Question 1

The Bretton Woods agreement established the gold standard.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is true about the U.S.trade balance during the 1960s?

Accepted Answer

A)  Imports and exports were equal.
B)  Exports exceeded imports.
C)  Imports exceeded exports.
D)  When the economy expanded, the demand for imports increased.
E)  When the economy expanded, the trade balance worsened.F) None of the above
G) C) and E)

Question 3

The government of a country is not considered a resident while calculating the balance of payments.

Accepted Answer

A) True 
 B)False

Question 4

Devaluation of a domestic currency _____

Accepted Answer

A)  is a decrease in the pegged exchange rate.
B)  refers to an increase in a floating exchange rate.
C)  refers to a decrease in a floating exchange rate.
D)  refers to an increase in a fixed exchange rate.
E)  refers to a decrease in a fixed exchange rate.F) A) and B)
G) A) and C)

Question 5

The current international financial system is a managed float system.

Accepted Answer

A) True 
 B)False

Question 6

The foreign exchange rate is _____

Accepted Answer

A)  an entry in the current account.
B)  the price of a foreign good in the world market.
C)  an entry in the capital account.
D)  an entry in the balance of trade.
E)  the cost of one currency in terms of another.F) A) and D)
G) A) and E)

Question 7

The Bretton Woods system fixed all exchange rates in terms of the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 8

If a country's balance-of-payments deficit resulted in _____ of gold,the country's money supply would _____.

Accepted Answer

A)  a loss; expand
B)  a loss; shrink
C)  an influx; expand
D)  an influx; shrink
E)  an increase; be unchangedF) A) and E)
G) A) and B)

Question 9

The present international exchange rate system operates under the gold standard.

Accepted Answer

A) True 
 B)False  False

Question 10

The gold standard _____

Accepted Answer

A)  has been in operation since the establishment of the Federal Reserve Board.
B)  has been in operation since shortly after World War I.
C)  has been in operation since the Bretton Woods agreement was signed.
D)  was in operation for about 35 years before World War I.
E)  was in operation from the date of the Bretton Woods agreement until the devaluation of the U.S. dollar in 1971.F) A) and E)
G) A) and D) D

Question 11

The Bretton Woods system collapsed because _____

Accepted Answer

A)  countries started introducing trade barriers.
B)  the collapse of world gold production undermined the operation of the system.
C)  the gold value of the dollar exceeded the exchange value, causing an outflow of gold from the United States.
D)  the dollar was undervalued.
E)  the exchange value of the dollar exceeded its gold value, causing an inflow of gold to the United States.F) A) and D)
G) B) and C)

Question 12

An exchange rate is the price of one commodity (e.g.,corn)measured in terms of another commodity (e.g.,wheat).

Accepted Answer

A) True 
 B)False

Question 13

The demand curve for euros shows _____

Accepted Answer

A)  a direct relationship between the dollar price of the euro and the quantity of euros demanded.
B)  an inverse relation between the dollar price of the euro and the quantity of euros demanded.
C)  that the higher the dollar price of the euro, the greater the quantity of euros demanded.
D)  that the more expensive it is to buy euros, the larger the quantity of European goods demanded by Americans.
E)  that the dollar price of the euro is fixed by the European Union.F) C) and D)
G) A) and D)

Question 14

If the same basket of goods costs $400 in the United States and £200 in Britain,then according to the purchasing power parity theory,the _____

Accepted Answer

A)  goods and services must cost half as much in Britain as in the United States.
B)  exchange rate should approach $2 per pound.
C)  exchange rate should approach $0.50 per pound.
D)  goods and services must cost twice as much in Britain as in the United States.
E)  reason for the difference in price is a difference in the cost of transportation in the two countries.F) All of the above
G) A) and D)

Question 15

Suppose a basket of internationally traded goods that sells for $8,000 in the United States sells for €10,000 in the euro zone.According to the purchasing power parity theory,the equilibrium exchange rate should be equal to _____

Accepted Answer

A)  $2.50 per euro.
B)  $1.50 per euro.
C)  $1.25 per euro.
D)  $1.00 per euro.
E)  $0.80 per euro.F) A) and D)
G) A) and C)

Question 16

A leftward shift of a country's demand curve for foreign exchange will _____

Accepted Answer

A)  increase the price of foreign exchange in the country.
B)  decrease the value of its currency.
C)  make foreign goods more expensive in the domestic market.
D)  make foreign goods less expensive in the domestic market.
E)  make its goods less expensive in the foreign market.F) A) and B)
G) A) and C) D

Question 17

Current account transactions are records of the incomes and expenditures from exports and imports,plus international financial investments and borrowing.

Accepted Answer

A) True 
 B)False

Question 18

If the exchange rate changes from 1 euro per U.S.dollar to 1.2 euros per U.S.dollar,the euro has _____

Accepted Answer

A)  appreciated, since its value has increased.
B)  appreciated, since the price of U.S. dollars has increased.
C)  appreciated, making U.S. goods cheaper in European countries.
D)  depreciated, since its value has declined.
E)  depreciated, since its value has increased.F) B) and D)
G) D) and E)

Question 19

For the United States,a drop in the price of foreign exchange means that _____

Accepted Answer

A)  fewer U.S. dollars are needed to purchase foreign currency.
B)  more U.S. dollars are needed to purchase foreign currency.
C)  imports will become more expensive worldwide.
D)  exports will become cheaper worldwide.
E)  transaction costs in international markets will decrease.F) A) and D)
G) A) and C)

Question 20

A speculator in foreign exchange is a person who _____

Accepted Answer

A)  buys foreign currency, hoping to profit by selling it at a higher exchange rate at some later date.
B)  earns illegal profit by manipulating foreign exchange.
C)  causes differences in exchange rates in different geographic markets.
D)  simultaneously buys large amounts of a currency in one market and sells it in another market.
E)  takes no risks in foreign currency exchanges.F) A) and B)
G) C) and D)

Exam 20: International Finance

The Bretton Woods agreement established the gold standard.

Correct AnswerverifiedShow Answer

Which of the following is true about the U.S.trade balance during the 1960s?

Correct AnswerverifiedShow Answer

The government of a country is not considered a resident while calculating the balance of payments.

Correct AnswerverifiedShow Answer

Devaluation of a domestic currency _____

Correct AnswerverifiedShow Answer

The current international financial system is a managed float system.

Correct AnswerverifiedShow Answer

The foreign exchange rate is _____

Correct AnswerverifiedShow Answer

The Bretton Woods system fixed all exchange rates in terms of the U.S.dollar.

Correct AnswerverifiedShow Answer

If a country's balance-of-payments deficit resulted in _____ of gold,the country's money supply would _____.

Correct AnswerverifiedShow Answer

The present international exchange rate system operates under the gold standard.

Correct AnswerverifiedFalse

The gold standard _____

Correct AnswerverifiedD

The Bretton Woods system collapsed because _____

Correct AnswerverifiedShow Answer

An exchange rate is the price of one commodity (e.g.,corn)measured in terms of another commodity (e.g.,wheat).

Correct AnswerverifiedShow Answer

The demand curve for euros shows _____

Correct AnswerverifiedShow Answer

If the same basket of goods costs $400 in the United States and £200 in Britain,then according to the purchasing power parity theory,the _____

Correct AnswerverifiedShow Answer

Suppose a basket of internationally traded goods that sells for $8,000 in the United States sells for €10,000 in the euro zone.According to the purchasing power parity theory,the equilibrium exchange rate should be equal to _____

Correct AnswerverifiedShow Answer

A leftward shift of a country's demand curve for foreign exchange will _____

Correct AnswerverifiedD

Current account transactions are records of the incomes and expenditures from exports and imports,plus international financial investments and borrowing.

Correct AnswerverifiedShow Answer

If the exchange rate changes from 1 euro per U.S.dollar to 1.2 euros per U.S.dollar,the euro has _____

Correct AnswerverifiedShow Answer

For the United States,a drop in the price of foreign exchange means that _____

Correct AnswerverifiedShow Answer

A speculator in foreign exchange is a person who _____

Correct AnswerverifiedShow Answer

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If a country's balance-of-payments deficit resulted in _ of gold,the country's money supply would _.

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False

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D

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D

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