QUESTION 1
In a fixed exchange rate system
a.market forces and the country’s stock of gold determine its exchange rate.
b.a central bank affects the value of a currency by changing its foreign exchange reserves.
c.the International Monetary Fund determines exchange rates.
d.market forces play a role in determining the fixed value of a currency.
QUESTION 2
The price of one nation’s currency in terms of the currency of another nation is called the
a.discount rate
b.exchange rate.
c.IMF rate
d.fed funds ratio.
QUESTION 6
A country’s balance of payments shows a
a.summary record of international financial assistance received by the country.
b.summary record of a country’s economic transactions with foreign residents and governments over a year.
c.detailed record of the import and export of services for the country.
d.detailed record of the country’s imports.
QUESTION 7
An appreciation of the U.S. dollar relative to the Japanese yen causes
a.the quantity demanded of U.S. dollars to increase because the Japanese want to buy more U.S. goods.
b.a lower dollar-price of Japanese goods which induces the U.S. to increase their purchasing of Japanese goods.
c.the U.S. to buy less Japanese goods, causing the U.S. to depreciate.
d.the Japanese to buy more U.S. goods, causing the dollars to appreciate further.
QUESTION 9
Flexible exchange rates exist when
a.governments and central banks spend foreign reserves to prop up an exchange rate at a certain level.
b.exchange rates are determined by forces of supply and demand.
c.speculators bet that a currency will soon be depreciated.
d.no one knows what the true value of a currency is.
QUESTION 10
The total of all economic transactions between a nation and the rest of the world is referred to as the
a.balance of power.
b.balance of payments.
c.balance of trade.
d.exchange rate.
QUESTION 13
A nation’s foreign exchange reserves consist mainly of
a.the legal currency of that nation.
b.government securities of that nation.
c.excess reserves held by its banks.
d.currencies of other nations.
QUESTION 16
Any transaction that leads to a payment by a country’s residents or government is a(n)
a.asset.
b.debt.
c.deficit item.
d.surplus item.
QUESTION 18
The term “flexible exchange rates” refers to
a.a situation in which exchange rates are allowed to fluctuate in the open market in response to changes in supply and demand.
b.the increase in the exchange value of one nation’s currency in terms of an other nation.
c.a nation in which households, firms, and governments buy and sell national currencies.
d.the decrease in the exchange value of one nation’s currency in terms of another nation.
QUESTION 3
If an exporter wants to limit the effect of possible changes in the exchange rate on the value of her exports, then she can adopt a strategy known as
a.hedging.
b.floating.
c.appreciating.
d.speculating.
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