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41-140
300
0.90
300
286
0.80
400
287
0.70
500
The table shows the supply and demand schedules for the European euro. If European
governments decided to fix the price of a euro at $0.80, they would have to
282.
Under a fixed exchange-rate system, which of the following will not occur if the demand
for the local currency rises?
283.
A declining amount of foreign-exchange reserves resulting from maintaining a pegged
exchange rate would have which of the following effects?
41-141
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A.
a decrease in domestic money supply
B.
a negative item entry in the balance of payments statement
C.
rising inflationary pressure
D.
an increase in the supply of local currency coming from this nation’s central bank
284.
Under a fixed exchange-rate system, if the equilibrium exchange rate is continually and
substantially below the fixed rate, that means that the local currency is overvalued relative to
equilibrium. In this case, which of the following will not be a result of the central bank’s actions
to maintain the peg?
285.
Under a fixed exchange-rate system, if the equilibrium exchange rate is continually and
substantially below the fixed rate, that means that the local currency is overvalued relative to
equilibrium. In this case, the central bank’s FX reserves will rise, and in response it has the
following options, except
41-142
286.
Under a fixed exchange-rate system, which of the following statements is true?
287.
To maintain a fixed exchange rate under a shortage of FX reserves, the government has the
following options, except
41-143
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written consent of McGraw-Hill Education.
domestic money supply under a fixed exchange rate.
Test Bank: II
T o p ic : Fixed Exchange Rates
288.
If China maintains a pegged exchange rate with the U.S. dollar, and the consequence is
rising inflation, then the pegged value of the Chinese yuan must be
289.
When the nation’s FX reserves are rising, some would call it a "balance of payments
surplus." This could happen as a result of any of the following except
290.
The current monetary system for conducting international trade is usually described as a
system of
41-144
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written consent of McGraw-Hill Education.
B.
freely floating exchange rates.
C.
a managed gold standard.
D. managed floating exchange rates.
291.
Which system would be accompanied by occasional currency interventions by central
banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?
292.
The basic type of intervention by central banks under the managed floating exchange rate
system is to
293.
Which of the following statements is not true in the current exchange-rate system?
294.
Proponents of the managed floating exchange rate system argue that it has
295.
Critics of the managed floating exchange rate system argue that it
41-146
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Diffi culty: 02 Medium
Learning Objective: 41-05 Explain the current system of managed floating exchange rates.
Test Bank: II
T o p ic : The Current Exchange Rate System: The Managed Float
296.
During the period 2002–2009, U.S. trade deficits
297.
As the economy recovers from a recession, economists expect its
298.
What are the effects on U.S. imports and exports when the U.S. experiences economic
growth stronger than its major trading partners?
41-147
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written consent of McGraw-Hill Education.
Acc e s si b i lity : Keyboard Navigation
Blooms: Remember
Diffi culty: 01 Easy
Learning Objective: 41-06 Identify the causes and consequences of recent U.S. trade deficits.
Test Bank: II
T o p ic : Recent U.S. Trade Deficits
299.
Which one of the following is not a major factor that contributed to large trade deficits in
the United States in the period 2002–2007?
300.
What are two major outcomes from the large U.S. trade deficits?
301.
A trade deficit for the United States is generally financed by
302.
If the United States wants to regain ownership of domestic assets sold to foreigners, it will
have to
303.
Which of the following factors has helped maintain the large U.S. trade deficits over the
years?
304.
The trade deficit has had the effect of
41-149
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written consent of McGraw-Hill Education.
B.
increasing economic growth in less-developed nations.
C. increasing direct foreign investment in the United States.
D. decreasing protectionist pressure among U.S. businesses.
305.
An inflow of investment funds into the United States from overseas is likely to result from
a(n)
306.
Comparing what the United States owes to other nations against what other nations owe to
the United States, the United States is currently a(n)
307.
Which of the following was not something that several European nations did or
experienced when they became members of the eurozone?
308.
If several nations decide to adopt and use a common currency, then each of these nations
would lose the following, except
True / False Questions
309.
U.S. exports to Japan create a supply of dollars and a demand for yen in the foreign
exchange market.
41-151
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Acc e s si b i lity : Keyboard Navigation
Blooms: Understand
Diffi culty: 02 Medium
Learning Objective: 41-01 Explain how currencies of different nations are exchanged when
international transactions take place.
Test Bank: II
T o p ic : International Financial Transactions
310.
People will have to exchange their currency for another only when they do exporting or
importing.
311.
The current account portion of a nation's balance of payments statement includes net
investment income.
312.
The U.S. often has a significant surplus in services trade, even though it has a deficit in
goods trade.
41-152
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written consent of McGraw-Hill Education.
Blooms: Analyze
D i f f i c u l t y : 03 Hard
Learning Objective: 41-02 Analyze the balance sheet the United States uses to account for the
international payments it makes and receives.
Test Bank: II
T o p ic : The Balance of Payments
313.
The flow of payments for purchases and sale of financial assets is included in the current
account balance of a nation.
314.
In the balance of payments statement, a current account deficit is always matched by a
capital and financial accounts surplus.
315.
When a nation is experiencing a balance-of-payments deficit, its treasury or central bank
will engage in a net sale of its official reserves.
41-153
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written consent of McGraw-Hill Education.
Learning Objective: 41-02 Analyze the balance sheet the United States uses to account for the
international payments it makes and receives.
Test Bank: II
T o p ic : The Balance of Payments
316.
The purchase of a foreign hotel by a U.S. company is recorded as a credit in the financial
account of the U.S. balance-of-payments statement.
317.
In the dollar/yen market, if the supply of yen increases, other things being equal, the dollar
will appreciate.
318.
Relatively high rates of U.S. inflation compared to other countries will increase the supply
of, and decrease the demand for, dollars in foreign exchange markets.
41-154
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written consent of McGraw-Hill Education.
Test Bank: II
T o p ic : Flexible Exchange Rates
319.
The purchasing-power-parity theory holds that exchange rates should equalize the inflation
rates among the trading nations.
320.
The expectations of speculators in the United States that the exchange rate for the euro will
fall in the future will increase the supply of euros in the foreign exchange market and decrease
the exchange rate for the euros.
321.
If a nation has a balance of payments deficit and exchange rates are flexible, the price or
value of that nation's currency in the foreign exchange markets will rise.
41-155
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written consent of McGraw-Hill Education.
T o p ic : Flexible Exchange Rates
322.
Fixed exchange rates usually provide more certainty to those engaged in international trade.
323.
To keep the exchange rate constant, an increase in the demand for a country's currency
should be matched by a corresponding increase in supply to be administered by the government.
324.
If nations adopt a gold standard where various countries' money supply is tied to gold, then
there will in effect be a fixed exchange-rate system.
41-156
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written consent of McGraw-Hill Education.
T o p ic : Fixed Exchange Rates
325.
The exchange-rate system that we now have for major currencies like the U.S. dollar, yen,
and euro is a "managed-floating" system.
326.
Several countries in the world today peg their currencies to the U.S. dollar, causing those
currencies' values to fluctuate as the U.S. dollar fluctuates.
327.
One of the causes of the rising trade deficits of the past decade has been a declining saving
rate in the United States.
328.
At the time when a trade deficit is occurring, U.S. consumers benefit from having more
goods and services available.
41-157
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written consent of McGraw-Hill Education.
TRUE
329.
Improved economic growth in the major trading partners of the United States would reduce
its trade deficit.
330.
Faster economic growth in the United States relative to other nations tends to worsen the
U.S. trade deficit.
