Final Exam Review - K's Extra Questions

Question 1

A deficit in the U.S. current account is offset by a surplus in the…

Answer 1

…U.S. capital and financial account

Question 2

In recent years, the two largest holders of U.S. government securities have been…

Answer 2

The U.K. and Japan

Question 3

Suppose the exhange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 10 percent in the U.S. and remains constant in Japan, then the exchange rate will become…

Answer 3

81 yen per dollar

Question 4

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…

• selling sterling in the forward market for 60-day delivery
• buying sterling now and selling it at the end of 60 days
• selling the dollar equivalent in the forward market for 60-day delivery
• keeping the sterling in Britain after it is delivered to you

Answer 4

selling sterling in the forward market for 60-day delivery

Question 5

An appreciation in the value of the U.S. dollar against the British pound would tend to

• discourage the British from buying American goods
• discourage Americans from buying British goods
• increase the number of dollars that could be bought with a pound
• discourage U.S. tourists from traveling to Britain

Answer 5

discourage the British from buying American goods

Question 6

Low real interest rates in the U.S. tend to ____ the demand for dollars, causing the dollar to ____

Answer 6

decrease, depreciate

Question 7

If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, you could remove the risk of loss due to the appreciation of the pound by

• buying dollars in the forward market for delivery in 30 days
• selling dollar in the forward market for delivery in 30 days
• buying the pounds in the forward market for delivery in 30 days
• selling the pounds in the forward market for delivery in 30 days

Answer 7

buying the pounds in the forward market for delivery in 30 days

Question 8

Over time, a depreciation in the value of a nation’s currency in the forex market will result in exports ____ and imports ____

Answer 8

rising, falling

Question 9

The relationship between the exchange rate and the prices of tradable goods is known as the…

Answer 9

…purchasing-power-parity theory

Question 10

Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger a(n) ____ in the demand for imports and a(n) ____ in the demand for foreign currency

Answer 10

increase, increase