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1 | |
An economist will define the exchange rate between two currencies as the: |
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| | A) | Amount of one currency that must be paid in order to obtain one unit of another currency. |
| | B) | Difference between total exports and total imports within a country. |
| | C) | Price at which the sales and purchases of foreign goods takes place. |
| | D) | Ratio of import prices to export prices for a particular country. |
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2 | |
The demand for the U.S. dollar in the foreign exchange market is a derived demand, and it is derived from: |
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| | A) | Imports into the U.S. plus any capital inflows into the country. |
| | B) | Imports into the U.S. plus any capital outflows from the country. |
| | C) | Exports from the U.S. plus any capital outflows from the country. |
| | D) | Exports from the U.S. plus any capital inflows into the country. |
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3 | |
Which one of the following occurrences would increase the supply of U.S. dollars on the international exchange markets? |
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| | A) | A German family travels to Disney World for their vacation. |
| | B) | An American family travels to Tokyo for their vacation. |
| | C) | A German firm purchases some Ford trucks. |
| | D) | A group of British investors purchase an American bank. |
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4 | |
Which of the following is NOT a criticism of a flexible exchange rate system? |
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| | A) | Flexible exchange rates tend to be variable and therefore cause more uncertainty. |
| | B) | Flexible exchange rate systems require discipline on the part of central banks that may not be forthcoming. |
| | C) | Under flexible exchange rates, trading countries tend to rely more heavily upon tariffs and other restrictions. |
| | D) | The flexible exchange rate system reduces the power of fiscal policy. |
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5 | |
If the U.K. experiences inflationary prices, then the presence of rising prices will: |
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| | A) | Decrease imports into the country. |
| | B) | Increase the exports from the country. |
| | C) | Shift the country's currency supply curve in the foreign exchange market to the right. |
| | D) | Shift the demand curve for the country's foreign exchange to the right. |
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6 | |
Central bank intervention to bring about a depreciation of a country's currency is: |
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| | A) | Made easier because the central bank can create an unlimited supply of its own currency. |
| | B) | Made difficult because the central bank must buy its own currency with its reserves of foreign currency. |
| | C) | Something that is rarely done. |
| | D) | None of the above. |
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7 | |
It is not possible to have at the same time: |
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| | A) | Fixed exchange rates and perfect capital mobility |
| | B) | Fixed exchange rates and monetary sovereignty |
| | C) | Perfect capital mobility and monetary sovereignty |
| | D) | Fixed exchange rates, perfect capital mobility and monetary sovereignty |
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8 | |
Suppose that a Brazilian firm imports Japanese microchips. The transaction will appear: |
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| | A) | On neither country's balance of payment accounts |
| | B) | As a debit on the Brazilian balance of payments |
| | C) | As a debit on the Japanese balance of payments |
| | D) | As a credit on the Brazilian balance of payments |
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9 | |
Which one of the following is not included in a nation's current account? |
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| | A) | Merchandise exports |
| | B) | Long-term capital flow |
| | C) | Invisible imports |
| | D) | The importing of services |
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10 | |
Perfect international capital mobility suggest that: |
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| | A) | Exchange rate differentials will be offset by interest rate differentials. |
| | B) | Interest rate differentials will be offset by inflation rate differences. |
| | C) | Interest rate differentials across countries should be offset by exchange rates. |
| | D) | Inflation rate differences will be offset by interest rate differences. |
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11 | |
A decrease in demand for a currency will lead to a fall in the value of the currency. |
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| | A) | TRUE |
| | B) | FALSE |
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12 | |
Under a fixed exchange rate a central bank can commit to supporting the currency indefinitely by using its reserves to buy the currency on the open market. |
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| | A) | TRUE |
| | B) | FALSE |
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13 | |
Monetary policy is more powerful under a fixed, than a floating, exchange rate. |
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| | A) | TRUE |
| | B) | FALSE |
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14 | |
A fall in the exchange rate will lead to an increase in exports. |
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| | A) | TRUE |
| | B) | FALSE |
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15 | |
Buying a currency at a forward rate can reduce the financial risk associated with exchange rate volatility. |
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| | A) | TRUE |
| | B) | FALSE |
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16 | |
The price of Levi Jeans will be equal across the UK and US under ______________. |
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| | A) | Fixed Exchange Rates |
| | B) | Floating Exchange Rates |
| | C) | Perfect Competition |
| | D) | Purchasing Power Parity |
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17 | |
Speculative attacks occur under ________ exchange rate, when the currency is likely to be _________. |
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| | A) | Fixed, devalued |
| | B) | Fixed, revalued |
| | C) | Floating, devalued |
| | D) | Fixed, revalued |
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18 | |
A rise in the amount of exports will lead to a balance of payments equilibrium if the exchange rate is _________. |
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| | A) | Fixed |
| | B) | Floating |
| | C) | Managed |
| | D) | Volatile |
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19 | |
The Euro is a currency which ________ on the Forex market and is __________ amongst its members. |
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| | A) | Floats, floating |
| | B) | Fixed, fixed |
| | C) | Floats, fixed |
| | D) | Fixed, floating |
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20 | |
For the world economy the balance of payments is ________. |
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| | A) | Positive |
| | B) | Negative |
| | C) | Zero |
| | D) | Unknown |