978-1259723223 Test Bank TBChap041 Part 8

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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?

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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

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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

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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

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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

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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?

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.