Question 1

The price of the average domestic good or service relative to the price of the average foreign good or service,when prices are expressed in terms of a common currency is called the ______ exchange rate.

Accepted Answer

A)  flexible
B)  fixed
C)  real
D)  nominalE) A) and D)
F) B) and D)

Question 2

When an American buys stock in a French company,from the perspective of the United States,this is a(n) :

Accepted Answer

A)  import.
B)  export.
C)  capital outflow.
D)  capital inflow.E) All of the above
F) C) and D)

Question 3

In an open economy,an increase in the government's budget deficit will ______ the domestic real interest rate and ______ the level of capital investment in the country,holding other factors constant.

Accepted Answer

A)  increase;increase
B)  increase;decrease
C)  decrease;decrease
D)  decrease;increaseE) B) and D)
F) None of the above

Question 4

A country's trade balance equals:

Accepted Answer

A)  the value of tariffs less the number of quotas.
B)  the number of quotas less the value of tariffs.
C)  the value of exports minus the value of imports.
D)  the value of imports minus the value of exports.E) C) and D)
F) None of the above

Question 5

When a Peruvian buys a U.S.government bond,from the perspective of Peru,this is a(n) :

Accepted Answer

A)  import.
B)  export.
C)  capital outflow.
D)  capital inflow.E) A) and B)
F) A) and C)

Question 6

From the point of view of a particular country,capital outflows are:

Accepted Answer

A)  purchases of domestic goods or services by foreigners.
B)  purchases of domestic assets by foreigners.
C)  purchases of foreign goods or services by domestic households or firms.
D)  purchases of foreign assets by domestic households or firms.E) All of the above
F) A) and B)

Question 7

When the Fed eases U.S.monetary policy,domestic interest rates ______,making U.S.assets relatively less attractive to foreign investors,and ______ the equilibrium exchange rate.

Accepted Answer

A)  rise;increasing
B)  fall;increasing
C)  fall;decreasing
D)  rise;decreasingE) C) and D)
F) A) and B)

Question 8

Net exports will tend to be low when the real exchange rate ____.

Accepted Answer

A)  is high
B)  is low
C)  equals the nominal exchange rate
D)  depreciatesE) A) and D)
F) None of the above

Question 9

If a country pegs its currency to a foreign currency,it no longer has the ability to use monetary policy to stabilize the economy because:

Accepted Answer

A)  it no longer has a central bank.
B)  monetary policy must be used to keep the exchange rate's market equilibrium value at its official value.
C)  banks will begin to hold 100% of their deposits in reserves.
D)  it must eliminate its currency from circulation and replace it with the foreign currency.E) B) and D)
F) None of the above

Question 10

For a given domestic and foreign price level,a decrease in the nominal exchange rate ______ the real exchange rate.

Accepted Answer

A)  increases
B)  decreases
C)  may either increase or decrease
D)  offsets any change inE) C) and D)
F) B) and D)

Question 11

The principal suppliers of U.S.dollars to the foreign exchange market are:

Accepted Answer

A)  foreigners wishing to purchase U.S.goods or assets.
B)  the Federal Reserve.
C)  U.S.households or firms wishing to purchase U.S.goods or assets.
D)  U.S.households or firms wishing to purchase foreign goods or assets.E) B) and C)
F) All of the above

Question 12

When the nominal exchange rate changes from 4 francs per dollar to 6 francs per dollar,the dollar has:

Accepted Answer

A)  appreciated.
B)  depreciated.
C)  become overvalued.
D)  become undervalued.E) All of the above
F) A) and B)

Question 13

If the nominal exchange rate is 4 Israeli shekels per U.S.dollar,and 0.178 Jordanian dinars per Israeli shekel,then there are ______ Jordanian dinars per U.S.dollar.

Accepted Answer

A)  0.712
B)  0.045
C)  0.025
D)  5.618E) B) and D)
F) B) and C)

Question 14

According to the theory of purchasing power parity,the real exchange rate between two currencies will equal ______ in the long run.

Accepted Answer

A)  the nominal exchange rate
B)  the ratio of the rates of inflation of the two currencies
C)  0
D)  1E) A) and B)
F) None of the above D

Question 15

Each of the following would decrease the supply of U.S.dollars,shifting the supply curve for dollars to the left,EXCEPT:

Accepted Answer

A)  a decreased preference for foreign-made goods.
B)  a decrease in U.S.real GDP.
C)  a decrease in the real interest rate on foreign assets.
D)  a depreciation of the U.S.dollar relative to other currencies.E) A) and B)
F) A) and C)

Question 16

An exchange rate that is set by official government policy is called a ______ exchange rate.

Accepted Answer

A)  real
B)  nominal
C)  fixed
D)  flexibleE) A) and C)
F) C) and D) C

Question 17

Holding constant risk and the real returns available abroad,higher domestic real interest rates ______ capital inflows,______ capital outflows,and ______ net capital inflows.

Accepted Answer

A)  increase;increase;increase
B)  increase;increase;decrease
C)  increase;decrease;increase
D)  decrease;decrease;decreaseE) C) and D)
F) All of the above

Question 18

If monetary policy must be used to set the market equilibrium value of the exchange rate equal to the official value,it

Accepted Answer

A)  is no longer available to stabilize the domestic economy.
B)  will be unable to stabilize the market equilibrium value of the exchange rate.
C)  will simultaneously stabilize the domestic economy.
D)  will increase the rate of growth in the economy.E) A) and D)
F) A) and B)

Question 19

The foreign exchange market is the market on which ______ of various nations are traded for one another.

Accepted Answer

A)  goods and services
B)  stocks and bonds
C)  currencies
D)  international financial securitiesE) C) and D)
F) A) and B)

Question 20

All else being equal,if Asian restaurants switch from serving French champagne to serving California wines,then the market equilibrium value of the exchange rate for the U.S.dollar will:

Accepted Answer

A)  rise.
B)  fall.
C)  become fixed.
D)  either rise or fall depending on whether the supply or demand for dollars changes more.E) A) and D)
F) All of the above A

Exam 26: Exchange Rates, International Trade, and Capital Flows

The price of the average domestic good or service relative to the price of the average foreign good or service,when prices are expressed in terms of a common currency is called the ______ exchange rate.

Correct AnswerverifiedShow Answer

When an American buys stock in a French company,from the perspective of the United States,this is a(n) :

Correct AnswerverifiedShow Answer

In an open economy,an increase in the government's budget deficit will ______ the domestic real interest rate and ______ the level of capital investment in the country,holding other factors constant.

Correct AnswerverifiedShow Answer

A country's trade balance equals:

Correct AnswerverifiedShow Answer

When a Peruvian buys a U.S.government bond,from the perspective of Peru,this is a(n) :

Correct AnswerverifiedShow Answer

From the point of view of a particular country,capital outflows are:

Correct AnswerverifiedShow Answer

When the Fed eases U.S.monetary policy,domestic interest rates ______,making U.S.assets relatively less attractive to foreign investors,and ______ the equilibrium exchange rate.

Correct AnswerverifiedShow Answer

Net exports will tend to be low when the real exchange rate ____.

Correct AnswerverifiedShow Answer

If a country pegs its currency to a foreign currency,it no longer has the ability to use monetary policy to stabilize the economy because:

Correct AnswerverifiedShow Answer

For a given domestic and foreign price level,a decrease in the nominal exchange rate ______ the real exchange rate.

Correct AnswerverifiedShow Answer

The principal suppliers of U.S.dollars to the foreign exchange market are:

Correct AnswerverifiedShow Answer

When the nominal exchange rate changes from 4 francs per dollar to 6 francs per dollar,the dollar has:

Correct AnswerverifiedShow Answer

If the nominal exchange rate is 4 Israeli shekels per U.S.dollar,and 0.178 Jordanian dinars per Israeli shekel,then there are ______ Jordanian dinars per U.S.dollar.

Correct AnswerverifiedShow Answer

According to the theory of purchasing power parity,the real exchange rate between two currencies will equal ______ in the long run.

Correct AnswerverifiedD

Each of the following would decrease the supply of U.S.dollars,shifting the supply curve for dollars to the left,EXCEPT:

Correct AnswerverifiedShow Answer

An exchange rate that is set by official government policy is called a ______ exchange rate.

Correct AnswerverifiedC

Holding constant risk and the real returns available abroad,higher domestic real interest rates ______ capital inflows,______ capital outflows,and ______ net capital inflows.

Correct AnswerverifiedShow Answer

If monetary policy must be used to set the market equilibrium value of the exchange rate equal to the official value,it

Correct AnswerverifiedShow Answer

The foreign exchange market is the market on which ______ of various nations are traded for one another.

Correct AnswerverifiedShow Answer

All else being equal,if Asian restaurants switch from serving French champagne to serving California wines,then the market equilibrium value of the exchange rate for the U.S.dollar will:

Correct AnswerverifiedA

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In an open economy,an increase in the government's budget deficit will the domestic real interest rate and the level of capital investment in the country,holding other factors constant.

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When the Fed eases U.S.monetary policy,domestic interest rates ,making U.S.assets relatively less attractive to foreign investors,and the equilibrium exchange rate.

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D

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C

Holding constant risk and the real returns available abroad,higher domestic real interest rates capital inflows, capital outflows,and __ net capital inflows.

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A