Understanding Balance of Payments and Foreign Exchange Markets

2. 34 International Finance CLICKER QUESTIONS

3. Checkpoint 34.1 Checkpoint 34.2 Question 1 Question 6 Question 2 Question 7 Question 3 Question 8 Question 9 Question 4 Question 5 Question 10

4. CHECKPOINT 34.1 Question 1 If a country has a current account balance of $100 billion and the official settlements account balance is zero, then the country’s capital account balance is ____. • $100 billion • positive but not necessarily equal to $100 billion • $100 billion • negative but not necessarily equal to $100 billion • zero

5. CHECKPOINT 34.1 Question 2 A debtor nation is a country that _______. • borrows more from the rest of the world than it lends to it • lends more to the rest of the world than it borrows from it • during its entire history has invested more in the rest of the world than other countries have invested in it • during its entire history has borrowed more from the rest of the world than it has lent to it • during its entire history has consistently run a capital account deficit

6. CHECKPOINT 34.1 Question 3 Which balance of payments account records payments for imports and receipts from exports? • current account • capital account • official settlements account • reserves account • trade account

7. CHECKPOINT 34.1 Question 4 If an investment of $100 million from the United Kingdom is made in the United States, in the U.S. balance of payments accounts the $100 million is listed as a ____ entry in the ____ account. • positive; current • negative; capital • positive; capital • negative; current • positive; official settlements

8. CHECKPOINT 34.1 Question 5 The current account balance is equal to ______. • imports  exports + net interest + net transfers • imports  exports + net interest  net transfers • exports  imports  net interest + net transfers • exports  imports + net interest + net transfers • exports  imports  net interest  net transfers

9. CHECKPOINT 34.2 Question 6 In the foreign exchange market, as the exchange rate (expressed as euros per dollar) rises, other things remaining the same, the ____. • quantity of dollars demanded increases • demand curve for dollars shifts rightward • demand curve for dollars shifts leftward • quantity of dollars demanded decreases • supply curve of dollars shifts rightward

10. CHECKPOINT 34.2 Question 7 In the foreign exchange market, the demand for dollars increases if the _________. • U.S. interest rate differential increases • expected future exchange rate falls • foreign interest rate rises • U.S. interest rate falls • exchange rate falls

11. CHECKPOINT 34.2 Question 8 If a shortage of dollars arises in the foreign exchange market, the ________. • demand for dollars decreases to restore equilibrium • U.S. exchange rate will appreciate • U.S. exchange rate will depreciate • supply of dollars decreases to restore equilibrium • supply of dollars increases to restore equilibrium

12. CHECKPOINT 34.2 Question 9 In the foreign exchange market, when the U.S. interest rate rises, the supply of dollars ____ and the foreign exchange rate ____. • increases; rises • increases; falls • decreases; rises • decreases; falls • increases; does not change

13. CHECKPOINT 34.2 Question 10 Interest rate parity occurs when _________. • the interest rate in one currency equals the interest rate in another currency when exchange rate changes are taken into account • interest rate differentials are always maintained across nations • interest rates are equal across nations • prices are equal across nations when exchange rates are taken into account • interest rates no longer affect the exchange rate