Econ 360 Final
We have the following data for a hypothetical open economy: GNP = $9,000 Consumption (C) = $7,800 Investment (I) = $1,000 Government Purchases (G) = $1,400 What is the value of the current account balance?
$-1200
Given the following data: Et = ¥110 = $1.00 Et+1 = ¥110 = $1.00 {one year later} iJapan = 10% annually iU.S. = 12% annually Calculate the future value of a $1,000 investment. f the $1000 is invested in the U.S., the future value is ______ If the $1000 is invested in Japan (and repatriated back to dollars), the future value is ______
$1120 $1100
Suppose the U.S. dollar-euro exchange rate is 1.4 dollars per euro, and the U.S. dollar-Mexican peso rate is 0.15 dollars per peso. What is the euro-peso rate?
(0.15÷1.4) = 0.107 euro per Mexican peso.
Russia imports 5 billion Rubles of goods and exports 7 billion rubles of goods. At the same time, Russia imports 4 billion rubles of services, and Russia makes a 2 billion Ruble net unilateral transfer to Albania. Russia's current account equals 6 billion Rubles. B. 4 billion Rubles. C. −4 billion Rubles. Your answer is correct. D. −6 billion Rubles.
- 4 billion Rubles.
A European washing machine costs 1000 Euros. A U.S. washing machine costs 1000 dollars. If the nominal exchange rate is $0.50 per Euro the real exchange rate is
2 European washing machines per U.S. washing machine.
If the U.K. exports 14 billion British Pounds of products, and imports 10 billion British pounds of products, its trade balance equals A. 24 billion British Pounds. B. 10 billion British Pounds. C. 4 billion British Pounds. Your answer is correct. D. 14 billion British Pounds.
4 billion British Pounds.
If the interest rate on a deposit in Euros is 6% per year, and the Euro is expected to depreciate against the U.S. dollar by 1%, what does the interest parity condition imply about the interest rate on the deposit in U.S. dollars?
5%
Which of the following would be interested in holding foreign currency to take advantage of investment opportunities?
A portfolio manager
Which of the following would be interested in holding foreign currency to engage in transactions?
A tourist and A manufacturing firm
Which of the following are recorded as credits, in the current account? Income received from foreign investments. B. Transfers received. C. Exports. D. All of the above. Your answer is correct. E. None of the above, since they are entered as debits.
All of the above.
When the dollar is worth less in relation to currencies of other countries (for example relative to the Japanese Yen in the diagram to the right), are you more likely to buyAmerican-made or foreign-made electronics?
American (domestic) products
If the U.S. dollar depreciates in terms of the Euro:
American goods would be cheaper for Europeans.
A managed floating exchange rate refers to:
An exchange rate that is not pegged, but does not float freely.
What type of institution will not directly participate in the foreign exchange market?
Corporations.
Identify the following as debit or credit entries in the Balance of Payments: Primary and secondary income receipts:
Credit Current Account
Identify the following as debit or credit entries in the Balance of Payments: An incurrence of liabilities to foreigners:
Credit Financial Account
Which of the following reasons is not considered for holding a foreign currency?
Currency is needed for "insurance" when the country changes exchange rate systems.
Identify the following as debit or credit entries in the Balance of Payments: Imports of goods and services:
Debit Current Account
Identify the following as debit or credit entries in the Balance of Payments: An acquisition of foreign financial assets:
Debit Financial Account
Identify the following as debit or credit entries in the Balance of Payments: An increase in official Reserve Assets:
Debit Financial Account
The Economist magazine is famous for its publication of the Big Mac index -- a table of Big MacTM prices in different countries around the world. The use of the Big Mac allows for a highly standardized product sold throughout the world. Given the following abbreviated table: Country PriceBig Mac China Rmb 12 Indonesia Rp 20,000 U.K. £1.25 U.S. $2.50 The current (strongly managed / fixed) exchange rate between the U.S. and China is Rmb 7.85 = $1.00. If the Chinese monetary authorities allow their currency (the renminbi / yuan) to float, would you expect the dollar to appreciate or depreciate relative to the yuan?
Depreciate
________ must choose an exchange rate system to determine how prices in the home country currency are converted into prices in another country's currency.
Every country
Trade Balance
Export-Import
It is not possible for government deficits to decline while increasing the current account deficit because economic variables have to be in equilibrium.
False
Statistical discrepancy
Financial account balance-(Current Account Balance + Capital account balance)
Which of the following is NOT a valid argument against a floating exchange rate regime?
Floating rates put some countries in a privileged position.
Which of the following is NOT an account in the balance of payments? Financial account B. Capital account C. Current account D. Future account
Future account
Under the Bretton Woods system, the increase in the U.S. inflation rate would lead to:
Inflation in the countries that pegged their currencies to the U.S. dollar.
Financial Account Balance
Net acquisition of financial assets- net incurrence of liabilities+ Net change in financial derivatives
Which equation correctly shows how budget deficits of a country are linked to its current account balance?
Private Savings + Government Savings = Investment + Current Account
Which is true?
Some countries peg to a basket of currencies.
Under a Gold Standard:
The exchange rate is fixed.
Which of the effects is not considered when choosing an exchange rate system?
The fiscal (spending and taxation) policy that the choosing country will maintain.
A contract that contains a promise that a specified amount of foreign currency will be delivered on the specified date in the future is traded in which of the following?
The forward market.
Which of the following are examples of foreign direct investment?
The purchase of land and a manufacturing plant near Mexico City, Mexico, by a U.S.-owned firm.
The U.S. government sells gold for dollars.
The transaction is recorded as a credit in the financial account.
A migrant worker in California sends $500 home to his village in Mexico.
The transaction is recorded as a debit in the current account.
An American church donates five tons of rice to the Sudan to help with famine relief.
The transaction is recorded as a debit in the current account.
An American retired couple flies from Seattle to Tokyo on Japan Airlines.
The transaction is recorded as a debit in the current account.
An American mutual fund manager uses the deposits of his fund investors to buy Brazilian telecommunication stocks.
The transaction is recorded as a debit in the financial account.
The Mexican government sells pesos to the United States Treasury and buys dollars.
The transaction is recorded as a debit in the financial account.
A Japanese firm in Tennessee buys car parts from a subsidiary in Malaysia.
The transaction is recorded as a debit. in the current account.
Current Account Balance
Trade balance+ Net primary income+ Net secondary income
Exports of goods and services 620 Primary income received 20 Secondary income received 380 Imports of goods and services 300 Primary income paid abroad 180 Secondary income paid 20 Net acquisition of financial assets 530 Net incurrence of liabilities 130 Net change in financial derivatives −210
What is the trade balance? 320. What is the current account balance? 520 What is the financial account balance? 190 What is the statistical discrepancy? - 330
What about an American company that is in the business of importing electronic consumer goods into the UnitedStates?
When the dollar is stronger.
Are U.S. companies that manufacture semi-conductors happier when the dollar is strong or when it is weak?
When the dollar is weaker.
For what type of exchange rate system will there be no exchange rate risk?
a dollarized system
After the breakdown of the Bretton Woods system, the dominant exchange rate regime in the U.S. was:
a managed float.
An increase in the real exchange rate (real depreciation of domestic currency) will result in:
an increase in net exports.
Gross National Product represents the sum of the following expenditure categories:
consumption, investment, government purchases, and the current account balance.
he following table contains Gross Domestic Product (GDP) and Gross National Product (GNP) from FRED* for the third quarter of 2020. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. Title Value Gross Domestic Product $21,157.122 billion Gross National Product $21,345.175 billion Since GNP exceeds GDP, it can be concluded that foreign production by U.S. firms______U.S. production by foreign firms. For countries having a significant fraction of domestic production occurring in foreign-owned facilities, the GDP will likely _______ GNP
exceeds, exceed
In theory the equality: current account + capital account = financial account must hold. In reality, a statistical discrepancy is often included to achieve this balance. The account considered to be the likely culprit of this discrepancy is the
financial account.
The U.S. dollar is overvalued and the peso is undervalued
if a visitor to Mexico from the United States can buy more goods in Mexico than he can buy in the United States when he converts dollars to pesos.
If a country has no public or private savings, it is only possible for the county to have positive investment
if the country runs a current account deficit to finance the investment.
In the current Post-Industrial economy, international trade in services (including banking and financial services): is relatively stagnant B. does not exist C. is relatively small Your answer is correct. D. dominates world trade
is relatively small
GNP (Gross National Product) equals GDP plus
net receipts of factor income from the rest of the world and net unilateral transfers.
When a government (typically corrupt) incurs debt without the consent of the people and the debt is not used for thepeople's benefit, the debt is
odious.
From 1950 to the present day, the U.S. has run large current account deficits,
only following 1980, with one period in the early 1980s and another from the early 1990s and onward.
Countries official reserve assets are mostly composed of
other countries' currencies.
A small country with strong economic ties to a larger country should
peg (hard or soft) their exchange rate to the larger country's currency.
"Sudden Stops" are characterized by
sudden outflows of foreign portfolio investment.
In general, a country whose economy is dependent on an imported resource and whose goal is to minimize the shock that the resource can cause to their economy should adopt an exchange rate system
that allows their currency to float in the market.
Suppose the Japanese interest rate is 1% while the interest rate in Britain is 3%. Interest rate parity predicts that relative to the Japanese Yen,
the British pound will depreciate by 2%.
In 2001, the Euro cost just about 90 cents. In 2008, the cost of the Euro was almost $1.50. This general development means that between 2001 and 2008
the Euro appreciated against the U.S. dollar.
The price of a currency that will be delivered in the future is called,
the forward exchange rate.
In which market will a company arrange to receive currency for a transaction at a future date?
the forward market
Purchasing Power Parity (PPP) implies that in
the long run, a given amount of money can buy the same amount of goods, whether they are purchased at home or abroad.
Worldwide importing inflation from the US at the end of Bretton Woods was caused by:
the need to increase monetary growth to match the US.
The current account will fall if
the real exchange rate appreciates or disposable income goes
Your country has a positive International Investment Position (IIP) with another country. This statement means
your country's citizens own more assets in the other country than the other country's citizens own in your country.
