Question 1
Which of the following is NOT a function of the International Monetary Fund?
Answer
a. Serve as lender of last resort for national governments
b. Administer an international foreign exchange system
c. Establish the SDR system nations utilize to settle international payment obligations
d. Establish and administer each nation's fiscal and monetary policies
Question 2
A summary of a country's economic transactions with foreign residents and governments is called the
Answer
a. current account balance.
b. capital account balance.
c. balance of trade.
d. balance of payments.
Question 3
Special Drawing Rights are
Answer
a. a reserve asset created by the International Monetary Fund that can be used to settle international payments.
b. loans granted by the International Monetary Fund to countries that experience balance of payments problems.
c. the term given for official reserves taken as a whole.
d. financial assets held by the U.S. Treasury Department.
Question 4
Which of the following would contribute to a positive trade balance for a country?
Answer
a. Having tourists visit the country
b. Importing textiles
c. Having foreign residents buy the government bonds of the country
d. Importing financial services
Question 5
With a dirty float system,
Answer
a. market forces and the country's stock of gold determine its exchange rate.
b. central banks may intervene to affect the value of a country's currency.
c. market forces do not play a role in determining the value of a currency.
d. the International Monetary Fund and the Groups of Five and Seven determine fixed exchange rates.
Question 6
All of the following are surplus items on a country's balance of payments EXCEPT
Answer
a. gold sales to foreigners.
b. exports.
c. foreign tourists' expenditures in the host country.
d. purchase of foreign assets.
Question 7
Country X-2002 Transactions (billions of dollars)
The merchandise trade balance for Country X is ________ billion dollars. (See the above table.)
Answer
a. +100
b. -150
c. +150
d. -10
Question 8
The gold standard is
Answer
a. a type of floating exchange rate system.
b. a type of managed flexible exchange rate system.
c. a type of fixed exchange rate system.
d. a purely floating exchange rate system.
Question 9
Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur
Answer
at the European Central Bank.
at the Federal Reserve.
in the letter of credit market.
in the foreign exchange market.
Question 10
Since all currencies had values fixed in units of gold under the gold standard
Answer
a. exchange rates were essentially floating.
b. exchange rates were set to a crawling peg.
c. exchange rates were essentially fixed.
d. none of these
Question 11
In the above figure, suppose the value of the French franc is P1 and U.S. demand for French wine declines. The effect on the franc can be shown by
Answer
a. an increase in the value of the franc to P2.
b. the excess demand of franc equal to Q3 - Q1.
c. the decrease in the value of the franc to P0.
d. a shift in the demand for francs from D1 to D0, but no change in the value of the franc.
Question 12
Under a flexible exchange rate system, a decrease in the value of a domestic currency in terms of foreign currencies is referred to as
Answer
a. an appreciation.
b. a depreciation.
c. a devaluation.
d. a revaluation.
Question 13
Under a flexible exchange rate system, an increase in the value of the U.S. dollar in terms of other currencies is referred to as
Answer
a. a depreciation of the U.S. dollar.
b. an appreciation of the U.S. dollar.
c. a monetizing of the U.S. dollar.
d. a devaluation of the U.S. dollar.
Question 14
An important problem with the gold standard was that
Answer
a. one country could easily manipulate the system to its advantage and the disadvantage of other countries.
b. a country did not have control of its domestic monetary policy.
c. exchange rates tended to fluctuate a great deal, making it difficult for businesses to make long-run plans.
d. it was too complicated and restricted business activity.
Question 15
The supply of U.S. dollars on foreign exchange markets is
Answer
a. derived from the supply of U.S. goods.
b. derived from the demand by United States for imported goods and services.
c. determined directly by open market operations at the Federal Reserve Bank.
d. derived from the demand for U.S. products by foreigners.
Question 16
If the exchange rate is such that $1 equals 5 euros, then the price of a euro is
Answer
a. $5
b. $1
c. $0.40
d. $0.20
Question 17
Which of the following is a determinant of exchange rates?
Answer
a. A change in consumer preferences
b. A change in productivity
c. A change in real interest rates
d. all of these
Question 18
If the dollar used to buy 100 yen and now buys 360 yen, there has been
Answer
a. appreciation of the dollar.
b. depreciation of the dollar.
c. appreciation of the yen.
d. an increase in special drawing rights.
Question 19
A problem with the operation of the gold standard in the world economy was that
Answer
a. it involved too much government intervention in the economy.
b. the world economy was subject to too much inflation.
c. a country didn't have control of its domestic monetary policy.
d. it caused the Great Depression.
Question 20
Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect
Answer
a. political instability in the United States.
b. a worsening of the U.S. balance of payments.
c. an appreciation of U.S. currency.
d. that a "dirty float" will emerge.