1) Which of the following would NOT be considered a typical BOP transaction?
Answer:
- Toyota U.S.A. is a Japanese transplant manufacturing cars in the US. Toyota invests to expand its plant.
- A prospective U.S. tourist purchases British Airline ticket to travel to London
- The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich.
- All are exs of BOP transactions.

2) Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of ________.
Answer:
- goods trade
- income receipts
- current transfers
- services trade

3) A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.
Answer:
- managed float
- pegged exchange rate with the Euro
- independent floating
- pegged exchange rate with the United States

4) A current account deficit is most likely to decrease as a result of an increase in:
Answer:
- Domestic savings.
- Private investment.
- The fiscal budget deficit.
- None of the above.

5) Which of the following correctly identifies exchange rate regimes from less fixed to more fixed?
Answer:
- Independent floating, currency board arrangement, managed float.
- Exchange arrangements with no separate legal tender, currency board arrangement, crawling pegs.
- Independent floating, crawling pegs, exchange arrangements with no separate legal tender.
- Independent floating, currency board arrangement, crawling pegs.

6) Assume that Z-Land is and open economy and domestic absorption exceeds domestic production. Assuming that unilateral transfers and net income flows are negligible for Z-Land, which one of the following can be concluded with precision (i.e. is absolutely true under all circumstances)?
Answer:
- Z-Land has a public sector deficit.
- Z-Land has a current account surplus.
- Z-Land has a deficit in capital account.
- Z-Land imports more goods and services than it exports.
- None of the above

7) Which of the following is least likely a component of the current account?
Answer:
- Unilateral transfers
- Payments for fixed assets
- Payments for goods and services
- None of the above

8) Patent fees and legal services are recorded in which of the following balance of payments components?
Answer:
- Capital account
- Current account
- Financial account
- Official reserves account

9) The sale of mineral rights would be captured in which of the following balance of payments components?
Answer:
- Capital account
- Current account
- Financial account
- Official reserves account

10) A decline in the US domestic savings (ceteris paribus) is expected to ___________ US current account deficit.
Answer:
- reduce
- increase
- have no impact on
- none of the above

11) The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?
Answer:
- full financial integration and monetary independence
- exchange rate stability and full financial integration
- a country cannot attain any of the exchange rate goals with a pure float exchange rate regime.
- monetary independence and exchange rate stability

12) The post WWII international monetary agreement that was developed in 1944 is known as the ________.
Answer:
- Bretton Woods Agreement
- United Nations
- Yalta Agreement
- League of Nations

13) Private Savings 300bn
Private Investments 310bn
Government Revenues 400bn
Government Expenditures 430bn
Net Statistical Discrepancy -10bn
Net Change in Reserves +20bn
Answer
- 120bn
- 60bn
- 70bn
- 50bn
- none of the above

14) Which one of the following is not a problem with the pegged exchange rates
Answer:
- Pegged exchange rate regimes require substantial reserve holdings
- A peg set at an overvalued exchange rate might lead to a run on reserves
- A peg set at an undervalued exchange rate might impose fiscal costs or might lead to expansion of monetary base creating inflation
- Higher costs incurred on sterilization than the returns earned on reserves
- None of the above

15) A currency peg set at an undervalued rate, is not likely to lead to:
Answer:
- Current account surplus
- Central bank intervention to purchase oversupplied foreign currency
- Sterilization to prevent inflation
- Sale of foreign currency to maintain the peg