AP Economics -- Exchange Rates Quiz -- Do Not Write On This Booklet!!!

1. U.S. export transactions create:

A) a U.S. demand for foreign monies and the satisfaction of this demand decreases the supplies of dollars held by foreign
banks.
B) a U.S. demand for foreign monies and the satisfaction of this demand increases the supplies of dollars held by foreign
banks.
C) a foreign demand for dollars and the satisfaction of this demand decreases the supplies of foreign monies held by U.S.
banks.
D) a foreign demand for dollars and the satisfaction of this demand increases the supplies of foreign monies held by U.S.
banks.
2. U.S. import transactions create:
A) a foreign demand for dollars and the satisfaction of this demand decreases the supplies of foreign monies held by U.S.
banks.
B) a foreign demand for dollars and the satisfaction of this demand increases the supplies of foreign monies held by U.S.
banks.
C) a U.S. demand for foreign monies and the satisfaction of this demand decreases the supplies of foreign monies held by
U.S. banks.
D) a U.S. demand for foreign monies and the satisfaction of this demand increases the supplies of dollars held by foreign
banks.
3. If a U.S. importer can purchase 10,000 pounds for $20,000, the rate of exchange is:
A) $1 = 2 pounds in the United States.
B) $2 = 1 pound in the United States.
C) $1 = 2 pounds in Great Britain.
D) $.5 = 1 pound in Great Britain.
4. Other things equal, the financing of a U.S. export transaction:
A) reduces U.S. interest rates.
B) decreases the supplies of foreign currency held by United States banks.
C) decreases GDP in the United States.
D) increases the supplies of foreign currency held by U.S. banks.
5. Other things equal, the financing of a U.S. import transaction:
A) increases the supplies of foreign currency held by United States banks.
B) increases U.S. interest rates.
C) decreases the supplies of foreign currency held by U.S. banks.
D) increases GDP in the United States.
6. The current account in a nation's balance of payments includes:
A) its goods exports and imports, and its services exports and imports.
B) changes in its official reserves.
C) purchases of foreign assets, and foreign purchases of assets.
D) all of the above.
7. The capital aaccount balance is a nation's:
A) net investment income minus its net transfers.
B) exports of goods and services minus its imports of goods and services.
C) sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners.
D) domestic investment spending minus domestic saving.
8. A nation's official reserves account:
A) compensates for differences in the current and capital accounts.
B) is always positive.
C) is always zero.
D) is always negative.
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AP Economics -- Exchange Rates Quiz -- Do Not Write On This Booklet!!!
9. In the U.S. balance of payments, foreign purchases of assets in the United States are a:
A) foreign currency outflow.
B) foreign currency inflow.
C) current account item.
D) debit, or outpayment
10. In the U.S. balance of payments, U.S. purchases of assets abroad are a:
A) U.S. dollar outflow.
B) U.S. dollar inflow.
C) current account item.
D) debit, or outpayment
11. In considering yen and dollars, when the dollar rate of exchange for the yen rises:
A) the yen rate of exchange for the dollar will fall.
B) the yen rate of exchange for the dollar will also rise.
C) the yen rate of exchange for the dollar may either fall or rise.
D) U.S. net exports to Japan will fall.
12. In considering euros and dollars, the rates of exchange for the euro and the dollar:
A) are directly related.
B) are inversely related.
C) are unrelated.
D) move in the same direction.
13. If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then:
A) the peso has appreciated in value.
B) Americans will buy more Mexican goods and services.
C) more U.S. goods and services will be demanded by the Mexicans.
D) the dollar has depreciated in value.
14. Depreciation of the dollar will:
A) decrease the prices of both U.S. imports and exports.
B) increase the prices of both U.S. imports and exports.
C) decrease the prices of U.S. imports, but increase the prices to foreigners of U.S. exports.
D) increase the prices of U.S. imports, but decrease the prices to foreigners of U.S. exports.
15. Appreciation of the Canadian dollar will:
A) intensify an existing disequilibrium in Canada's balance of payments.
B) make Canada's exports less expensive and its imports more expensive.
C) make Canada's exports more expensive and its imports less expensive.
D) make Canada's exports and imports both more expensive.
16. If the dollar depreciates relative to the Russian ruble, the ruble:
A) will be less expensive to Americans.
B) may either appreciate or depreciate relative to the dollar.
C) will appreciate relative to the dollar.
D) will depreciate relative to the dollar.
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AP Economics -- Exchange Rates Quiz -- Do Not Write On This Booklet!!!
Use the following to answer questions 17-22:
Use the following diagram of a flexible exchange market for foreign currency to answer questions 73-78:
Quantity of euros
D
o
l
l
a
r

p
r
i
c
e

o
f

1

e
u
r
o
$.80
0
Q
1
S
D
17. Refer to the above diagram. At the equilibrium exchange rate:
A) $1 will buy 1.25 euros.
B) 1 euro will buy $.80.
C) 1.25 euro will buy $1.
D) $1 will buy 8 euros.
18. Refer to the above diagram. At the price $.80 for 1 euro:
A) the quantity of euros demanded equals the quantity supplied.
B) the dollar-euro exchange rate is unstable.
C) the dollar price of 1 euro equals the euro price of 1 dollar.
D) there will be a surplus of euros in the foreign exchange market.
19. Refer to the above diagram. Other things equal, a rightward shift of the demand curve would:
A) depreciate the dollar.
B) appreciate the dollar.
C) reduce the equilibrium quantity of euros.
D) depreciate the euro.
20. Refer to the above diagram. Other things equal, a leftward shift of the demand curve would:
A) depreciate the dollar.
B) appreciate the euro.
C) reduce the equilibrium quantity of euros.
D) cause a surplus of euros.
21. Refer to the above diagram. Other things equal, a leftward shift of the supply curve would:
A) appreciate the euro.
B) cause a shortage of euros.
C) increase the equilibrium quantity of euros.
D) appreciate the dollar.
22. Refer to the above diagram. Other things equal, a rightward shift of the supply curve would:
A) appreciate the euro.
B) cause a surplus of euros.
C) decrease the equilibrium quantity of euros.
D) appreciate the dollar.
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AP Economics -- Exchange Rates Quiz -- Do Not Write On This Booklet!!!
23. Under a system of freely floating exchange rates, an increase in the international value of a nation's currency will:
A) cause an international surplus of its currency.
B) contribute to disequilibrium in its balance of payments.
C) cause gold to flow into that country.
D) cause its imports to rise.
24. Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico
but Brazil experiences rapid inflation:
A) gold bullion will flow into Braxil.
B) the Brazilian real will depreciate.
C) the Mexican peso will depreciate.
D) the Brazilian real will appreciate.
25. Assume that Switzerland and Britain have floating exchange rates. Other things unchanged, if a tight money policy raises
interest rates in Britain as compared to Switzerland:
A) gold bullion will flow into Switzerland.
B) the Swiss franc will depreciate.
C) the pound will depreciate.
D) the Swiss franc will appreciate.
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AP Economics -- Exchange Rates Quiz -- Do Not Write On This Booklet!!!
Answer Key
1. D
2. C
3. B
4. D
5. C
6. A
7. C
8. A
9. B
10. A
11. A
12. B
13. B
14. D
15. C
16. C
17. C
18. A
19. A
20. C
21. A
22. D
23. D
24. B
25. B
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