all of the aboved. ​all of the aboveAbout two-thirds of the world's official foreign exchange reserves are held in a. ​Swiss francs b. ​British pounds c. ​Japanese yen d. ​U.S. dollarsd. ​U.S. dollarsWhich of the following tends to cause the US dollar to appreciate in value?rapid economic growth in foreign countriesAn appreciation in the value of the US dollar against the British pound would tend todiscourage the British from buying American goodsSuppose that real incomes increase more rapidly in the US than in Mexico. In the US, this situation would likely result in a(n)increase in demand for pesosA depreciation of the dollar refers toan increase in the dollar price of foreign currencyif Canadian speculators believed the swiss franc was going to appreciate against the US dollar, they wouldpurchase Swiss francsA major difference between the spot market and the forward market is that the spot market deals withthe immediate delivery of currenciesThe exchange rate is kept the same in all parts of the market byexchange arbitragean increase in the dollar price of other currencies tends to causeUS goods to be cheaper than foreign goodsa US export company scheduled to receive 1 million pounds 6 months from today can hedge its foreign exchange risk byselling 1 million pounds in the forward market today for delivery in 6 monthsSuppose the exchange rate between the Japanese yen and the US dollar is 100 yen per dollar. A Japanese stereo with a price of 60,000 yen will cost$600In the presence of purchasing-power parity, if one dollar exchanges for two British pounds and if a VCR costs $400 in the US, then in Great Britain the VCR should cost800 poundsThe appreciation in the value of the dollar in the early 1980s is explained by all of the following EXCEPT relatively high inflation rates in the USrelatively high inflation rates in the USIf Canada runs a trade surplus with Mexico, and exchange rates are floating, thenthe peso will depreciate relative to the dollargiven a system of floating exchange rates, stronger US preferences for imports would triggeran increase in the demand for imports and an increase in the demand for foreign currencygiven a system of floating exchange rates, weaker US preferences for imports would triggera decrease in the demand for imports and a decrease in the demand for foreign currencyunder a system of floating exchange rates, relatively low productivity and high inflation rates in the US result inan increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollarunder a system of floating exchange rates, relatively high productivity and low inflation rates in the US result ina decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollarwhich example of market expectations causes the dollar to appreciate against the yen? Expectations that the US economy will havehigher future interest rates than Japanwhich of the following is likely to result in long-run depreciation of the US dollar relative to the euro?stronger American preferences for goods produced in Europewhich of the following is likely to result in long-run appreciation of the US dollar relative to the peso?stronger Mexican preferences for goods produced in the USAssume that Brazil has a constant money supply and that it devalues its currency. The monetary approach to devaluation reasons that one of the following tends to occur for Brazildomestic prices rise, the purchasing power of money falls, and consumption fallsan appreciation of the US dollar tends todiscourage foreigners from making investments in the USAmerican citizens planning a vacation abroad would welcomean appreciation of the dollarFrom 1985 to 1988 the US dollar depreciated over 50% against the yen, yet Japanese export prices to Americans did not come down the full extent of the dollar depreciation. This is best explained bypartial currency pass-throughwhich approach predicts that if an economy operates at full employment and faces a trade deficit, currency devaluation (depreciation) will improve the trade balance only if domestic spending is cut, thus freeing resources to produce exports?the absorption approachassume that Ford Motor Company obtains all of its inputs in the US and all of its costs are denominated in dollars. An appreciation of the dollar's exchange valueworsens its international competitivenessthe ___ refers to the extent to which changing currency values result in changes in import and export pricespass-through effectconcerning a currency depreciation, the elasticity approach and the absorption approach are theories that deal with the impact of the depreciation onexports and imports of goods and servicesgiven favorable elasticity conditions, other things equal a depreciation of the euro tends to result inhigher pries of imported products for italyaccording to the J-curve effect, currency appreciationincreases a trade surplus before decreasing a trade surpluswhich of the following is considered a capital inflow?a sale of US financial assets to a foreign buyerwhich of the following would call for an inflow of payments to the United States?American firms selling insurance to British shipping companiesin a country's balance-of-payments, which of the following transactions are debits?domestic bank balances owned by foreigners are decreasedwhich of the following is classified as a credit in the US balance-of-payments?US exportsif an American purchases a ticket from Scandinavian Airlines, paying by a personal check, which of the following entries would be the result?a credit in Norway's service accountif a resident of Japan purchases an insurance policy from the US insurance company Progressive, which of the following entries would be the result?a credit in the US service accounta credit transaction would appear on the balance-of-payments as a result ofan inflow of investment capitala debit transaction would appear on the balance-of-payments as a result ofoutflows of investment capitalif Japanese investors purchase Treasury bills of the US government, this results in acredit transaction in the US capital and financial accountif the US investors purchase Treasury bills of the British government, this results in adebit transaction in the US capital and financial accountOn the balance-of-payments statements, merchandise imports are classified in the: a. Current account b. Capital account c. Unilateral transfer account d. Official settlements accounta. Current accountThe balance of international indebtedness is a record of a country's international: a. Investment position over a period of time b. Investment position at a fixed point in time c. Trade position over a period of time d. Trade position at a fixed point in timeb. Investment position at a fixed point in timeWhich balance-of-payments item does not directly enter into the calculation of the U.S. gross domestic product? a. Merchandise imports b. Shipping and transportation receipts c. Direct foreign investment d. Service exportsc. Direct foreign investmentWhich of the following is considered a capital inflow? a. A sale of U.S. financial assets to a foreign buyer b. A loan from a U.S. bank to a foreign borrower c. A purchase of foreign financial assets by a U.S. buyer d. A U.S. citizen's repayment of a loan from a foreign banka. A sale of U.S. financial assets to a foreign buyerWhich of the following would call for inpayments to the United States? a. American imports of German steel b. Gold flowing out of the United States c. American unilateral transfers to less-developed countries d. American firms selling insurance to British shipping companiesd. American firms selling insurance to British shipping companiesIn a country's balance-of-payments, which of the following transactions are debits? a. Domestic bank balances owned by foreigners are decreased b. Foreign bank balances owned by domestic residents are decreased c. Assets owned by domestic residents are sold to nonresidents d. Securities are sold by domestic residents to nonresidentsa. Domestic bank balances owned by foreigners are decreasedWhich of the following is classified as a credit in the U.S. balance-of-payments? a. U.S. exports b. U.S. gifts to other countries c. A flow of gold out of the U.S. d. Foreign loans made by U.S. companiesa. U.S. exportsRefer to Table 10.1. The goods and services balance equals: a. $5 billion b. $15 billion c. $20 billion d. $25 billionc. $20 billionRefer to Table 10.1. The current account balance equals: a. -$5 billion b. -$10 billion c. -$15 billion d. -$20 billionc. -$15 billionUnlike the balance-of-payments, the balance of international indebtedness indicates the international: a. Investment position of a country at a given moment in time b. Investment position of a country over a one-year period c. Trade position of a country at a given moment in time d. Trade position of a country over a one-year perioda. Investment position of a country at a given moment in timeWhich of the following indicates the international investment position of a country at a given moment in time? a. The balance-of-payments b. The capital account of the balance-of-payments c. The current account of the balance-of-payments d. The balance of international indebtednessd. The balance of international indebtednessConcerning the U.S. balance-of-payments, which account is defined in essentially the same way as the net export of goods and services, which comprises part of the country's gross domestic product? a. Merchandise trade account b. Goods and services account c. Current account d. Capital accountb. Goods and services accountIf an American receives dividends from the shares of stock she or he owns in Toyota, Inc., a Japanese firm, the transaction would be recorded on the U.S. balance-of-payments as a: a. Capital account debit b. Capital account credit c. Current account debit d. Current account creditd. Current account creditIf the United States government sells military hardware to Saudi Arabia, the transaction would be recorded on the U.S. balance-of-payments as a: a. Current account debit b. Current account credit c. Capital account debit d. Capital account creditb. Current account creditThe U.S. balance of trade is determined by: a. Exchange rates b. Growth of economies overseas c. Relative prices in world markets d. All of the aboved. All of the aboveU.S. military aid granted to foreign countries is entered in the: a. Merchandise trade account b. Capital account c. Current account d. Official settlements accountc. Current accountIf the U.S. faces a balance-of-payments deficit on the current account, it must run a surplus on: a. The official settlements account b. The capital account c. Either the official settlements account or the capital account d. Both the official settlements account and the capital accountc. Either the official settlements account or the capital accountThe current account of the U.S. balance-of-payments does not include: a. Investment income b. Merchandise exports and imports c. The sale of securities to foreigners d. Unilateral transfersc. The sale of securities to foreignersThe U.S. has a balance of trade deficit when its: a. Merchandise exports exceed its merchandise imports b. Merchandise imports exceed its merchandise exports c. Goods and services exports exceed its goods and services imports d. Goods and services imports exceed its goods and services exportsb. Merchandise imports exceed its merchandise exportsThe value to American residents of income earned from overseas investments shows up in which account in the U.S. balance-of- payments? a. Current account b. Trade account c. Unilateral transfers account d. Capital accounta. Current accountConsider Table 10.2. The U.S. balance of international indebtedness suggests that the United States is a net: a. Debtor b. Creditor c. Spender d. Exporterb. CreditorFor the first time since World War I, in 1985 the United States became a net international: a. Exporter b. Importer c. Debtor d. Creditorc. DebtorA country that is a net international debtor initially experiences: a. An augmented savings pool available to finance domestic spending b. A higher interest rate, which leads to lower domestic investment c. A loss of funds to trading partners overseas d. A decrease in its services exports to other countriesa. An augmented savings pool available to finance domestic spendingCredit (+) items in the balance-of-payments correspond to anything that: a. Involves receipts from foreigners b. Involves payments to foreigners c. Decreases the domestic money supply d. Increases the demand for foreign exchangea. Involves receipts from foreignersDebt (-) items in the balance-of-payments correspond to anything that: a. Involves receipts from foreigners b. Involves payments to foreigners c. Increases the domestic money supply d. Decreases the demand for foreign exchangeb. Involves payments to foreignersWhen all of the debit or credit items in the balance-of-payments are combined: a. Merchandise imports equal merchandise exports b. Capital imports equal capital exports c. Services exports equal services imports d. The total surplus or deficit equals zerod. The total surplus or deficit equals zeroIn the balance-of-payments, the statistical discrepancy is used to: a. Ensure that the sum of all debits matches the sum of all credits b. Ensure that trade imports equal the value of trade exports c. Obtain an accurate account of a balance-of-payments deficit d. Obtain an accurate account of a balance-of-payments surplusa. Ensure that the sum of all debits matches the sum of all creditsAll of the following are credit items in the balance-of-payments except: a. Investment inflows b. Merchandise exports c. Payments for American services to foreigners d. Private gifts to foreign residentsd. Private gifts to foreign residentsAll of the following are debit items in the balance-of-payments except: a. Capital outflows b. Merchandise exports c. Private gifts to foreigners d. Foreign aid granted to other nationsb. Merchandise exportsThe role of ________ is to direct one nation's savings into another nation's investments. a. Merchandise trade flows b. Services flows c. Current account flows d. Capital flowsd. Capital flowsWhen a country realizes a deficit on its current account: a. Its net foreign investment position becomes positive b. It becomes a net demander of funds from other countries c. It realizes an excess of imports over exports on goods and services d. It becomes a net supplier of funds to other countriesb. It becomes a net demander of funds from other countriesReducing a current account deficit requires a country to: a. Increase private saving relative to investment b. Increase private consumption relative to saving c. Increase private investment relative to consumption d. Increase private investment relative to savinga. Increase private saving relative to investmentReducing a current account deficit requires a country to: a. Increase the government's deficit and increase private investment relative to saving b. Increase the government's deficit and decrease private investment relative to saving c. Decrease the government's deficit increase private investment relative to saving d. Decrease the government's deficit and decrease private investment relative to savingd. Decrease the government's deficit and decrease private investment relative to savingReducing a current account surplus requires a country to: a. Increase the government's deficit and increase private investment relative to saving b. Increase the government's deficit and decrease private investment relative to saving c. Decrease the government's deficit and increase private investment relative to saving d. Decrease the government's deficit and decrease private investment relative to savinga. Increase the government's deficit and increase private investment relative to savingConcerning a country's business cycle, rapid growth of production and employment is commonly associated with: a. Large or growing trade deficits and current account deficits b. Large or growing trade deficits and current account surpluses c. Small or shrinking trade deficits and current account deficits d. Small or shrinking trade deficits and current account surplusesa. Large or growing trade deficits and current account deficitsThe burden of a current account deficit would be the least if a nation uses what it borrows to finance: a. Unemployment compensation benefits b. Social Security benefits c. Expenditures on food and recreation d. Investment on plant and equipmentd. Investment on plant and equipmentConcerning a country's business cycle, ________ is commonly associated with large or growing current account deficits. a. Rapid growth rates of production and employment b. Slow growth rates of production and employment c. Falling interest rates on government securities d. Falling interest rates on corporate securitiesa. Rapid growth rates of production and employmentAccording to researchers at the Federal Reserve, the loss of jobs associated with a deficit in the current account tends to be: a. Offset by the increase of jobs associated with a surplus in the capital account b. Reinforced by the decrease of jobs associated with a surplus in the capital account c. A threat to the level of employment for the economy as a whole d. Of no long-run economic consequence for workers who lose their jobsa. Offset by the increase of jobs associated with a surplus in the capital accountAssume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days. You can remove the risk of loss due to a devaluation of the pound sterling by: a. Selling sterling in the forward market for 60-day delivery b. Buying sterling now and selling it at the end of 60 days c. Selling the dollar equivalent in the forward market for 60-day delivery d. Keeping the sterling in Britain after it is delivered to youa. Selling sterling in the forward market for 60-day deliveryWhich of the following tends to cause the U.S. dollar to appreciate in value? a. An increase in U.S. prices above foreign prices b. Rapid economic growth in foreign countries c. A fall in U.S. interest rates below foreign levels d. An increase in the level of U.S. incomeb. Rapid economic growth in foreign countriesConcerning the covering of exchange market risks and with the assumption that a deprecia-tion of the domestic currency is anticipated, one can say that there is an incentive for: a. Exporters to rush to cover their future needs b. Importers to rush to cover their future needs c. Both exporters and importers to rush to cover their future needs d. Neither exporters nor importers to rush to cover their future needsb. Importers to rush to cover their future needsWhen short-term interest rates become lower in Tokyo than in New York, interest arbitrage operations will most likely result in a(n): a. Increase in the spot price of the yen b. Increase in the forward price of the dollar c. Sale of dollars in the forward market d. Purchase of yen in the spot marketc. Sale of dollars in the forward marketAn appreciation in the value of the U.S. dollar against the British pound would tend to: a. Discourage the British from buying American goods b. Discourage Americans from buying British goods c. Increase the number of dollars that could be bought with a pound d. Discourage U.S. tourists from traveling to Britaina. Discourage the British from buying American goodsConcerning the foreign exchange market, one can best say that: a. There is a spot market for virtually every currency in the world b. The market is highly centralized like the stock exchange c. Most foreign exchange payments are made with bank notes d. The values of the forward and spot rates are always in agreementa. There is a spot market for virtually every currency in the worldSuppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice. This finding would likely result in a(n): a. Increase in the demand for Swiss francs b. Decrease in the demand for Swiss francs c. Increase in the supply of Swiss francs d. Decrease in the supply of Swiss francsb. Decrease in the demand for Swiss francsSuppose that real incomes increase more rapidly in the United States than in Mexico. In the United States, this situation would likely result in a(n): a. Increase in the demand for pesos b. Decrease in the demand for pesos c. Increase in the supply of pesos d. Decrease in the supply of pesosa. Increase in the demand for pesosA depreciation of the dollar refers to a(n): a. Fall in the dollar price of foreign currency b. Increase in the dollar price of foreign currency c. Loss of foreign-exchange reserves for the United States d. Intervention in the international money marketb. Increase in the dollar price of foreign currencyIf Canadian speculators believed the Swiss franc was going to appreciate against the U.S. dollar, they would: a. Purchase Canadian dollars b. Purchase U.S. dollars c. Purchase Swiss francs d. Sell Swiss francsc. Purchase Swiss francsA major difference between the spot market and the forward market is that the spot market deals with: a. The immediate delivery of currencies b. The merchandise trade account c. Currencies traded for future delivery d. Hedging of international currency risksa. The immediate delivery of currenciesThe exchange rate is kept the same in all parts of the market by: a. Forward cover b. Hedging c. Exchange speculation d. Exchange arbitraged. Exchange arbitrageIf you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, you could remove the risk of loss due to the appreciation of the pound by: a. Buying dollars in the forward market for delivery in 30 days b. Selling dollars in the forward market for delivery in 30 days c. Buying the pounds in the forward market for delivery in 30 days d. Selling the pounds in the forward market for delivery in 30 daysc. Buying the pounds in the forward market for delivery in 30 daysAn increase in the dollar price of other currencies tends to cause: a. U.S. goods to be cheaper than foreign goods b. U.S. goods to be more expensive than foreign goods c. Foreign goods to be more expensive to residents of foreign nations d. Foreign goods to be cheaper to residents of the United Statesa. U.S. goods to be cheaper than foreign goodsThe balance on merchandise trade: a. Must be negative b. Must be positive c. Must be zero d. May be negative, positive, or zerod. May be negative, positive, or zeroWhich of the following would not induce the U.S. demand curve for foreign exchange to shift backward to the left? a. Worsening American tastes for goods produced overseas b. Decreasing interest rates in the U.S. compared to those overseas c. A fall in the level of U.S. income d. A depreciation in the U.S. dollar against foreign currenciesd. A depreciation in the U.S. dollar against foreign currenciesA U.S. export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by: a. Buying today 1 million pounds in the forward market for delivery in six months b. Buying 1 million pounds in the spot market for delivery in six months c. Selling 1 million pounds in the spot market for delivery in six months d. Selling today 1 million pounds in the forward market for delivery in six monthsd. Selling today 1 million pounds in the forward market for delivery in six monthsOver time, a depreciation in the value of a nation's currency in the foreign exchange market will result in: a. Exports rising and imports falling b. Imports rising and exports falling c. Both imports and exports rising d. Both imports and exports fallinga. Exports rising and imports fallingGrain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and: a. Reduce the demand for dollars b. Increase the demand for dollars c. Reduce the supply of dollars d. Increase the supply of dollarsb. Increase the demand for dollarsSuppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. A Japanese stereo with a price of 60,000 yen will cost: a. $60 b. $600 c. $6,000 d. None of the aboveb. $600The supply of foreign currency may be: a. Upward-sloping b. Backward-sloping c. Vertical d. None of the aboved. None of the aboveSuppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is: a. 2 francs per dollar b. 1 franc per dollar c. $2 per franc d. $3 per franca. 2 francs per dollarIn the early 1980s, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact of that policy was to ________ interest rates in the United States relative to those in Europe and cause the dollar to ________ against European currencies. a. Decrease, depreciate b. Decrease, appreciate c. Increase, depreciate d. Increase, appreciated. Increase, appreciateUnder a system of floating exchange rates, the Swiss franc would depreciate in value if which of the following occurs? a. Price inflation in France b. An increase in U.S. real income c. A decrease in the Swiss money supply d. Falling interest rates in Switzerlandd. Falling interest rates in SwitzerlandA depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is: a. Constant b. Inelastic c. Elastic d. Unitary elasticc. ElasticDuring the era of dollar appreciation, from 1981 to 1985, a main reason why the dollar did not fall in value was: a. Flows of foreign investment into the United States b. Rising price inflation in the United States c. A substantial decrease in U.S. imports d. A substantial increase in U.S. exportsa. Flows of foreign investment into the United StatesWhich financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price, within a few days to a couple of years? a. Letter of credit b. Foreign currency option c. Cable transfer d. Bill of exchangeb. Foreign currency optionGiven the foreign currency market for the Swiss franc, the supply of francs slopes upward because as the dollar price of the franc rises: a. America's demand for Swiss merchandise rises b. America's demand for Swiss merchandise falls c. Switzerland's demand for American merchandise rises d. Switzerland's demand for American merchandise fallsc. Switzerland's demand for American merchandise risesIn a supply-and-demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the demand schedule for yen is drawn sloping: a. Upward b. Vertical c. Downward d. Horizontalc. DownwardSuppose there occurs an increase in the Canadian demand for Japanese computers. This results in a(n): a. Increase in the demand for yen b. Decrease in the demand for yen c. Increase in the supply of yen to Canada d. Decrease in the supply of yen to Canadaa. Increase in the demand for yenConsider Table 11.1. If one were to buy pounds for immediate delivery, on Tuesday the dollar cost of each pound would be: a. $0.7008 b. $0.7037 c. $1.4211 d. $1.4270d. $1.4270Consider Table 11.1. If one were to sell dollars for immediate delivery, on Tuesday the pound cost of each dollar would be: a. .7008 pounds per dollar b. .7037 pounds per dollar c. 1.4270 pounds per dollar d. 1.4211 pounds per dollara. .7008 pounds per dollarWhich method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future? a. Forward transaction b. Futures transaction c. Spot transaction d. Swap transactiond. Swap transactionMost foreign exchange trading occurs between banks and: a. National governments b. Other banks c. Corporations d. Household investorsb. Other banksThe most important (in terms of dollar value) type of foreign exchange transaction by U.S. banks is the: a. Spot transaction b. Forward transaction c. Swap transaction d. Option transactiona. Spot transactionIn the interbank market for foreign exchange, the ________ refers to the price that a bank is willing to pay for a unit of foreign currency. a. Offer rate b. Bid rate c. Spread rate d. Transaction rateb. Bid rateIn the interbank market for foreign exchange, the ________ refers to the price for which a bank is willing to sell a unit of foreign currency. a. Offer rate b. Option rate c. Futures rate d. Bid ratea. Offer rateIn the interbank market for foreign exchange, the ________ refers to the difference between the offer rate and the bid rate. a. Cross rate b. Option c. Arbitrage d. Spreadd. Spread