Question 1

Under a system of flexible exchange rates, an increase in the international value of a nation's currency will:

Accepted Answer

A)  cause an international surplus of its currency.
B)  contribute to disequilibrium in its balance of payments.
C)  cause gold to flow into that country.
D)  cause its imports to rise.E) A) and B)
F) None of the above

Question 2

Under a system of flexible exchange rates a Canadian trade deficit with Mexico will tend to cause:

Accepted Answer

A)  the Canadian government to ration pesos to Canadian importers.
B)  a flow of gold from Canada to Mexico.
C)  an increase in the peso price of dollars.
D)  an increase in the dollar price of pesos.E) A) and B)
F) A) and C)

Question 3

The current account on a nation's balance of payments statement includes net investment income.

Accepted Answer

A) True 
 B)False

Question 4

The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.Current Account:  Refer to the above data.Zabella's is experiencing a balance of trade:

Accepted Answer

A)  deficit of $10 billion.
B)  surplus of $5 billion.
C)  surplus of $10 billion.
D)  deficit of $5 billion.E) None of the above
F) A) and B)

Question 5

The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place.  Refer to the above table.The equilibrium dollar price of libras is:

Accepted Answer

A)  $5
B)  $4
C)  $3
D)  indeterminate.E) B) and D)
F) A) and C)

Question 6

A nation's balance on the current account is equal to its exports less its imports of:

Accepted Answer

A)  goods and services.
B)  goods and services, minus Canadian purchases of assets abroad.
C)  goods and services, plus net investment income and net transfers.
D)  goods and services, plus foreign purchases of assets in Canada.E) A) and D)
F) B) and C)

Question 7

An increase in the dollar price of British pounds will:

Accepted Answer

A)  increase the pound price of dollars.
B)  lower the pound price of dollars.
C)  leave the pound price of dollars unchanged.
D)  cause Britain's terms of trade with the United States to deteriorate.E) None of the above
F) B) and D)

Question 8

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

Accepted Answer

A)  50 U.S.dollars.
B)  0.80 U.S.dollars.
C)  2.60 U.S.dollars.
D)  17.8 U.S.dollars.E) A) and D)
F) A) and C)

Question 9

The following are hypothetical exchange rates: 2 Swiss francs = 1 British pound and $1 = 2 British pound.We can conclude that:

Accepted Answer

A)  $1 = 4 Swiss francs.
B)  $1 = .5 Swiss francs.
C)  1 Swiss franc = $.50.
D)  1 Swiss franc = $2.E) B) and C)
F) B) and D)

Question 10

The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars.  Refer to the above data.In 2013, Transylvania had a $2 billion balance of trade surplus.

Accepted Answer

A) True 
 B)False

Question 11

If a nation has a balance of payments deficit and exchange rates are flexible, the price of that nation's currency in the foreign exchange markets will rise.

Accepted Answer

A) True 
 B)False

Question 12

The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

Accepted Answer

A) True 
 B)False

Question 13

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10.We conclude that:

Accepted Answer

A)  1 yen = 280 Swiss francs.
B)  1 yen = 14 Swiss francs.
C)  1 Swiss franc = 28 yen.
D)  1 Swiss franc = 14 yen.E) B) and D)
F) B) and C)

Question 14

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

Accepted Answer

A)  selling its currency in the foreign exchange market.
B)  buying its currency in the foreign exchange market.
C)  selling foreign currencies in the foreign exchange market.
D)  increasing its domestic interest rates.E) A) and D)
F) A) and B)

Question 15

Under freely flexible (floating)exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  added the volatility needed by the exchange rate market.
B)  been effective because it is a "non-system" without fixed rules.
C)  been sufficiently flexible to weather major economic turbulence.
D)  resolved major problems in balance of payments surpluses and deficits.E) B) and C)
F) A) and C)

Question 17

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

Accepted Answer

A)  2 Mexican pesos.
B)  9.23 Mexican pesos.
C)  25 Mexican pesos.
D)  15 Mexican pesos.E) C) and D)
F) A) and D)

Question 18

The following table shows the balance of payments statement for the hypothetical nation of Zabella in 2014.All the figures are in billions of dollars.  Refer to the above data.Given the scenario, it can be said that Zabella experienced a balance of payments:

Accepted Answer

A)  deficit of $5 billion in 2014.
B)  surplus of $10 billion in 2014.
C)  deficit of $10 billion in 2014.
D)  surplus of $5 billion in 2014.E) B) and D)
F) B) and C)

Question 19

If Canada has full employment and the dollar dramatically depreciates in value, we can expect:

Accepted Answer

A)  both our imports and our exports to rise.
B)  both our imports and our exports to fall.
C)  our exports to fall and our imports to increase.
D)  inflation to occur.E) A) and B)
F) A) and C)

Question 20

Exports cause:

Accepted Answer

A)  an outflow of money and an inflow of goods and services.
B)  an inflow of money and an inflow of goods and services.
C)  an outflow of money and an outflow of goods and services.
D)  an inflow of money and an outflow of goods and services.E) B) and C)
F) A) and B)

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

Under freely flexible (floating)exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall.

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

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The following are hypothetical exchange rates: 2 Swiss francs = 1 British pound and $1 = 2 British pound.We can conclude that:

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Under a system of flexible exchange rates, an increase in the international value of a nation's currency will:

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If Canada has full employment and the dollar dramatically depreciates in value, we can expect:

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The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10.We conclude that:

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If a nation has a balance of payments deficit and exchange rates are flexible, the price of that nation's currency in the foreign exchange markets will rise.

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The current account on a nation's balance of payments statement includes net investment income.

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The export of capital is recorded as a credit on a nation's capital account in its balance of payments statement.

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A nation's balance on the current account is equal to its exports less its imports of:

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The following table shows the balance of payments statement for the hypothetical nation of Zabella in 2014.All the figures are in billions of dollars. Refer to the above data.Given the scenario, it can be said that Zabella experienced a balance of payments:

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The following table shows the 2012 balance of payments data for the hypothetical nation of Zabella.All figures are in billions of dollars.Current Account: Refer to the above data.Zabella's is experiencing a balance of trade:

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

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Exports cause:

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Under a system of flexible exchange rates a Canadian trade deficit with Mexico will tend to cause:

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

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The following table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra.Assume that a system of flexible exchange rates is in place. Refer to the above table.The equilibrium dollar price of libras is:

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The following table shows the balance of payments statement of Transylvania for 2013.All the figures are in billions of dollars. Refer to the above data.In 2013, Transylvania had a $2 billion balance of trade surplus.

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An increase in the dollar price of British pounds will:

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

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