Chapter 7: 3rd Attempt Quiz Questions

Which of the following characterizes a country's current account? a. A country's current account balance consists of exports plus imports of merchandise and services minus income on the country's assets abroad. b. A country's current account deficit has to be financed by both purchases and sales of assets. c. A country experiencing a current account surplus will see its currency depreciate. d. A country experiencing a current account deficit will see its currency appreciate.

A country's current account deficit has to be financed by both purchases and sales of assets.

Which of the following is true of the bid rate in foreign exchange markets? a. It is always equal to the offer rate. b. It does not affect the spread of the exchange. c. It is always lower than the offer rate. d. It is always higher than the offer rate.

It is always lower than the offer rate

Which of the following characterizes the peg policy in foreign exchange rates? a. It is primarily used by developed countries to control inflation. b. It is a type of floating exchange rate policy. c. It links a developed country's currency to the gold standard. d. It stabilizes the import and export prices for developing countries.

It stabilizes the import and export prices for developing countries.

Which of the following is the funding source for the International Monetary Fund? a. Subsidiary investing b. Foreign direct investment c. Currency trading d. Member-country quota

Member-country quota

Which of the following is an advantage of a strong US dollar? a. US tourists will find it more expensive when traveling abroad. b. US exporters will find it easier to compete on price abroad. c. US firms will experience less competitive pressure to keep prices low. d. US importers will find it easier to compete with low-cost imports.

US exporters will find it easier to compete on price abroad.

Capital flight is a phenomenon in which a large number of individuals and companies exchange ____.

domestic currency for a foreign currency

The _____ suggests the price for identical products in different countries would be the same, if trade barriers are absent.

theory of purchasing power parity

Which of the following will cause a country's currency to depreciate? a. High account surplus b. High interest rates on the currency c. High inflation rates d. High in-flow of foreign funds

High inflation rates

Which of the following best describes a rate where selective government intervention works hand-in-hand, allowing markets the freedom to work themselves out? a. Free float rate b. Target exchange rate c. Fixed rate d. Dirty float rate

Dirty float rate

Which of the following foreign exchange transactions provide protection to traders and investors from being exposed to fluctuations of the spot rate? a. Forward transactions b. Spot transactions c. Currency swaps d. Direct transactions

Forward transactions

Which of the following is one of the major reasons the gold standard was abandoned? a. The increased flow of gold from the U.S. into foreign central banks. b. The strengthening of the U.S. dollar due to the rise in productivity levels in the United States. c. The United States unilaterally announced that the dollar would not be convertible to gold. d. The competitive devaluation of currencies during the Great Depression.

The competitive devaluation of currencies during the Great Depression

Which of the following resulted in the abandoning of the Bretton Woods system in the 1970s? a. The inflation rates in the United States and other developed counties were low. b. The dollar became inconvertible into gold. c. Most countries wanted to return to the gold standard system. d. The United States was not running a trade deficit.

The dollar became inconvertible into gold.