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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The term ʺforeign currencyʺ refers to foreign 1)
I. coins
II. notes
III. bank deposits
A) I and II only. B) I, II, and III. C) II only. D) II and III only.
2) When people who are holding the money of some other country want to exchange it for U.S. 2)
dollars, they ________ U.S. dollars and ________ that other countryʹs money.
A) demand, demand B) supply, supply
C) supply, demand D) demand, supply
3) Important factors that change the demand for dollars and shift the demand curve for dollars 3)
include which of the following?
I. Interest rates around the world.
II. The current exchange rate.
III. The expected future exchange rate.
A) II B) I and II C) I, II, and III D) I and III
4) A country records its international finance accounts in its 4)
A) net exports payments account. B) balance of payments accounts.
C) import/export log accounts. D) trade payments accounts.
5) Which of the following exchange rate policies uses a target exchange rate, but allows the target to 5)
change?
A) moving target B) flexible exchange rate
C) fixed exchange rate D) crawling peg
6) Suppose the target exchange rate set by the Fed is 100 yen per dollar. If the demand for dollars 6)
temporarily increases, to maintain the target exchange rate, the Fed can
A) buy dollars. B) violate purchasing power parity.
C) violate interest rate parity. D) sell dollars.
7) Suppose the target exchange rate set by the Fed is 100 guilders per dollar. If the demand for dollars 7)
temporarily decreases, to maintain the target exchange rate, the Fed can
A) sell dollars. B) increase U.S. exports.
C) increase U.S. imports. D) buy dollars.
8) Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed 8)
exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can
A) any of the above actions could take place. B) sell dollars.
C) attempt to freeze all sales of dollars. D) buy dollars.
1
9) The target exchange rate set by the Fed is 100 pesos per dollar. If the demand for dollars 9)
temporarily increases
A) the Fed must sell pesos.
B) the Fed cannot maintain the target rate.
C) the Fed can meet the target by selling dollars.
D) the Fed can meet the target by buying dollars.
2
13) In the above figure, suppose the demand for dollars permanently decreases to D2 . To maintain the 13)
target, the Fed
A) can buy dollars.
B) must decrease the nationʹs net exports.
C) cannot permanently maintain the exchange rate target of 150 yen per dollar.
D) can sell dollars.
Quantity of Quantity of
Exchange rate dollars dollars
(yen per dollar) demanded demanded
(billions) (billions)
180 200 230
160 220 220
140 240 210
120 260 200
100 280 190
3
19) If the Fed sells U.S. dollars, the exchange rate 19)
A) falls.
B) rises.
C) does not change.
D) changes, but the direction depends on whether the Fed affected the demand for dollars or the
supply of dollars.
4
29) The U.S. capital account measures 29)
A) foreign investment in the United States minus U.S. investment abroad.
B) net increases and decreases in the U.S. holdings of foreign currency.
C) receipts from goods and services sold and transfers to and from foreigners.
D) net transfer payments between U.S. residents and foreigners.
5
38) The change in U.S. official reserves is equal to 38)
A) foreign investment in the United States minus U.S. investment abroad.
B) the current account balance minus the capital account balance.
C) borrowing from abroad plus the current account deficit.
D) the current account balance plus the capital account balance.
6
47) If a country is currently borrowing more from the rest of the world than it is lending to the rest of 47)
the world, the country is a
A) debtor nation. B) net borrower. C) net lender. D) creditor nation.
7
56) The main source of fluctuations in the current account balance is 56)
A) net taxes. B) net transfers.
C) net exports. D) net interest income.
8
65) Which of the following statements is INCORRECT? 65)
A) The sum of government sector and private sector balances equals net exports.
B) The government sector balance equals net taxes minus government expenditures on goods
and services.
C) Net exports equals exports minus imports.
D) Private sector balance equal private investment minus private saving.
Amount
Component
(billions of dollars)
Investment, I 700
Net taxes, T 1,300
Government expenditure, G 1,200
Exports, X 1,500
Imports, M 1,700
9
73) In the above table, the private sector has a 73)
A) deficit of $200 billion. B) deficit of $400 billion.
C) surplus of $300 billion. D) deficit of $300 billion.
Item Billions of dollars
Exports 234
Imports 277
Government
expenditure 887
Net taxes 855
Investment 760
Saving 749
Item Dollars
Exports 500
Imports 400
Government sector surplus 250
Private sector deficit -150
10
Amount
Component
(billions of dollars)
Government expenditure,
G 700
Net taxes, T 600
Investment, I 350
Savings, S 500
11
89) The value of net exports increases when the value of ________. 89)
A) exports of goods and services minus imports of goods and services decreases
B) imports of goods and services decrease
C) imports of goods and services increase
D) exports of goods and services decrease
12
97) This year a country has loaned more to the rest of the world than it borrowed from the rest of the 97)
world. In addition, the country has invested more in the rest of the world than other countries
have invested in it. The country is currently a ________ and also a ________.
A) net borrower; debtor nation B) net borrower; creditor nation
C) debtor nation; net lender D) net lender; creditor nation
Item Billions of dollars
Imports of goods and services, M 275
Net taxes, T 300
Government expenditure, G 250
Savings, S 125
Investment, I 100
Millions of
Item
crumbs
Imports of goods and services 2,000
Exports of goods and services 3,000
Borrowing from the rest of the
1,500
world
Net investment income paid to
60
foreigners
Net transfers paid to foreigners 60
13
102) The table above shows the transactions made during 2006 by the citizens of Biscuit, whose 102)
currency is the crumb. During 2006, the official reserves increased by 380 million crumbs. How
many million crumbs did Biscuit lend to the rest of the world in 2006?
A) -500 B) 2,000 C) 240 D) 500
14
111) If U.S. interest rates fall, the 111)
A) there is a movement upward along the demand curve for dollars.
B) demand curve for dollars shifts leftward.
C) demand curve for dollars shifts rightward.
D) None of the above answers are correct.
15
117) In the figure above, the shift in the demand curve for U.S. dollars from D0 to D1 could occur when 117)
A) people expect that the dollar will depreciate.
B) the expected future exchange rate decreases.
C) the U.S. interest rate rises.
D) foreign interest rates increase.
16
122) In the figure above, the shift in the demand curve for U.S. dollars from D0 to D1 could occur when 122)
A) people expect that the dollar will depreciate.
B) foreign interest rates increase.
C) the U.S. interest rate falls.
D) the expected future exchange rate increases.
17
128) In the figure above, the shift in the supply curve for U.S. dollars from S0 to S1 could occur when 128)
A) the current exchange rate falls.
B) the expected future exchange rate falls.
C) the U.S. interest rate differential decreases.
D) the U.S. interest rate differential increases.
18
134) In the figure above, the shift in the supply curve for U.S. dollars from S0 to S2 could occur when 134)
A) the current exchange rate rises. B) the current exchange rate falls.
C) the expected future exchange rate falls. D) the expected future exchange rate rises.
19
143) In the figure above, an increase in the U.S. interest rate relative to that in Canada shifts the demand 143)
curve for U.S. dollars ________ and shifts the supply curve of U.S. dollars ________.
A) rightward; rightward B) leftward; rightward
C) leftward; leftward D) rightward; leftward
20
149) If the prices in the United States rise faster than those in other countries, 149)
A) then interest rate parity must not hold. B) the exchange rate rises.
C) the exchange rate falls. D) the interest rate in the United States falls.
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158) If in Chicago the interest rate is 5 percent a year and in Vancouver it is 4 percent a year, ________. 158)
A) the U.S. dollar is expected to depreciate
B) the Canadian dollar is expected to depreciate
C) interest rate parity does not exist
D) the quantity of Canadian dollars purchased will increase
22
166) When the U.S. exchange rate falls, U.S. goods become ________ to foreign residents and U.S. 166)
exports ________.
A) more expensive; decrease B) less expensive; decrease
C) more expensive; increase D) less expensive; increase
Expected future value of a
Investor
dollar (francs per dollar)
Investor A 120
Investor B 100
Investor C 85
23
173) Using the table above, if the current market value of the dollar is 70 francs, 173)
A) investor A expects dollar depreciation, but B and C expect appreciation.
B) all three investors expect the dollar to depreciate.
C) investor A expects dollar appreciation, but B and C expect depreciation.
D) all three investors expect the dollar to appreciate.
24
181) In the foreign exchange market, which of the following results in a movement along the supply 181)
curve of dollars?
A) a change in the expected future exchange rate
B) a change in the current exchange rate
C) a change in the U.S. interest rate
D) None of the above answers are correct.
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190) One of the main reasons the supply curve for dollars slopes ________ includes the ________. 190)
A) upward; exports effect B) upward; expected profits effect
C) downward; imports effect D) downward; expected profit effect
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193) In the figure above, the demand curve for U.S. dollars is represented in the diagram by 193)
A) curve A. B) curve B.
C) point C. D) none of the above
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199) When Safeway supermarkets in the United States buys strawberries from Mexico, 199)
A) it may use any currency it chooses.
B) the transaction shows up in the U.S. capital account.
C) it must use pesos to pay Mexican farmers.
D) it must use dollars to pay Mexican farmers.
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208) Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. 208)
Today is it 11 pesos per dollar. Here, the dollar ________ against the peso, and the peso ________
against the dollar
A) appreciated; depreciated B) depreciated; depreciated
C) appreciated; appreciated D) depreciated; appreciated
A) 8.4 South African goods per U.S. good. B) 9.8 South African goods per U.S. good.
C) 6 South African goods per U.S. good. D) 1.4 South African goods per U.S. good.
29
216) Suppose your firm wants to import sugarcane from Brazil. The exchange rate is 3 Brazilian reals 216)
per U.S. dollar and sugarcane costs 36 reals per ton. How much is a ton of sugarcane in U.S.
dollars?
A) $108 B) $109 C) $39 D) $12
2005 exchange rate 2006 exchange rate
Currency
(per U.S. dollar) (per U.S. dollar)
Euro 0.9954 1.0747
Japanese
102.20 114.90
yen
Canadian
1.44 1.50
dollar
30
224) The table above shows the exchange rates between various currencies and the U.S. dollar. Between 224)
2005 and 2006, the Japanese yen ________ against the U.S dollar and the euro ________ against the
U.S. dollar.
A) appreciated; appreciated B) depreciated; appreciated
C) appreciated; depreciated D) depreciated; depreciated
31
Answer Key
Testname: CHAPTER 9 REVIEW
1) B
2) D
3) D
4) B
5) D
6) D
7) D
8) D
9) C
10) B
11) A
12) B
13) C
14) A
15) C
16) A
17) A
18) C
19) A
20) B
21) A
22) B
23) C
24) B
25) C
26) D
27) B
28) B
29) A
30) A
31) D
32) B
33) A
34) D
35) B
36) A
37) C
38) D
39) B
40) D
41) D
42) D
43) C
44) C
45) D
46) B
47) B
48) A
49) C
50) C
32
Answer Key
Testname: CHAPTER 9 REVIEW
51) A
52) A
53) D
54) D
55) C
56) C
57) B
58) D
59) D
60) C
61) D
62) D
63) C
64) A
65) D
66) D
67) B
68) B
69) B
70) D
71) C
72) A
73) D
74) D
75) A
76) C
77) B
78) C
79) C
80) A
81) A
82) B
83) C
84) A
85) C
86) A
87) A
88) D
89) B
90) B
91) D
92) D
93) D
94) B
95) B
96) B
97) D
98) B
99) A
100) B
33
Answer Key
Testname: CHAPTER 9 REVIEW
101) D
102) B
103) B
104) B
105) D
106) D
107) D
108) C
109) D
110) C
111) B
112) B
113) C
114) B
115) A
116) D
117) C
118) A
119) A
120) C
121) A
122) D
123) A
124) B
125) B
126) B
127) D
128) D
129) D
130) A
131) D
132) C
133) C
134) C
135) C
136) C
137) A
138) A
139) B
140) D
141) B
142) A
143) D
144) C
145) A
146) A
147) B
148) D
149) C
150) C
34
Answer Key
Testname: CHAPTER 9 REVIEW
151) A
152) A
153) D
154) C
155) B
156) A
157) A
158) A
159) C
160) C
161) C
162) D
163) D
164) A
165) C
166) D
167) B
168) D
169) A
170) A
171) C
172) B
173) D
174) D
175) B
176) D
177) A
178) B
179) A
180) C
181) B
182) D
183) A
184) A
185) D
186) B
187) B
188) A
189) C
190) B
191) A
192) C
193) B
194) A
195) B
196) D
197) D
198) D
199) C
200) D
35
Answer Key
Testname: CHAPTER 9 REVIEW
201) A
202) D
203) B
204) D
205) A
206) D
207) D
208) A
209) D
210) B
211) A
212) C
213) C
214) B
215) C
216) D
217) A
218) D
219) B
220) C
221) D
222) C
223) D
224) D
36
Chapter 9 Review
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