Econ - Currency exchange + International Trade Flashcards
(158 cards)
1
Q
Ensuring that international trade flows smoothly and freely, settling trade disputes, and establishing agreements between trading partners most accurately describe the activities of the:
A) International Monetary Fund.
B) World Trade Organization.
C) World Bank.
A
B
The World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible.
2
Q
The _____ facilitates trade by
- promoting international monetary cooperation and exchange rate stability,
- assists in setting up international payments systems,
- and makes resources available to member countries with balance of payments problems.
A
International Monetary Fund
3
Q
The _____ provides low-interest loans, interest-free credits, and grants to developing countries for many specific purposes.
It also provides resources and knowledge and helps form private/public partnerships with the overall goal of fighting poverty.
A
World Bank
4
Q
The _____ has the goal of ensuring that trade flows freely and works smoothly. Its main focus is on instituting, interpreting, and enforcing a number of multilateral trade agreements that detail global trade policies for a large majority of the world’s trading nations.
A
World Trade Organization
5
Q
Costs of international trade are most likely borne by:
A) consumers who have fewer choices of goods.
B) industries competing with imported goods.
C) consumers who pay higher prices for consumer goods.
A
B
6
Q
An anti-dumping restriction on trade:
A)
prohibits foreign firms from selling products below cost to gain market share.
B)
keeps some highly sensitive products in the country.
C)
protects infant industries.
A
A
Firms dump their goods at a price lower than cost in order to drive out the competition. Once this is complete, they will be able to raise prices to much higher levels in order to gain abnormal profits. Of course, once prices are increased, new competitors may arise.
7
Q
Types of trade restrictions include (4)?
A
Tariffs, Quotas, Minimum domestic content, and voluntary export restraints
8
Q
What does the following describe?
Taxes on imported good collected by the government.
A
Tarriff
9
Q
What does the following describe?
Requirement that some percentage of product content must be from the domestic country.
A
Minimum domestic content
10
Q
What does the following describe?
Limits on the amount of imports allowed over some period.
A
Quotas
11
Q
What does the following describe?
A country voluntarily restricts the amount of a good that can be exported, often in the hope of avoiding tariffs or quotas imposed by their trading partners.
A
Voluntary export restraints
12
Q
Voluntary export restraints: A country voluntarily restricts the amount of a good that can be exported, often in the hope of _______.
A
avoiding tariffs or quotas imposed by their trading partners
13
Q
Trade restrictions will tend to:
- _____ prices of imports and _____ quantities of imports.
- _____ demand for domestically produced goods
- _____ quantity supplied of domestically produced goods.
- _____ producer’s surplus and _____ consumer surplus.
A
- Increase, decrease
- Increase
- increase
- Increase, decrease
14
Q
______ decrease export prices and benefit importing countries at the expense of the government of the exporting country.
A
Export subsidies
15
Q
Export subsidies _____ export prices and benefit _____ (import or export) countries at the expense of the government of the _____ (import or export) country.
A
decrease; importing; exporting
16
Q
Restrictions on the flow of financial capital across borders include? (4)
A
- outright prohibition of investment in the domestic country by foreigners,
- prohibition of or taxes on the income earned on foreign investments by domestic citizens,
- prohibition of foreign investment in certain domestic industries, and
- restrictions on repatriation of earnings of foreign entities operating in a country.
17
Q
Which of the following groups in the country of Minidonia would least likely be helped by the imposition of tariffs on Minidonian imports of transportation equipment?
A) Minidonia’s government.
B) Trucking companies.
C) Automotive manufacturers.
A
B
Tariffs on transportation equipment benefit the government in the form of tariff revenue, and benefit domestic producers and industry workers in the form of higher prices for transportation equipment. The users of transportation equipment, such as trucking companies, suffer from higher costs due to the higher prices of transportation equipment.
18
Q
In the Heckscher-Ohlin model, whether a country has a comparative advantage relative to another country is determined by:
A) capital productivity differences.
B) labor productivity differences.
C) amounts of labor and capital the countries possess.
A
C
In the Heckscher-Ohlin model a country that has relatively more capital will export capital-intensive goods and import labor-intensive goods, while a country that has relatively more labor will export labor-intensive goods and import capital-intensive goods.
19
Q
Sales and purchases of non-produced, non-financial assets are included in which of a country’s trade accounts?
A) Financial account.
B) Capital account.
C) Current account.
A
B
20
Q
3 types of financial flows for balance of payment accounts?
A
- The current account
- The capital account
- The financial account
21
Q
The current account includes ? (3)
A
imports and exports of goods and services,
one-way transfer of $$:
- foreign income from dividends on stock holdings and interest on debt securities, and
- unilateral transfers such as money received from those working abroad and direct foreign aid.
22
Q
The capital account includes? (2)
A
- debt forgiveness, assets that migrants bring to or take away from a country, transfer of funds for the purchase or sale of fixed assets,
- purchases of non-financial assets, including rights to natural resources, patents, copyrights, trademarks, franchises, and leases.
23
Q
The financial account includes? (2)
A
- government-owned assets abroad such as gold, foreign currencies and securities, and direct foreign investment and claims against foreign banks.
- foreign-owned assets in the country, domestic government and corporate securities, direct investment in the domestic country, and domestic country currency.
24
Q
For balance of payment accounts, any surplus (deficit) in the ____ account must be offset by a deficit (surplus) in the ____ account.
A
current; capital and financial
25
The following chart indicates the production possibilities of food and drink per day in Country A and Country B.
Units of Output Per Day:
Country A Country B
Food 4 8
Drink 6 7
Which of the following statements about the chart is most accurate?
A)
Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production.
B)
Mutual gains could be realized from trade if A specialized in drink production and B specialized in the food production.
C)
Since B workers can produce more of food and drink than A workers, no gains from trade are possible.
B
Mutual gains could be realized from trade if A specialized in drink production and B specialized in food production. The reason centers on comparative advantage. Country A must give up 1.5 units of drink to produce one unit of food. Country B must give up 0.875 units of drink to produce one unit of food. Therefore, the opportunity cost of producing food is greater for A than for B. If B produces 8 units of food and A produces 6 units of drink, total production will be greater than it would be if both countries produced both goods. By trading, both countries benefit.
26
If a country can produce a good at a lower opportunity cost relative to another country, it is said to have a(n):
A) autarkian advantage.
B) absolute advantage.
C) comparative advantage.
C
27
A country that has imports valued more than its exports is said to have a:
A) current account deficit.
B) capital account deficit.
C) current account surplus.
A
28
The balance of payments accounts consist of:
A) current account, capital account, and financial account.
B) capital account, financial account, and non-financial account.
C) current account, capital account, and currency account.
A
29
Capital transfers and sales of non-financial assets are included in which of the balance of payments accounts?
A) Capital account.
B) Current account.
C) Financial account.
A
30
Which of the items below is NOT a valid reason why nations adopt trade restrictions? To:
A)
prohibit foreign firms from increasing market share by selling products below cost.
B)
protect industries that are highly sensitive to national security.
C)
protect industries in which they have a comparative advantage.
C
| If a particular country enjoys a comparative advantage in a particular industry, no protection is needed.
31
In 20X5, Carthage's merchandise imports exceeded the value of its merchandise exports. In this case, Carthage would most likely have which of the following?
A) Capital account surplus.
B) Current account surplus.
C) Balance of trade surplus.
A
If a country is running a current account deficit, it must have an inflow of foreign capital, creating a surplus in the capital account.
32
Good reasons for trade restrictions?
- Protecting infant industry
| - National security reasons
33
Bad (non supportive by economists) reasons for trade restrictions?
- protecting domestic jobs (better jobs are created by free trade)
- protecting domestic industries (these industries get protection from foreign competitions, leads to higher price)
34
Other "trade-war" related reasons for trade restrictions?
| 4
- prevent dumping
- collection additional revenue (tariff)
- retaliation on foreign country trade restrictions
- counter subs for foreign industries (balance out)
35
The table below outlines the possible output per unit of labor input of producing beer and cheese for Germany and Holland.
Germany Holland
Cheese Beer Cheese Beer
5 10 4 6
Which of the following statements is most accurate?
A)
Germany would not gain from trade, because it has an absolute advantage in the production of both goods.
B)
Both countries would gain if Germany traded cheese for Holland's beer.
C)
Both countries would gain if Germany traded beer for Holland's cheese.
C
Germany has an absolute advantage in both beer and cheese because it can produce more of both per unit of labor input than Holland. The opportunity cost of producing beer is 5/10 = 0.5 in Germany and 4/6 = 0.67 in Holland. The opportunity cost of producing cheese is 10/5 = 2 in Germany and 6/4 = 1.5 in Holland. Holland has a comparative advantage in producing cheese and Germany has a comparative advantage in producing beer. Both countries can gain if Germany trades beer for Holland's cheese.
36
In the Ricardian model of trade, the source of comparative advantage is:
A) the difference between labor productivity and capital productivity.
B) capital productivity.
C) labor productivity.
C
The Ricardian model of trade only considers labor as a factor of production. Comparative advantage results from differences in labor productivity. Labor and capital inputs are both considered in the Heckscher-Ohlin model of trade.
37
For a country that produces 100 million more income from foreign capital invested within the country than from domestic investment abroad, and produces 100 million more goods and services by foreign labor within the country than by its citizens abroad, gross national product is:
A) greater than gross domestic product.
B) less than gross domestic product.
C) equal to gross domestic product.
B
GNP measures output produced by a country's citizens and capital owned by its citizens. GDP measures output produced within a country. In this example, production within the country (GDP) is greater than production by the country's citizens (GNP).
(mine cal was:
GDP-GNP=100, GDP-GNP=100. Combining the two, GDP-GNP=300, SO GNP is less than GDP. )
38
The most accurate description of the relative roles played by the International Monetary Fund, World Bank, and World Trade Organization is that the only one explicitly focused on:
A)
expanding international trade is the World Trade Organization.
B)
reducing poverty is the World Bank.
C)
providing funding to member nations is the International Monetary Fund.
B
The World Bank has the explicit mission of fighting poverty. Both the WTO and IMF work to expand international trade. Both the World Bank and IMF provide funds to member nations, the World Bank for development and the IMF when member nations experience balance of payments difficulties.
39
Among world bank, international monetary fund, and WTO:
| - Which one(s) fights poverty?
World bank
40
Among world bank, international monetary fund, and WTO:
| - Which one(s) seek to expand international trade?
WTO and IMF
41
Among world bank, international monetary fund, and WTO:
| - Which one(s) provide money to member nations
World Bank (for developing countries) and IMF (when members experience balance of payments difficulties)
42
The table below outlines the possible tradeoffs of producing units of cloth and corn, using one hour of labor input, for Country A and Country B.
Country A Country B
Units of Cloth 14 16
Units of Corn 4 8
Country A has a comparative advantage in producing:
A) cloth.
B) neither cloth nor corn.
C) corn.
A
A: 14 cloth = 4 corn => cloth = 2/7 corn, corn = 3.5 cloth
B: 16 cloth = 8 corn => cloth = 0.5 corn, corn = 2 cloth
therefore, A has comparative advantage of cloth, and B has com. advantage of corn
Note that this question gives output per unit of labor. In other questions you may see labor hours per unit of output. For this question that would be 1/14 units of labor per unit of cloth and 1/4 unit of labor per unit of corn for Country A, and 1/16 unit of labor per unit of corn and 1/8 unit of labor per unit of cloth for Country B. No matter how the data are presented, just focus on the trade-off, what each country must give up of one good to produce one unit of the other good.
43
Other things equal, a current account deficit will tend to narrow if:
A) taxes decrease.
B) private savings decrease.
C) domestic investment decreases.
C
The relation between the trade deficit (the current account), savings (both private and government) and domestic investments is stated as (X - M) = private savings + government savings - investment. A current account deficit will tend to narrow if private savings increase, government savings increase (either taxes increase or government spending decreases), or domestic investment decreases.
*gov saving = tax rev - gov spending
44
In the context of foreign trade, quotas are best described as:
A) limits on the amounts of imports a country allows over some period.
B) government payments to firms that export goods.
C) taxes on imported goods collected by the government.
A
Quotas are limits on the amounts of imports allowed into a country in a period of time. Government payments to firms that export goods are known as export subsidies. Taxes on imported goods collected by the government are known as tariffs.
45
Promoting international monetary cooperation, promoting exchange stability, and assisting members experiencing balance of payments difficulties are the goals of the:
A) International Monetary Fund.
B) World Trade Organization.
C) World Bank.
A
46
David Forsythe and Linda Novak are discussing the advantages and disadvantages of import restrictions. They state the following:
- Forsythe: One of the groups that benefits from import restrictions is often the government that imposes them.
- Novak: Import restrictions impose costs on specific groups, such as the country's import industries, but these costs are more than offset by the benefits to other groups and to the economy as a whole.
With respect to these statements:
A) both are incorrect.
B) only one is correct.
C) both are correct.
B
- Forsythe is correct. A primary reason why trade restrictions remain widespread is the revenue that governments receive from tariffs.
- Novak is incorrect. Trade restrictions benefit specific groups, such as workers in the protected industries, but those benefits are most often less than the costs imposed on consumers and other industries as a whole.
* this is one of those "bad reasons" for restriction. Only acceptable ones are for national security or for infant industries
47
For an analyst interested in measuring activity within an economy, the most appropriate measure to use is:
A) gross national product.
B) national income.
C) gross domestic product.
C
Gross domestic product measures the economic output produced within a country
A: Gross national product includes output produced by citizens working abroad and output from foreign productive assets owned by a country's citizens and does not include output produced within a country by foreign workers or from productive assets in the domestic economy owned by foreigners.
B: GDP includes production to replace physical capital as it wears out; national income does not.
48
The income from a country's citizens working abroad is included in:
A) gross national product, but not gross domestic product.
B) gross domestic product, but not gross national product.
C) both gross domestic product and gross national product.
A
Gross domestic product includes the total value of goods and services produced within a country's borders. The income of a country's citizens working abroad is included in its GNP but not in its GDP.
49
In the context of international trading blocs, the primary feature of an economic union that distinguishes it from a common market is the adoption of a common:
A) currency.
B) set of trade restrictions with non-members.
C) set of economic policies.
C
An economic union is a common market that has also adopted common institutions and economic policy. Both common markets and economic unions adopt a common set of trade restrictions with non-members. Neither requires the adoption of a common currency, which is a characteristic of a monetary union.
50
!!! Types of trading bloc (aka Regional Trading Agreement /RTA)? (5 types)
1. Free trade Areas
2. Customs Union (custom: export import trade)
3. Common Market (market: GS, labor, capital)
4. Economic Union (Economic policy, EE)
5. Monetary Union (single currency $$)
51
he North American Free Trade Agreement (NAFTA) is most accurately described as a:
A) free trade area.
B) common market.
C) customs union.
A
NAFTA is a free trade area, in which the member nations remove barriers to imports and exports among themselves.
C - In a customs union, all members adopt common trade policies with non-members.
B - A common market goes further, removing all barriers to movement of labor and capital among members.
52
Regional trade agreements exist primarily to:
A) lower currency volatility for their members.
B) improve economic welfare for their members.
C) protect their members from unfair trading practices by non-members.
B
The primary reason countries join regional trade agreements is to improve economic welfare by reducing or eliminating trade restrictions
53
Suppose labor in Venezuela is less productive than labor in the United States in all areas of production. Which of the following statements about trading between Venezuela and the U.S. is most accurate?
A)
Venezuela will not have a comparative advantage in any good.
B)
Venezuela can benefit from trade but the U.S. cannot.
C)
Both nations can benefit from trade.
C
Although one country may have an absolute advantage in all areas, trade is based on differences in opportunity costs, or comparative advantage. Any country will always have a comparative advantage in the production of some goods; thus, all countries can benefit from trade.
54
Suppose the world price of Mercury tennis shoes is $60, but they sell in the U.S. for $75 due to a $15 import tariff. Who will most likely be negatively affected by the tariff?
A) Producers.
B) U.S. consumers.
C) Foreign consumers.
B
Tariffs benefit domestic producers of products because the level of imports will be reduced due to an effective increase in the price of the goods. Consumers in the country lose due to higher prices.
55
Which of the following is least likely a common objective of governmental capital restrictions?
A) Maintain fixed exchange rates.
B) Reduce the volatility of domestic asset prices.
C) Keep domestic interest rates high.
(What are the capital restrictions?)
(What are the capital restriction objectives?)
C
A common objective of capital restrictions is to keep domestic interest rates low (not high), by eliminating competition by other countries for investor funds. The other two choices are common objectives of capital restrictions.
* capital restrictions include:
- prohibition of investment by foreigners
- prohibition or tax on citizens' earning on foreign holdings
- prohibition of foreign investments in domestic industries
- restriction on repatriation of earnings of foreign entities
* restriction objectives include:
- keep domestic interest low
- protect strategic industries
- maintain fixed exchange rate
- reduce volatility of domestic asset price
56
Commonly cited objectives of capital flow restrictions include?
- Reducing the volatility of domestic asset prices.
- Maintaining fixed exchange rates.
- Keeping domestic interest rates low and enabling greater independence regarding monetary policy.
- Protecting strategic industries from foreign ownership.
57
Reducing the volatility of domestic asset prices is ___ (capital or trade) restriction
capital (it's an objective)
58
Maintain fixed exchange rate is ___ (capital or trade) restriction
capital (it's an objective)
59
Tariff is ___ (capital or trade) restriction
trade
60
Minimum domestic content is ___ (capital or trade) restriction
trade
61
Quota is ___ (capital or trade) restriction
trade
62
Protecting strategic industries from foreign ownership is ___ (capital or trade) restriction
capital (it's an objective)
63
Reducing the volatility of domestic asset prices is ___ (capital or trade) restriction
capital (it's an objective)
64
Export subsidies is ___ (capital or trade) restriction
trade
65
Keeping domestic interest high is ___ (capital or trade) restriction
neither, keeping interest low is a capital restriction objective
66
prohibition of investment by foreigners is ___ (capital or trade) restriction
capital
67
prohibition or tax on citizens' earning on foreign holdings is ___ (capital or trade) restriction
capital
68
prohibition of foreign investments in domestic industries is ___ (capital or trade) restriction
capital
69
restriction on repatriation of earnings of foreign entities is ___ (capital or trade) restriction
capital
70
Who benefits the most from a quota?
A) Foreign producers.
B) Foreign consumers.
C) Domestic producers.
C
Quotas restrict the supply of imported goods, which increases the price domestically benefiting domestic producers. Some foreign producers also benefit from the higher prices created by the quota if they receive the revenue transfer (due to higher prices received for all goods sold under the import license). However, overall the foreign producers do not sell as much of their product and have lost revenues.
71
The source of comparative advantage in the Heckscher-Ohlin model of trade is differences among countries in:
A) relative scarcity of labor and capital.
B) labor productivity.
C) technological advancement.
A
72
A government that imposes restrictions on capital flows into or out of the country is most likely attempting to:
A) encourage competition in domestic industries.
B) increase domestic interest rates.
C) reduce the volatility of domestic asset prices.
C
Reasons commonly cited by governments for imposing capital restrictions include reducing the volatility of domestic asset prices, maintaining control of exchange rates, keeping domestic interest rates low, and protecting strategic industries from foreign ownership.
73
Which form of regional trading agreement is least likely to allow free movement of labor?
A) Economic union.
B) Common market.
C) Customs union.
C
Economic unions and common markets remove all barriers to the movement of labor and capital among their members. Customs unions do not have this feature.
74
A government that wishes to reduce the volatility of domestic asset prices and protect domestic industries is most likely to:
A) impose capital restrictions.
B) participate in regional trading agreements.
C) adopt voluntary export restraints.
A
Objectives commonly cited for imposing capital restrictions include reducing the volatility of domestic asset prices, protecting domestic industries, maintaining fixed exchange rates, and keeping domestic interest rates low.
75
Compared to not engaging in international trade, a country that engages in international trade is most likely to experience:
A) increased specialization of domestic industries.
B) lower employment in exporting industries.
C) higher prices for consumer goods.
A
International trade should result in greater specialization in domestic industries because production shifts to lines in which domestic producers have a comparative advantage.
76
According to the law of comparative advantage:
A)
if a foreign government subsidizes the textile industry, the domestic government should impose a tariff.
B)
Mexico is considered to have a comparative advantage in plastics if Mexico can produce plastic using fewer resources than the U.S.
C)
a nation will benefit from trade when it imports goods for which it is the high cost producer and exports goods for which it is the low-cost producer.
C
This statement is the law of comparative advantage.
The other choices are incorrect.
(A) The law of comparative advantage supports international trade. According to the law of comparative advantage, both trading partners are better off if they specialize in the production of goods for which they are the low-opportunity cost producer and trade for those goods for which they are the high-opportunity cost producer.
(B) Mexico is considered to have an absolute advantage in plastics if Mexico can produce plastic using fewer resources than the U.S.
77
Government-owned assets abroad and foreign-owned assets in the country are included in which of the balance of payments accounts?
A) Current account.
B) Capital account.
C) Financial account.
C
| Government-owned assets abroad and foreign-owned assets in the country are sub-accounts of the financial account.
78
The form of regional trading agreement (RTA) least likely to have the unintended negative effect of reducing a member country's low-cost imports from a non-member country is a:
A) common market.
B) free trade area.
C) customs union.
B
A free trade area removes barriers to trade among its members but does not require any of its members to change their trade policies with non-members. A common market and a customs union both impose uniformity on trade rules with non-member nations, which could restrict a member's low-cost imports from a nation that is not a member.
79
The law of comparative advantage explains why a nation will benefit from trade when it:
A)
exports goods for which it is a high-cost producer, while importing those for which it is a low-cost producer.
B)
exports goods for which it is a low-cost producer, while importing those for which it is a high-cost producer.
C)
exports more than it imports.
B
Comparative advantage is the ability to produce a good at a lower opportunity cost than others can produce it. When trading partners specialize in producing products for which they have a comparative advantage; costs are minimized, output is greater, and both trading partners benefit.
80
The international organization whose primary role is settling disputes among trading nations is the:
A) World Trade Organization.
B) International Monetary Fund.
C) World Bank.
A
The role of the World Trade Organization is to deal with rules of global trade and settle trade-related disputes among nations.
81
In a country that has a current account surplus, it is most likely that:
A)
private domestic savings are greater than the budget deficit.
B)
domestic savings are greater than domestic investment.
C)
domestic investment is greater than government savings.
B
The relationship between saving, investment, and the trade deficit can be expressed as:
(exports - imports) = private savings + government savings - investment
A country will have a current account surplus (exports > imports) if the sum of domestic private savings and government savings is greater than domestic investment, or a current account deficit (imports > exports) if the sum of domestic private savings and government savings is less than domestic investment.
82
Which of the following statements about the costs and benefits of international trade is most accurate?
A)
Increased international trade benefits all groups in the trading countries.
B)
The costs of trade are greater than the benefits with regard to domestic employment.
C)
The costs of trade primarily affect those in domestic industries that compete with imports.
C
The benefits of trade are greater than the costs for the overall economy, but those in domestic industries competing with imports may suffer costs in the form of reduced profits or employment.
83
Two countries trade freely with each other and have agreed to specific tariffs on imports from other countries. The workers in either country may freely cross the common border to work in the other country. The two countries have agreed to common economic policies, but they use separate currencies. This type of cooperation is best described as a(n):
A) economic union.
B) monetary union.
C) customs union.
A
"EE"
The two countries are a part of an economic union. In an economic union, there is (1) free trade among members, (2) common restrictions (tariffs) on imports from non-members, (3) free movement of production factors (labor), and (4) common economic institutions and coordination of economic policies. While a customs union has common tariffs on imports from non-union countries and free trade, it does not allow workers to cross the borders freely and does not have common economic institutions. A monetary union requires all of the listed items and a common currency.
84
The following chart indicates the production possibilities of food and drink per day in Country A and Country B.
Units of Output Per Day:
Country A Country B
Food 9 5
Drink 7 5
Which of the following statements is most accurate?
A)
Mutual gains could be realized from trade if A specialized in drink production and B specialized in the food production.
B)
Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production.
C)
Since B workers can produce more of food and drink than A workers, no gains from trade are possible.
B
Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production. The reason centers on comparative advantage. Country A must give up 7/9th unit of drink to produce one unit of food. Country B must give up 1 unit of drink to produce one unit of food. Therefore, the opportunity cost of producing food is greater for B than for A. If B produces 5 units of drink and A produces 9 units of food, total production will be greater than it would be if both countries produced both goods. By trading, both countries benefit.
85
Holding other factors constant, a country can reduce its trade deficit by increasing its:
A) private saving.
B) government budget deficit.
C) domestic capital investment.
A
Other things equal, increasing savings would decrease a current account deficit, while increasing a government budget deficit or domestic investment would increase a current account deficit.
X-M = Gov tax rev - Gov spending + private saving - investment
86
Country P imports goods from Country Q. In the long run, the benefits of international trade most likely accrue to:
A) Country Q only.
B) Country P only.
C) Both Country P and Country Q.
C
The overall benefits of international trade are greater than the costs for the global economy as a whole. All countries should benefit in the long run as costs of international trade are mostly short run effects.
87
Which type of advantage determines the pattern of trade in the world?
A) Comparative advantage.
B) Advantages due to tariffs and quotas.
C) Absolute advantage.
A
Comparative advantage is the ability to produce a good at a lower opportunity cost than others can produce it. According to the law of comparative advantage, trading partners are both better off if they specialize in the production of goods for which they are the low-opportunity cost producer and trade for goods for which they are the high-opportunity cost producer.
88
The law of comparative advantage holds that trading partners can be made better off if they:
A)
specialize in production of goods for which they are the low exchange rate adjusted producer.
B)
specialize in production of goods for which they are the low opportunity cost producer.
C)
import those goods for which they have a comparative advantage.
B
The law of comparative advantage holds that trading partners can be made better off if they specialize in production of goods for which they are the low opportunity cost producer. They should export, not import, goods for which they have a comparative advantage. Absolute and exchange rate adjusted costs are not relevant to the concept of comparative advantage.
89
In contrast to gross domestic product (GDP), gross national product (GNP) includes income earned by:
A) foreign capital invested domestically.
B) domestic capital invested abroad.
C) foreign labor working domestically.
B
| GNP includes goods and services produced outside the country by domestic factors of production, both labor and capital.
90
Which of the following lists of trading blocs is most accurately ordered by degree of economic integration, from least to most integrated?
A) Free trade area, economic union, common market.
B) Free trade area, common market, customs union.
C) Customs union, economic union, monetary union.
C
The order by degree of economic integration (from least to most integrated) is as follows: free trade areas, customs union, common market, economic union, and monetary union.
91
Who benefits least from tariffs?
A) Domestic producers.
B) Domestic consumers.
C) Foreign consumers.
B ** tariff reduces free trade!
A tax imposed on imports is called a tariff, which benefits domestic producers and domestic governments. Domestic consumers lose through higher prices, less choice of products, and lower quality products.
92
In what way does a tariff differ from a quota? A tariff is:
A)
a tax imposed by a foreign government, whereas a quota is a limit on the total amount of trade allowed.
B)
a tax imposed on imports, whereas a quota is a limit on the number of units of a good that can be imported.
C)
not significantly different from a quota; tariffs are imposed by world organizations, whereas quotas are imposed by individual countries.
B
The difference between a tariff and a quota is that a tariff is a tax imposed on imported goods, while a quota is an import quantity limitation. Also, a tariff will generate tax revenue, but a quota does not.
93
Merchandise and services, income receipts, and unilateral transfers are included in which of the balance of payments accounts?
A) Financial account.
B) Capital account.
C) Current account.
C
| Merchandise and services, income receipts, and unilateral transfers are sub-accounts of the current account.
94
The primary goals of the International Monetary Fund (IMF) include:
A) reducing global poverty.
B) promoting exchange rate stability.
C) resolving trade-related disputes among nations.
B
The primary goals of the IMF are to promote international monetary cooperation, facilitate growth of international trade, promote exchange rate stability, assist in establishing a multilateral payment system, and provide resources to members with balance of payments difficulties. Reducing global poverty is a role of the World Bank. Resolving trade disputes is a role of the World Trade Organization.
95
In the balance of payments accounts, goods and financial assets that migrants bring to a country are included in the:
A) current account.
B) capital account.
C) financial account.
B
96
A country has a comparative advantage over another when:
A)
a nation has the ability to produce a good with a lower opportunity cost than another nation.
B)
it can produce a product with the fewest resources.
C)
a nation can produce more output with a given amount of input than another nation.
A
A nation will have a comparative advantage in the production of good A when the number of units of B, given up to produce one unit of A, is lower than that for any other country.
97
The primary benefits derived from tariffs usually accrue to:
A) domestic producers of export goods.
B) domestic suppliers of goods protected by tariffs.
C) foreign producers of goods protected by tariffs.
B
| Tariffs raise domestic prices, benefiting domestic suppliers.
98
Which of the following arguments in favor of trade restrictions is least likely to be supported by economists?
A) National defense industries should be protected.
B) Trade with low-wage countries depresses wage rates in high-wage countries.
C) Infant industries should be protected.
B
Trade with low-wage countries does not in itself depress wage rates since productivity must be considered. The other arguments have some support among economists.
99
The most integrated type of trading bloc or regional trade agreement is a(n):
A) economic union.
B) monetary union.
C) common market.
B
A monetary union, such as the Euro zone, is the most integrated type of trading bloc or regional trade agreement because the members adopt a common currency.
100
Prior to the beginning of summer, the government of Japan places a 150 percent tariff on imported chain saws. Assume for this example that this tariff has a significant impact on the supply of chain saws. The government's action:
A)
will protect the jobs and high wages of Japanese chain saw industry workers.
B)
benefits the Japanese government and domestic producers.
C)
is more harmful than if the government had limited the amount of chain saws imported.
B
The Japanese government's action is an example of a tariff. A tariff is a tax imposed on imports and benefits the Japanese government because it collects the tariff. Domestic producers benefit because the reduction in the supply of imported goods means a higher domestic price.
The other choices are incorrect. A tariff is considered less harmful than a quota (an import quantity limitation) because under a quota, the domestic government does not receive any funds as it would under a tariff (the foreign producers receive the revenue transfer). In the long run, trade restrictions do not protect the net number of jobs in the country. The number of jobs protected by import restrictions will be offset by jobs lost in the import/export industry. Import/export firms will be unable to sell the overpriced domestic products abroad or import and sell the lower priced restricted foreign-made product.
101
The spot exchange rate for United States dollars per United Kingdom pound (USD/GBP) is 1.5775. If 30-day interest rates are 1.5% in the United States and 2.5% in the United Kingdom, and interest rate parity holds, the 30-day forward USD/GBP exchange rate should be:
A) 1.5788.
B) 1.5621.
C) 1.5762.
C
Forward USD/GBP = spot USD/GBP × (1 + U.S. interest rate) / (1 + UK interest rate)
= 1.5775 × [(1 + 0.015/12) / (1 + 0.025/12)]
= 1.5762
102
relationship among forward rate, spot rate, interest rate of base, and interest rate of currency?
Forward/spot = (1 + currency interest rate) / (1 + base interest rate)
**remember to add 1 to rates.
103
If the exchange rate value of the CAD goes from USD 0.60 to USD 0.80, then the CAD:
A) appreciated and Canadians will find U.S. goods cheaper.
B) depreciated and Canadians will find U.S. goods cheaper.
C) depreciated and Canadians will find U.S. goods more expensive.
A
The CAD is now more expensive in terms of USD, and thus it has appreciated. Therefore, each CAD yields more USD than before, and Canadians are able to purchase more U.S. goods with each CAD, making U.S. goods relatively cheaper.
104
The spot CHF/EUR exchange rate is 1.2025. If the 90-day forward quotation is +0.25%, the 90-day forward rate is closest to:
A) 1.2055.
B) 1.2000.
C) 1.2050.
___ is at a forward premium to ____
A
The 90-day forward CHF/EUR exchange rate is 1.2025 × 1.0025 = 1.20551.
The EUR is at a forward premium to the CHF.
*remember basis point is the last decimal of rate
105
In which of the following exchange rate regimes can a country participate without giving up its own currency?
A) Target zone or conventional fixed peg.
B) Monetary union or currency board.
C) Crawling peg or formal dollarization.
A
With formal dollarization or a monetary union, a country does not have its own currency. With a currency board, conventional fixed peg, target zone, or crawling peg, a country has its own currency and manages its exchange rate with another currency or basket of currencies.
106
If we compare the prices of goods in two countries through time, we can use the price information in concert with the quoted foreign exchange rate to calculate the:
A) nominal exchange rate.
B) real exchange rate.
C) interest rate spread.
B
A comparison of consumption costs between two markets can, in concert with the foreign exchange rate (also called the nominal exchange rate), be used to calculate the real exchange rate.
107
If the no-arbitrage forward exchange rate for a euro in Japanese yen is less than the spot rate, then the interest rate in:
A) the eurozone is less than in Japan.
B) Japan is less than in the eurozone.
C) Japan is the same as in the eurozone.
B
*key is figure out which is base which is currency
If the quote is in terms of JPY per EUR, this implies that the JPY is expected to appreciate relative to the EUR. There will be no arbitrage opportunity only if the interest rate in Japan is lower than the interest rate in the eurozone.
108
If a forward exchange rate does not correctly reflect the difference between the interest rates for two currencies, an _____ opportunity for a riskless profit exists
Arbitrage
109
If a forward exchange rate ______(Y/N) reflect the difference between the interest rates for two currencies, an arbitrage opportunity for a riskless profit exists
does not correctly
110
The USD/EUR spot exchange rate is 1.3500 and 6-month forward points are −75. The 6-month forward exchange rate is:
A) 1.3425, and the USD is at a forward discount.
B) 1.3575, and the USD is at a forward discount.
C) 1.3425, and the USD is at a forward premium.
C
For an exchange rate quoted to four decimal places, each forward point represents 0.0001. The 6-month forward exchange rate is 1.3500 − 0.0075 = 1.3425 USD/EUR. The USD is expected to appreciate against the EUR and is trading at a forward premium.
111
Given the following quotes, GBP/USD 2.0000 and MXN/USD 8.0000, calculate the direct MXN/GBP spot cross exchange rate.
A) 0.2500.
B) 0.6250.
C) 4.0000.
C
112
A currency exchange rate that is set today for an exchange to be made 90 days in the future is best described as a:
A) real exchange rate.
B) forward exchange rate.
C) spot exchange rate.
B
113
Which of the following would least likely be a participant in the forward market?
A) Arbitrageurs.
B) Long-term investors.
C) Traders.
B
Forward contracts are for 30, 90, 180, and 360-day periods and would, therefore, be considered short-term investment choices. Other participants in the forward market are hedgers who use forward contracts to protect the home currency value of foreign currency denominated assets on their balance sheets over the life of the contracts involved.
114
The Marshall-Lerner condition suggests that a country's ability to narrow a trade deficit by devaluing its currency depends on:
A) capacity utilization in the domestic economy.
B) national saving relative to domestic investment.
C) elasticity of demand for imports and exports.
C
The Marshall-Lerner condition is an outcome of the elasticities approach to analyzing the balance of trade. It suggests that depreciation or devaluation of a currency is more likely to narrow a country's trade deficit if domestic demand for imports and foreign demand for the country's exports are more elastic.
AB- The absorption approach to analyzing the balance of trade implies that national saving must increase relative to domestic investment for a currency devaluation to narrow a trade deficit, which in turn depends on whether the economy is producing at maximum capacity (full employment or potential GDP) when the devaluation occurs.
115
Elasticities (ε) of export and import demand must meet the _____ condition for a depreciation of the domestic currency to reduce an existing trade deficit:
(What is the formula?)
Marshall-Lerner
| WXεX + WM(εM − 1) > 0.
116
Under the _____ approach, national income must increase relative to national expenditure in order to decrease a trade deficit.
absorption
117
Under the absorption approach, ____ must increase relative to _____ in order to decrease a trade deficit.
national income; national expenditure
118
Under the absorption approach, national income must _____ (increase/decrease) relative to national expenditure in order to decrease a trade deficit.
increase
119
Country G and Country H have currencies that trade freely and have markets for forward currency contracts. If Country G has an interest rate greater than that of Country H, the no-arbitrage forward G/H exchange rate is:
A) less than the G/H spot rate.
B) equal to the G/H spot rate.
C) greater than the G/H spot rate.
C
If the interest rate in Country G is greater than the interest rate in Country H, the numerator is greater than the denominator on the right side of the equation. The left side must have the same relationship, so the forward rate must be greater than the spot rate.
120
The spot exchange rate for CHF/EUR is 0.8342 and the 1-year forward quotation is −0.353%. The 1-year forward exchange rate for EUR/CHF is closest to:
A) 1.2022.
B) 1.2029.
C) 0.8313.
B
The forward rate for CHF/EUR is 0.8342 × (1 − 0.00353) = 0.8313. The 1-year forward EUR/CHF exchange rate is 1 / 0.8313 = 1.2030.
121
If the AUD/CAD spot exchange rate is 0.9875 and 60-day forward points are −25, the 60-day AUD/CAD forward rate is closest to:
A) 0.9900.
B) 0.9850.
C) 0.9870.
B
For an exchange rate quoted to four decimal places, forward points are expressed in units of 0.0001. The 60-day forward rate is 0.9875 + 0.0001(−25) = 0.9850.
122
The spot rate for Chinese yuan per Canadian dollar is 6.4440. If the Canadian interest rate is 2.50% and the Chinese interest rate is 3.00%, the 3-month no-arbitrage forward rate is closest to:
A) 6.452 CNY/CAD.
B) 6.436 CNY/CAD.
C) 6.475 CNY/CAD.
A
| First time picked C, forgot it's 3 month vs 1 year
123
In the currency market, traders quote the:
A) real exchange rate.
B) base currency rate.
C) nominal exchange rate.
C
The nominal exchange rate is quite simply the price of one currency relative to another. It is the quote observed in currency markets.
124
A country's central bank announces a monetary policy goal of a stable exchange rate with the euro, which it defines as deviations of no more than 3% from its current exchange rate of 2.5000. The country's exchange rate regime is best described as a:
A) fixed peg.
B) target zone.
C) crawling band.
B
This exchange rate regime is best described as a target zone, or a system of pegged exchange rates within horizontal bands. A target zone allows wider exchange rate fluctuations than a conventional fixed peg arrangement, which typically limits the permitted range to within 1% of the pegged exchange rate. Management of exchange rates within crawling bands allows the percentage deviation from the pegged exchange rate to increase over time.
125
Participants in foreign exchange markets that can be characterized as "real money accounts" most likely include:
A) insurance companies.
B) central banks.
C) hedge funds.
A
Real money accounts are foreign exchange buy-side investors that do not use derivatives. Many mutual funds, pension funds, and insurance companies can be classified as real money accounts. Hedge funds typically use derivatives. Central banks usually do not act as investors in foreign exchange markets but may intervene in foreign exchange markets to achieve monetary policy objectives.
**central bank is not buy-side
126
Real money account are foreign exchange buy-side investors that ______
do not use derivatives
(such as mutual funds, pension funds, and insurance companies)
** has to be buy-side, so central bank does not qualify
127
The exchange rate for Japanese yen (JPY) per euro (EUR) changes from 98.00 to 103.00 JPY/EUR. How has the value of the EUR changed relative to the JPY in percentage terms?
A) Appreciated by 4.9%.
B) Appreciated by 5.1%.
C) Depreciated by 4.9%.
B
Because the exchange rates are quoted with the EUR as the base currency, the percentage change is simply 103.00 / 98.00 − 1 = 5.1%. The increase in the quoted JPY/EUR exchange rate means it now requires 5.1% more JPY to purchase one EUR. Thus, the EUR has appreciated by 5.1% against the JPY.
128
The spot rate for Japanese yen per UK pound is 138.78. If the UK interest rate is 1.75% and the Japanese interest rate is 1.25%, the 6-month no-arbitrage forward rate is closest to:
A) 138.44 JPY/GBP.
B) 138.95 JPY/GBP.
C) 138.10 JPY/GBP.
A
| *remember interest rate is quoted as yearly, so need to do 1 + interest/2 here
129
The sell side of the foreign exchange markets primarily consists of:
A) accounting firms.
B) retail investors.
C) multinational banks.
C
130
An analyst observes that the exchange rate for Mexican pesos is MXN/USD 8.0000, and the exchange rate for Polish zlotys is PLN/USD 6.0000. The MXN/PLN exchange rate is closest to:
A) 14.0000.
B) 0.7500.
C) 1.3333.
C
131
Other things equal, a real exchange rate (stated as units of domestic currency per unit of foreign currency) will decrease as a result of an increase in the:
A) foreign price level.
B) nominal exchange rate (domestic/foreign).
C) domestic price level.
C
nominal = real x CPI currency/CPI base
A real exchange rate measures changes in relative purchasing power over time. (CPI is purchasing power, not price level)
132
Spot and one-month forward exchange rates are as follows:
Spot 1-month forward
EUR/DEF 2.5675 2.5925
EUR/GHI 4.3250 4.2800
EUR/JKL 7.0625 7.0075
Based on these exchange rates, the EUR is closest to a 1-month forward:
A) premium of 1% to the DEF.
B) premium of 1% to the GHI
C) discount of 1% to the JKL.
B
The EUR is at a forward premium to the GHI because the EUR/GHI forward rate is less than the EUR/GHI spot rate. The base currency, GHI, is at a forward discount of forward/spot - 1 = 4.2800 / 4.3250 - 1 = -1.04%. The EUR is at a forward discount to the DEF and a forward premium to the JKL.
133
Assuming no changes in the prices of a representative consumption basket in two currency areas over the measurement period, changes in the nominal exchange rate:
A) are equal to changes in the real exchange rate.
B) can be extrapolated to calculate interest rates.
C) can be converted to the real exchange rate using interest rates.
A
134
With respect to exchange rate regimes, crawling bands are most likely used in a transition toward:
A) a monetary union.
B) floating exchange rates.
C) a fixed peg arrangement.
B
When exchange rates are managed within crawling bands, the margin around a target exchange rate increases over time. This technique is sometimes used in a transition from fixed exchange rates to freely floating exchange rates.
135
With ______, a country uses the currency of another country.
formal dollarization
136
With formal dollarization, a country uses the currency of ______
another country
137
which two exchange rate regimes are for countries without their own currency?
formal dollarization and monetary union (such as EU)
138
Difference between fixed peg arrangement and target zone?
a country pegs its currency within margins of ±1% versus another currency.
vs.
wider range allowed
139
target zone is also known as ____?
pegged exchange rates within horizontal bands
140
with crawling peg, the exchange rate is ______,
adjusted periodically
| typically to adjust for higher inflation versus the currency used in the peg.
141
with _____, the exchange rate is adjusted periodically, typically to adjust for higher inflation versus the currency used in the peg.
crawling peg
142
Difference between "management of exchange rates within crawling bands" and "crawling peg"?
the width of the bands that identify permissible exchange rates is increased over time.
VS.
exchange rate is adjusted periodically
143
When a currency is ______, the exchange rate is market-determined.
independently floating,
144
The exchange rate of the Athelstan riyal (ATH) with the British pound is 9.00 ATH/GBP. The exchange rate of the Mordred ducat (MOR) with the U.S. dollar is 2.00 MOR/USD. If the USD/GBP exchange rate is 1.50, the ATH/MOR cross rate is closest to:
A) 3.00 ATH/MOR.
B) 6.75 ATH/MOR.
C) 12.00 ATH/MOR.
A
145
If the spot exchange rate between the British pound and the U.S. dollar is GBP/USD 0.7775, and the spot exchange rate between the Canadian dollar and the British pound is CAD/GBP 1.8325, what is the USD/CAD spot cross exchange rate?
A) 0.42428.
B) 0.70186.
C) 1.42477.
B
First, convert GBP/USD 0.7775 to 1/0.7775 = USD/GBP 1.28617.
Then, divide USD/GBP 1.28617 by CAD/GBP 1.8325 = USD/CAD 0.70187.
146
The spot exchange rate for Canadian dollars (CAD) per Swiss franc (CHF) is 1.1350 CAD/CHF and the 12-month forward exchange rate is 1.1460 CAD/CHF. The forward quote is a:
A)
premium of 11 points and the CAD is at a forward premium to the CHF.
B)
discount of 110 points and the CAD is at a forward discount to the CHF.
C)
premium of 110 points and the CAD is at a forward discount to the CHF.
C
Because the forward CAD/CHF exchange rate is higher than the spot rate, the quote is a forward premium. Forward points represent 0.0001 for an exchange rate quoted to four decimal places. Here, the forward discount is 1460 − 1350 = 110 points. The base currency, the CHF, is at a forward premium to the CAD, therefore the CAD is at a forward discount to the CHF.
147
In the foreign exchange markets, transactions by households and small institutions for tourism, cross-border investment, or speculative trading comprise the:
A) retail market.
B) sovereign wealth market.
C) real money market.
A
The retail foreign exchange market refers to transactions by households and relatively small institutions and may be for tourism, cross-border investment, or speculative trading.
148
Currency depreciation is most likely to affect the balance of trade when a country's imports are goods that:
A) represent a small proportion of consumer spending.
B) have close substitutes.
C) have relatively inelastic demand.
B - close sub => elastic
According to the elasticities approach, the more elastic the demand for imports or exports, the greater the effect on the balance of trade from currency depreciation. Demand is more elastic for imports or exports when they are primarily goods with close substitutes, luxury goods, or goods that represent a large proportion of a consumer's spending.
149
Given an exchange rate of USD/CAD 0.9250 and USD/CHF 1.6250, what is the cross rate for CAD/CHF?
A) 1.7568.
B) 0.5692.
C) 1.5032.
A
| (USD/CHF 1.6250) / (USD/CAD 0.9250) = CAD/CHF 1.7568
150
Under the absorption approach, which of the following is least likely required to move the balance of payments towards surplus?
A) Increased savings relative to domestic investment.
B) Decreased domestic expenditure relative to income.
C) Sufficient elasticities of export and import demand.
C - towards surplus, not decrease surplus!
Under the elasticities approach the elasticities of demand for exports and imports are the key to moving a country's balance of payments towards surplus. The absorption approach considers capital flows as well as goods flows. Under this approach, domestic expenditure relative to income must decrease to move the balance of trade towards surplus. Decreasing domestic expenditure relative to income is equivalent to increasing domestic savings, and an increase in savings relative to the current level of domestic investment will also move the balance of payments towards surplus under the absorption approach.
151
The exchange rate for Chinese yuan (CNY) per euro (EUR) changed from CNY/EUR 8.1588 to CNY/EUR 8.3378 over a 3-month period. It is most accurate to state that the:
A) EUR has appreciated 2.15% relative to the CNY
B) CNY has depreciated 2.19% relative to the EUR.
C) EUR has appreciated 2.19% relative to the CNY.
C
The percentage change in the CNY value of one EUR is (8.3378 / 8.1588) - 1 = 0.0219. The EUR has appreciated 2.19% relative to the CNY. This is not the same as CNY depreciating by 2.19% relative to the EUR. The percentage change in the CNY is [(1 / 8.3378) / (1 / 8.1588)] - 1 = -0.0215 = -2.15%.
152
An exchange rate at which two parties agree to trade a specific amount of one currency for another a year from today is called a:
A) spot exchange rate.
B) forward exchange rate.
C) real exchange rate.
B
153
The tendency for currency depreciation to increase a country's trade deficit in the short run is known as the:
A) Marshall-Lerner effect.
B) absorption effect.
C) J-curve effect.
C
The J-curve refers to a graph of the effect of currency depreciation on the trade balance over time. In the short run, a trade deficit may increase because current import and export contracts may be fixed in foreign currency units over the near term, and only reflect the exchange rate change over time. In the long run, currency depreciation should decrease a trade deficit.
154
The spot exchange rate is 0.6243 USD/GBP and the 1-year forward rate is quoted as 3.016%. The 1-year forward exchange rate for USD/GBP is closest to:
A) 0.6054.
B) 0.6431.
C) 0.6544.
B
| The one year forward rate is 0.6243 × (1 + 0.03016) = 0.6431.
155
The Japanese yen is trading at JPY/USD 115.2200 and the Danish krone (DKK) is trading at JPY/DKK 16.4989. The USD/DKK exchange rate is:
A) 0.5260.
B) 6.9835.
C) 0.1432.
C
The cross rate between USD and DKK is calculated in the following manner:
(USD/JPY)(JPY/DKK) = (1 / 115.2200) × 16.4989 = USD/DKK 0.1432 (the Yen cancels out)
156
The spot exchange rate is 1.1132 GBP/EUR and the 1-year forward rate is quoted as +1349 points. The 1-year forward exchange rate for GBP/EUR is closest to:
A) 1.2481.
B) 1.1267.
C) 1.2634.
A
| The one year forward is 1.1132 + (1349/10,000) = 1.2481.
157
If the CAD is trading at USD/CAD 0.6403 and the GBP is trading CAD/GBP 2.5207, the USD/GBP exchange rate is:
A) 1.6140.
B) 3.9367.
C) 0.6196.
A
| USD/CAD 0.643 × CAD/GBP 2.5207 = USD/GBP 1.6140.
158
If the current spot exchange rate for quotes of JPY/GBP is greater than the no-arbitrage 3-month forward exchange rate, the 3-month GBP interest rate is:
A) equal to the 3-month JPY interest rate.
B) greater than the 3-month JPY interest rate.
C) less than the 3-month JPY interest rate.
B
