Chap38 review
Student: ___________________________________________________________________________
1. U.S. exports of computers, aircraft, and chemicals create a: 
A) Foreign demand for foreign currencies
B) Domestic demand for foreign currencies
C) Domestic supply of foreign currencies
D) Foreign supply of foreign currencies
 
2. When a U.S. importer buys 100,000 pairs of pants from a Hong Kong company, this transaction will be a: 
A) Credit on the current account of the U.S. balance of payments
B) Debit on the current account of the U.S. balance of payments
C) Credit on the financial account of the U.S. balance of payments
D) Debit on the financial account of the U.S. balance of payments
 
3. Which of the following shows the net difference between how much Americans forgave in debts owed to them by foreigners compared with how much foreigners forgave debts owed to them by Americans? 
A) Current account
B) Capital account
C) Financial account
D) Net transfers
 
4. Which is an item in the current account of the balance of payments for the United States? The purchase of: 
A) A U.S. company by a foreign company
B) Stock in a foreign corporation by a U.S. company
C) Insurance in the United States by a foreign company
D) A United States Treasury bond by a wealthy foreigner
 
5. Foreign exchange rates refer to the: 
A) Price at which purchases and sales of foreign goods take place
B) Movement of goods and services from one nation to another
C) Price of one nation's currency in terms of another nation's currency
D) Difference between exports and imports in a particular nation
 
6. To Americans buyers, there is a decrease in the relative prices of Japanese goods when the: 
A) Yen appreciates
B) Dollar appreciates
C) Inflation rate in the United States is higher than the inflation rate in Japan, and there are flexible exchange rates
D) Inflation rate in Japan is higher than the inflation rate in the United States and there are fixed exchange rates
 
7. An increase in the dollar price of the British pounds will: 
A) Increase the pound price of dollars
B) Decrease the pound price of dollars
C) Leave the pound price of dollars unchanged
D) Cause Britain's terms of trade with the United States to deteriorate
 
8. The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to: 
A) U.S. goods becoming less expensive for Mexicans
B) Mexican goods becoming more expensive for Americans
C) An increase in U.S. exports to Mexico
D) A decrease in U.S. exports to Mexico
 
9. If the U.S. dollar appreciates relative to the British pound, then: 
A) The pound will appreciate relative to the U.S. dollar
B) The pound will depreciate relative to the U.S. dollar
C) British goods will be more expensive for Americans
D) American goods will be less expensive for the British
 
10. All else being equal, increased U.S. exports to nations in the European Union create a: 
A) Demand for euros
B) Supply of euros
C) Shortage of euros
D) Surplus of euros
 
11. In a market graph showing the supply and demand for British pounds in terms of U.S. dollars, the supply-of-pounds curve is upsloping because: 
A) Fewer British pounds can be purchased per dollar if U.S. dollars become more expensive
B) Fewer U.S. dollars can be purchased per pound if the British pounds become less expensive
C) The British will purchase more U.S. goods or services when the dollar price of pounds rises
D) The British will purchase more U.S. goods or services when the dollar price of pounds falls
 
12. Consider the currency market for British pounds and U.S. dollars. A decrease in the supply of British pounds results in: 
A) An appreciation of the pound and a depreciation of the dollar
B) A depreciation of the pound and a depreciation of the dollar
C) An appreciation of the pound and an appreciation of the dollar
D) A depreciation of the pound and an appreciation of the dollar
 
13. Consider the currency market for British pounds and U.S. dollars. An increase in the demand for British pounds results in: 
A) An appreciation of the pound and a depreciation of the dollar
B) A depreciation of the pound and a depreciation of the dollar
C) An appreciation of the pound and an appreciation of the dollar
D) A depreciation of the pound and an appreciation of the dollar

 
14. Refer to the above graph. If Canadians buy more U.S. goods, then: 
A) The demand curve will shift left
B) The demand curve will shift right
C) The supply curve will shift left
D) The supply curve will shift right
 
15. Refer to the above graph. If U.S. citizens flock to Canada for summer vacations and buy more Canadian goods and services, then the: 
A) The supply curve will shift left
B) The demand curve will shift right
C) The price of U.S. dollars in Canadian dollars will rise
D) The price of U.S. dollars in Canadian dollars will fall
 
16. Refer to the above graph. Higher inflation in the United States relative to that in Canada, ceteris paribus, is predicted to cause a(n): 
A) Decrease in the supply of U.S. dollars
B) Increase in the demand for U.S. dollars
C) Decrease in the value of the U.S. dollar in terms of the Canadian dollar
D) Increase in the value of the U.S. dollar in terms of the Canadian dollar
 
17. Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the: 
A) Quantity of U.S. exports
B) Quantity of U.S. imports
C) Demand for U.S. dollars
D) International value of the U.S. dollar
 
18. A currency depreciation on the foreign exchange market will: 
A) Encourage imports to the country whose currency has depreciated
B) Discourage imports to the country whose currency has depreciated
C) Discourage exports to the country whose currency has depreciated
D) Encourage foreign travel by the citizens of the country whose currency has depreciated
 
19. United States exports, foreign travel in the United States, and foreign capital inflow into the United States give rise to: 
A) Depreciation of the U.S. dollar
B) A supply of foreign currencies to the United States
C) A demand for foreign currencies in the United States
D) Decreased foreign exchange reserves in the United States
 
20. When real interest rates fall in the United States as compared to other nations, other things being equal, we would expect the dollar to experience: 
A) Appreciation
B) Depreciation
C) Inflation
D) Deflation
 
21. If Switzerland has a much lower inflation rate than the United States, then this event is most likely to cause the Swiss franc to: 
A) Depreciate and the U.S. dollar to depreciate
B) Depreciate and the U.S. dollar to appreciate
C) Appreciate and the U.S. dollar to appreciate
D) Appreciate and the U.S. dollar to depreciate
 
22. If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to: 
A) Depreciate and the U.S. dollar to depreciate
B) Depreciate and the U.S. dollar to appreciate
C) Appreciate and the U.S. dollar to appreciate
D) Appreciate and the U.S. dollar to depreciate
 
23. An increase in the income of country A relative to the income of country B will usually lead to an increase in country: 
A) A's exports to country B
B) B's imports from country A
C) A's demand for the currency of country B
D) B's demand for the currency of country A
 
24. Which would cause the supply of U.S. dollars in the United Kingdom to increase? 
A) An increase in the U.S. inflation rate
B) An increase in real interest rates in the United States
C) U.S. rock music becomes more popular in the United Kingdom
D) Widespread anticipation that the U.S. economy is about to experience a period of rapid economic growth
 
 Assume that Japan and the United States are engaged in a system of flexible exchange rates.

 
25. Refer to the above graph. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen? 
A) The price of yen will increase
B) The price of yen will decrease
C) The supply of yen will increase
D) The supply of yen will decrease
 
26. Refer to the above graph. If more Japanese decide to visit the United States for their vacations: 
A) The yen will appreciate and the U.S. dollar will depreciate
B) The yen will depreciate and the U.S. dollar will appreciate
C) The yen and the U.S. dollar will appreciate
D) The yen and the U.S. dollar will depreciate
 
27. Refer to the above graph. An increase in the supply of yen will result in: 
A) An appreciation of the yen
B) An appreciation of the U.S. dollar
C) A depreciation of the U.S. dollar
D) An increase in the dollar price of yen
 
28. Which of the following would tend to raise the value of the U.S. dollar in foreign exchange markets? 
A) A rise in U.S. interest rates
B) An easy monetary policy in the United States
C) A expansionary budget policy in the United States
D) An increase in the U.S. demand for foreign oil
 
 Assume that U.S. and European governments adopt a system of flexible exchange rates, and the figure below shows the market for euros.

 
29. Refer to the above graph. If more people in Europe decide to purchase U.S. cars, what effect will this have on the market for euros? 
A) Demand will decrease
B) Demand will increase
C) Supply will increase
D) Supply will decrease
 
30. Refer to the above graph. If currency traders think the European economy will experience a recession and the U.S. economy will not, then this event will most likely cause the: 
A) Euro to appreciate
B) Euro to depreciate
C) U.S. dollar to depreciate
D) The supply of euros to decrease

Chap38 review Key
 
1. C
 
2. B
 
3. B
 
4. C
 
5. C
 
6. B
 
7. B
 
8. D
 
9. B
 
10. B
 
11. C
 
12. A
 
13. A
 
14. B
 
15. D
 
16. C
 
17. B
 
18. B
 
19. B
 
20. B
 
21. D
 
22. B
 
23. C
 
24. A
 
25. A
 
26. B
 
27. B
 
28. A
 
29. C
 
30. B