problem 1: The argument that protection raises total employment:

a. Is true as domestic producers would have to reduce employment if imports force them out of the market.
b. Is true as foreign producers hire workers at lower wages.
c. Is true as we then keep the products and the payments for the products in the domestic market.
d. Is false as a increase in employment and output in protected industries can only come at the cost of proficient production in other industries.

problem 2: If a US firms borrows one billion dollars in Mexican pesos from Citibank’s Mexico branch and employs the money to build a factory in Mexico, the transactions will enter the US balance of payments as:

a. Credit on capital inflow and a debit on direct investment payments.
b. Credit on capital inflow and a debit on capital outflow.
c. Credit on capital inflow and a debit on goods investment.
d. Credit on capital inflow and a debit on capital outflow.

problem 3: If the exchange rate between the Canadian (C$) and the American dollar (US$) changes from:

C$1.340/1$ to C$1.325/US$ however the Canadian government wants to maintain an exchange rate of C$1.340/1US$, what must the Bank of Canada do?

a. Stop trading with US so that fewer US dollars will flow into Canada.
b. Sell US dollars (buy Canadian dollars)
c. Sell Canadian dollars (buy US dollars).
d. Purchase British pounds and sell French Francs.

problem 4: Which of the given statements is false?

a. British imports of Florida oranges will make a demand for US dollars.
b. If all Americans decide to buy Germany automobiles, the dollar will appreciate relative to the mark.
c. A change from $3/1£ to $2/1£ represents an appreciation of the dollar.
d. The exchange rate is kept similar in all parts of the market by exchange arbitrage.

problem 5: The demand curve for foreign currency slopes downward since:

a. At lower exchange rates, foreign goods look cheaper to home country residents.
b. At higher exchange rates, the home currency can purchase more foreign goods.
c. The quantity supplied of the foreign currency increases as the exchange rate drops.
d. Marginal utility theory states that individuals substitute to any commodity whose price has fallen.