ECON 431 Pretest

Under managed floating exchange rates, if the rate of inflation in the United States is less than the rate of inflation of its trading partners, the dollar will likely: a. Appreciate against foreign currencies b. Depreciate against foreign currencies c. Be officially revalued by the government d. Be officially devalued by the government

a. Appreciate against foreign currencies

Which exchange-rate system does not require monetary reserves for official exchange-rate intervention? a. Floating exchange rates b. Pegged exchange rates c. Managed floating exchange rates d. Dual exchange rates

a. Floating exchange rates

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days. You can remove the risk of loss due to a devaluation of the pound sterling by: a. Selling sterling in the forward market for 60-day delivery b. Buying sterling now and selling it at the end of 60 days c. Selling the dollar equivalent in the forward market for 60-day delivery d. Keeping the sterling in Britain after it is delivered to you

a. Selling sterling in the forward market for 60-day delivery

Economic interdependence is generally greater for: a. small nations b. large nations c. developed nations d. developing nations

a. small nations

If the dollar equivalent exchange rate of the New Zealand dollar is 1.5, what is a New Zealand dollar worth in terms of U.S. dollars? a. $0.50 b. $0.67 c. $1.00 d. $1.50

b. $0.67

Suppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. A Japanese stereo with a price of 60,000 yen will cost: a. $60 b. $600 c. $6000 d. None of the above

b. $600

Which of the following tends to cause the U.S. dollar to appreciate in value? a. An increase in U.S. prices above foreign prices b. Rapid economic growth in foreign countries c. A fall in U.S. interest rates below foreign levels d. An increase in the level of U.S. income

b. Rapid economic growth in foreign countries

An increase in the dollar price of a foreign currency usually: a. benefit U.S. importers b. benefits U.S. exporters c. benefit both U.S. importers and U.S. exporters d. harms both U.S. importers and U.S. exporters

b. benefits U.S. exporters

Refer to Figure 15.2. Demand and supply of British Pounds is initially D0 and S0. With a system of floating exchange rates, the equilibrium exchange rate is: a. $0.40 per pound b. $0.60 per pound c. $0.80 per pound d. $1.00 per pound

c. $0.80 per pound

In the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from: a. The United States to Japan, causing the dollar to depreciate b. The United States to Japan, causing the dollar to appreciate c. Japan to the United States, causing the yen to depreciate d. Japan to the United States, causing the yen to appreciate

c. Japan to the United States, causing the yen to depreciate

Which of the following is NOT an assumption generally made in the study of international economics? a. two nations b. two commodities c. fixed exchange rates d. two factors of production

c. fixed exchange rates

The opening or expansion of international trade usually affects members of society: a. positively b. negatively c. most positively but some negatively d. most negatively but some positively

c. most positively but some negatively

A market that requires immediate sale or purchase of an asset is known as a(n): a. exchange market b. bond market c. spot market d. free market

c. spot market

The supply of foreign currency may be: a. Upward-sloping b. Backward-sloping c. Vertical d. None of the above

d. None of the above