1. Generally speaking, any transaction that results in a payment to foreigners
A) will be recorded as a credit, with a positive sign, in the U.S. balance of payments.
B) will be recorded as a credit, with a negative sign, in the U.S. balance of payments.
C) will be recorded as a debit, with a negative sign, in the U.S. balance of payments.
D) will be recorded as a debit, with a positive sign, in the U.S. balance of payments.
2. The official reserve account includes
A) all purchases and sales of international reserve assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs).
B) the export and import of goods and services.
C) all purchases and sales of assets such as stocks, bonds, bank accounts, real estate, and businesses.
D) none of the options
3. A country that gives foreign aid to another country can be viewed as
A) importing goodwill from the latter.
B) exporting goodwill to the latter.
4. When a country's currency depreciates against the currencies of major trading partners,
A) the country's exports tend to rise and imports rise.
B) the country's exports tend to fall and imports fall.
C) the country's exports tend to rise and imports fall.
D) the country's exports tend to fall and imports rise.
5. A depreciation will begin to improve the trade balance immediately if
A) imports and exports are responsive to the exchange rate changes.
B) consumers exhibit brand loyalty and price inelasticity.
C) imports and exports are inelastic to the exchange rate changes and consumers exhibit brand loyalty and price inelasticity.
D) imports and exports are inelastic to the exchange rate changes.
6. Suppose a country is currently experiencing a trade deficit. In the long run, this could be self-correcting if
A) the deficit exists because of the import demand for capital goods.
B) the deficit exists because foreigners want to buy the country's currency as an investment.
C) the deficit exists because of the import demand for consumption goods.
D) none of the options
7. The notation is
Y = GNP = national income
C = consumption
I = private investment
G = government spending
X = exports
M = imports
T = taxes
The difference between a country's savings and investment is given by
A) GNP ? T
B) X ? M
C) (Y ? C ? T) ? I
D) I × (Y ? C ? T)
8. The difference between a broker and a dealer is
A) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy and sell from their inventory.
B) dealers sell drugs; brokers sell houses.
C) brokers transact in stocks and bonds; currency is bought and sold through dealers.
D) none of the options
9. Intervention in the foreign exchange market is the process of
A) commercial banks in different countries coordinating efforts in order to stabilize one or more currencies.
B) the government of a country prohibiting transactions in one or more currencies.
C) a central bank buying or selling its currency in order to influence its value.
D) a central bank requiring the commercial banks of that country to trade at a set price level.
10. Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in euros, at a cost of €512,100. The U.S. importer will contact his U.S. bank (where of course he has an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank quotes as €1.0242/$1.00. The importer accepts this price, so his bank will ________ the importer's account in the amount of ________.
A) credit; $500,000
B) debit; $500,000
C) debit; $524,492
D) debit; €512,100