Question 1

If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

Accepted Answer

A)  balance of trade surplus.
B)  balance of payments surplus.
C)  positive balance on current account.
D)  positive balance on goods and services.E) A) and D)
F) All of the above

Question 2

A deficit on the current account:

Accepted Answer

A)  normally causes a surplus on the capital account.
B)  normally causes a deficit on the capital account.
C)  has no relationship to the capital account.
D)  means that a nation is not making any international transfers.E) B) and C)
F) A) and C)

Question 3

If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound, the rate of exchange between the two currencies:

Accepted Answer

A)  is $.5 = 1 pound.
B)  is $2 = 1 pound.
C)  is $1 = 2 pounds.
D)  is $1.5 = 1 Pound.E) A) and B)
F) B) and C)

Question 4

Which of the following is not included in the current account of a nation's balance of payments?

Accepted Answer

A)  its merchandise exports
B)  its merchandise imports
C)  its net investment income
D)  its capital inflowsE) A) and B)
F) A) and C)

Question 5

Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D1 to D2 will: 1 to D2 will:   A) ultimately cause Canadian exports to decline and its imports to rise. B) cause the dollar price of pesos to increase. C) cause the peso to depreciate. D) cause the dollar to depreciate." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  ultimately cause Canadian exports to decline and its imports to rise.
B)  cause the dollar price of pesos to increase.
C)  cause the peso to depreciate.
D)  cause the dollar to depreciate.E) All of the above
F) C) and D)

Question 6

Depreciation of the Canadian dollar will tend to:

Accepted Answer

A)  decrease the prices of both imports and exports.
B)  increase the prices of both imports and exports.
C)  decrease the prices of the goods Canadians import, but increase the prices to foreigners of the goods Canadians export.
D)  increase the prices of the goods Canadians import, but decrease the prices to foreigners of the goods Canadians export.E) B) and C)
F) A) and D)

Question 7

Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of fixed exchange rates, the shift in demand from D to D' will cause:

Accepted Answer

A)  Canada to increase its stocks of international monetary reserves.
B)  a Swiss balance of payments deficit.
C)  a Canadian balance of payments deficit.
D)  a Canadian balance of payments surplus.E) A) and B)
F) None of the above

Question 8

If the exchange rate between the Canadian dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is:

Accepted Answer

A)  $.005
B)  $.05.
C)  $.50.
D)  5.E) None of the above
F) All of the above

Question 9

If the price of British pounds, measured in terms of Canadian dollars is rising then, the price of Canadian dollars, measured in terms of British pounds, is also rising.

Accepted Answer

A) True 
 B)False

Question 10

The Bretton Woods system of exchange rates relied on:

Accepted Answer

A)  flexible exchange rates.
B)  fixed exchange rates with no mechanism for changing them.
C)  fixed or "pegged" exchange rates, with occasional orderly adjustments to the rates.
D)  Canada to set and periodically review worldwide exchange rates.E) A) and B)
F) A) and C)

Question 11

Critics of the managed floating exchange rate system argue that it:

Accepted Answer

A)  is dominated by G-8 nations.
B)  is a "non-system" with unclear rules.
C)  increased the growth in world trade at too fast a rate.
D)  puts too much reliance on the adjustable-peg mechanism for stabilizing exchange rates.E) A) and B)
F) None of the above

Question 12

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Between 2012 and 2014, the:

Accepted Answer

A)  dollar appreciated in value relative to the yen.
B)  yen appreciated in value relative to the dollar.
C)  dollar price of yen declined.
D)  yen price of dollars increased.E) C) and D)
F) A) and C)

Question 13

Under flexible exchange rates a Canadian trade deficit with Britain will cause the dollar price of pounds to rise.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would contribute to a Canadian balance of payments deficit?

Accepted Answer

A)  Kawasaki builds a motorcycle manufacturing plant in Vancouver
B)  Canadian tourists travel in large numbers to Europe
C)  a wealthy Iranian builds a mansion in Montreal
D)  Zaire pays interest on its debt to CanadaE) None of the above
F) A) and B)

Question 15

If the Canadian dollar price of United States dollars increases from $.80 to $1.00, it can be concluded that:

Accepted Answer

A)  the Canadian dollar has appreciated in value to the United States dollar.
B)  both countries are on the international gold standard.
C)  the American dollar has depreciated in value relative to the Canadian dollar.
D)  the Canadian dollar has depreciated in value relative to the United States dollar.E) A) and B)
F) B) and C)

Question 16

An increase in Canadian interest rates can be expected to:

Accepted Answer

A)  adversely affect Canadian exporters.
B)  encourage investment spending by Canadian firms.
C)  lower the foreign exchange value of the dollar.
D)  cause a net outflow of foreign capital from Canada.E) B) and D)
F) All of the above

Question 17

There must always be a balance of a nation's:

Accepted Answer

A)  merchandise exports and gold imports.
B)  total international payments.
C)  imports and exports of goods and services.
D)  merchandise imports and exports.E) A) and C)
F) B) and C)

Question 18

In the balance of payments of Canada, capital inflows are recorded as:

Accepted Answer

A)  a positive entry.
B)  a current account entry.
C)  official reserves.
D)  net investment income.E) B) and D)
F) None of the above

Question 19

Suppose the current account balance of an economy is -$50 billion and the stock of official international reserves is -$11 billion.Given the information, it can be said that the balance in the capital account is:

Accepted Answer

A)  $61 billion.
B)  -$61 billion.
C)  -$111 billion.
D)  $111 billion.E) All of the above
F) None of the above

Question 20

Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

Accepted Answer

A)  0.68 Euros.
B)  70 Euros.
C)  20 Euros.
D)  5.5 Euros.E) A) and B)
F) B) and C)

Exam 18: B: The Balance of Payments and Exchange Rates

Suppose the exchange rate between the Canadian dollar and the Japanese yen was $1 = 220 yen in 2012.In 2014, the exchange rate was $1 = 100 yen.Refer to the above information.Between 2012 and 2014, the:

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Depreciation of the Canadian dollar will tend to:

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If the exchange rate between the Canadian dollar and the Japanese yen is $1 = 200 yen, then the dollar price of yen is:

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There must always be a balance of a nation's:

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If a nation's merchandise exports are $55 billion, while its merchandise imports are $50 billion, we can conclude with certainty that this nation is experiencing a:

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An increase in Canadian interest rates can be expected to:

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If a British importer can purchase 12,000 Canadian Dollar for 8,000 British Pound, the rate of exchange between the two currencies:

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If the Canadian dollar price of United States dollars increases from $.80 to $1.00, it can be concluded that:

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Which of the following would contribute to a Canadian balance of payments deficit?

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Which of the following is not included in the current account of a nation's balance of payments?

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Suppose the current account balance of an economy is -$50 billion and the stock of official international reserves is -$11 billion.Given the information, it can be said that the balance in the capital account is:

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If the price of British pounds, measured in terms of Canadian dollars is rising then, the price of Canadian dollars, measured in terms of British pounds, is also rising.

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A deficit on the current account:

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In the balance of payments of Canada, capital inflows are recorded as:

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The Bretton Woods system of exchange rates relied on:

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Critics of the managed floating exchange rate system argue that it:

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Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D1 to D2 will:

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Using Image 18.2 Global Perspective, In October 2017, one Canadian dollar bought:

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Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of fixed exchange rates, the shift in demand from D to D' will cause:

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Under flexible exchange rates a Canadian trade deficit with Britain will cause the dollar price of pounds to rise.

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Refer to the diagram below where D and S are Canada's demand for and supply of pesos.At the equilibrium exchange rate, E, Canada's balance of payments is in equilibrium.Under a system of flexible exchange rates, the shift in demand from D₁ to D₂ will:

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