Question 1

The balance of payments must always balance, because:

Accepted Answer

A)  capital account surplus means the outflow of capital.
B)  current account surpluses automatically generate transfer of assets to foreigners.
C)  current account deficits automatically generate transfer of assets from foreigners.
D)  current account deficits automatically generate transfer of assets to foreigners while current account surpluses automatically generate transfer of assets from foreigners.E) A) and B)
F) C) and D)

Question 2

Suppose the capital account balance of an economy is -61 billion and the stock of official international reserves is -$11 billion.Given the scenario, the balance in the current account is:

Accepted Answer

A)  $50 billion.
B)  -$50 billion.
C)  -$111 billion.
D)  $111 billion.E) C) and D)
F) B) and D)

Question 3

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars.  Refer to the above data.The sign of the official settlement account indicates that:

Accepted Answer

A)  Zabella exported more services than it imported in 2014.
B)  Zabella imported more merchandise than it exported.
C)  there has been an out payment of $5 billion to official international reserves in 2014.
D)  there has been an in payment of $10 billion from the stock of official international reserves in 2014.E) A) and B)
F) A) and C)

Question 4

If the dollar depreciates, Canadian exports will eventually rise and Canadian imports will eventually fall.

Accepted Answer

A) True 
 B)False

Question 5

The Canadian demand for pounds is:

Accepted Answer

A)  downward sloping because a higher dollar price of pounds means British goods are cheaper to Canadians.
B)  downward sloping because a lower dollar price of pounds means British goods are more expensive to Canadians.
C)  upsloping because a lower dollar price of pounds means British goods are cheaper to Canadians.
D)  downward sloping because a lower dollar price of pounds means British goods are cheaper to Canadians.E) All of the above
F) A) and C)

Question 6

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars.  Refer to the above data.Zabella's balance on goods and services shows a:

Accepted Answer

A)  $5 billion deficit.
B)  $5 billion surplus.
C)  $10 billion surplus.
D)  $15 billion deficit.E) B) and D)
F) C) and D)

Question 7

Which of the following would call for a payment to Canada?

Accepted Answer

A)  gold flows into Canada
B)  Canadian firms sell insurance to Brazilian shippers
C)  Canadian unilateral foreign aid to less developed countries
D)  Canadian imports of German automobilesE) B) and D)
F) B) and C)

Question 8

Refer to the diagram below.Assume the initial demand for and supply of dollars are shown by D1 and S1.The exchange rate will be: 1 and S1.The exchange rate will be:   A) $1 equals 5 British pounds. B) $4 equals 1 British pound. C) $5 equals 1 British pound. D) JQ3 British pounds per dollar." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  $1 equals 5 British pounds.
B)  $4 equals 1 British pound.
C)  $5 equals 1 British pound.
D)  JQ3 British pounds per dollar.E) B) and C)
F) A) and B)

Question 9

A country's annual balance of payments statement must always balance because:

Accepted Answer

A)  a nation's imports are limited to the value of its exports.
B)  a trade deficit must be matched by an equal surplus of investment income.
C)  all international transactions must be settled in one way or another.
D)  a nation's exports will be limited by the dollar value of its imports.E) A) and B)
F) None of the above

Question 10

A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

Accepted Answer

A) True 
 B)False

Question 11

If a nation's balance on current account is a negative $20 billion, while its balance on capital account is a positive $16.5 billion, we can conclude with certainty that this nation is experiencing:

Accepted Answer

A)  a merchandise trade deficit.
B)  a merchandise trade surplus.
C)  a reduction in its stock of foreign currency.
D)  a balance of payments surplus.E) A) and B)
F) None of the above

Question 12

In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

Accepted Answer

A)  limiting its imports to the dollar value of its exports.
B)  decreasing the nation's domestic price level.
C)  limiting its exports to the dollar value of its imports.
D)  appreciating the value of its currency.E) None of the above
F) A) and D)

Question 13

Assume that, under a system of flexible exchange rates, Mexicans decide to increase their investments in Canada.As a result:

Accepted Answer

A)  Canadians will want to buy fewer Mexican goods at the new exchange rate.
B)  the peso and the dollar will both depreciate in value.
C)  the peso and the dollar will both appreciate in value.
D)  the peso will depreciate and the dollar will appreciate in value.E) A) and D)
F) B) and C)

Question 14

Which of the following creates a supply of Euro in foreign exchange markets?

Accepted Answer

A)  a Frenchman redeems a bond issued by an Italian manufacturer.
B)  an Italian importer buys insurance from a Canadian firm.
C)  a Canadian student takes a summer trip to Rome.
D)  a Canadian importer buys 500 cases of Italian table wine.E) A) and B)
F) A) and D)

Question 15

A market in which the money of one nation is exchanged for the money of another nation is a:

Accepted Answer

A)  resource market.
B)  financial market.
C)  futures market.
D)  foreign exchange market.E) None of the above
F) A) and B)

Question 16

If the dollar depreciates relative to the pound, then the pound:

Accepted Answer

A)  will be less expensive to Canadians.
B)  may either appreciate or depreciate relative to the dollar.
C)  will appreciate relative to the dollar.
D)  will depreciate relative to the dollar.E) A) and B)
F) C) and D)

Question 17

The following table shows the trade between Canada and Transylvania for the year 2014.All the figures are in billions of dollars.  Refer to the above information.In 2014, Canada had a current account:

Accepted Answer

A)  surplus of $3 billion.
B)  deficit of $11 billion.
C)  surplus of $10 billion.
D)  surplus of $15 billion.E) A) and C)
F) A) and B)

Question 18

Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

Accepted Answer

A)  exchange rate appreciation and a decrease in the domestic supply of money
B)  exchange rate appreciation and domestic deflation
C)  exchange rate depreciation and domestic deflation
D)  exchange rate depreciation and domestic inflationE) A) and B)
F) A) and C)

Question 19

Which of the following would contribute to a Canadian balance of payments surplus?

Accepted Answer

A)  Canada makes a unilateral tariff reduction on imported goods
B)  Canadian Pacific pays a dividend to a Swiss stockholder
C)  Canada cuts back on Canadian military personnel stationed in Germany
D)  Russian vodka becomes increasingly popular in CanadaE) C) and D)
F) B) and C)

Question 20

Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Given a change in demand from D to D' Canada could maintain the dollar price of francs by:

Accepted Answer

A)  shifting the S curve to the right through the use of domestic expansionary policies.
B)  instituting exchange controls to ration Ed francs to Canadian importers who want Ec francs.
C)  using international monetary reserves to cover the Ec shortage of francs.
D)  using international monetary reserves to cover the cd shortage of francs.E) B) and C)
F) A) and B)

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

The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars. Refer to the above data.The sign of the official settlement account indicates that:

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Which of the following would contribute to a Canadian balance of payments surplus?

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Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Given a change in demand from D to D' Canada could maintain the dollar price of francs by:

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The Canadian demand for pounds is:

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A market in which the money of one nation is exchanged for the money of another nation is a:

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Which of the following have substantially equivalent effects insofar as a nation's volume of exports and imports is concerned?

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Refer to the diagram below.Assume the initial demand for and supply of dollars are shown by D1 and S1.The exchange rate will be:

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Which of the following creates a supply of Euro in foreign exchange markets?

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A nation which imports more goods and services than it exports is necessarily realizing an international balance of payments deficit.

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Which of the following would call for a payment to Canada?

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The following table shows the trade between Canada and Transylvania for the year 2014.All the figures are in billions of dollars. Refer to the above information.In 2014, Canada had a current account:

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Assume that, under a system of flexible exchange rates, Mexicans decide to increase their investments in Canada.As a result:

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The balance of payments must always balance, because:

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The following table shows the balance of payments statement for the hypothetical nation of Zabella for 2014.All the figures are in billions of dollars. Refer to the above data.Zabella's balance on goods and services shows a:

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In using exchange controls, a nation attempts to eliminate a balance of payments deficit by:

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Suppose the capital account balance of an economy is -61 billion and the stock of official international reserves is -$11 billion.Given the scenario, the balance in the current account is:

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If the dollar depreciates, Canadian exports will eventually rise and Canadian imports will eventually fall.

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If the dollar depreciates relative to the pound, then the pound:

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A country's annual balance of payments statement must always balance because:

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If a nation's balance on current account is a negative $20 billion, while its balance on capital account is a positive $16.5 billion, we can conclude with certainty that this nation is experiencing:

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Refer to the diagram below.Assume the initial demand for and supply of dollars are shown by D₁ and S₁.The exchange rate will be:

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