1) The price of one countryʹs currency in terms of another countryʹs currency is the

A) balance of trade. B) exchange rate.

C) terms of trade. D) currency valuation.

2) The agreements that were reached at the Bretton Woods conference in 1944 established a
system
A) in which the values of currencies were fixed in terms of a specific number of ounces of
gold, which in turn determined their values in international trading.
B) of floating exchange rates determined by the supply and demand of one nationʹs
currency relative to the currency of other nations.
C) of essentially fixed exchange rates under which each country agreed to intervene in the
foreign exchange market when necessary to maintain the agreed-upon value of its
currency.
D) that prohibited governments from intervening in the foreign exchange markets.

3) In the early part of the twentieth century, nearly all currencies

A) were backed by gold.
B) were held together by a system of fixed exchange rates in which the value of those
currencies was set in relation to the British pound.
C) were held together by a system of fixed exchange rates in which the value of those
currencies was set in relation to the U.S. dollar.
D) were held together by a system of flexible exchange rates in which the value of those
currencies fluctuated in response to the relative supply of and demand for them.

4) In 1971, most countries, including the United States,

A) returned to the gold standard.
B) adopted a new system of fixed exchange rates.
C) adopted a single, internationally accepted currency whose use is limited to international
transactions.
D) gave up trying to fix exchange rates formally and began allowing them to be determined
essentially by supply and demand.

5) Which of the following increases the price of the dollar relative to the Mexican peso?
A) an increase in the supply of dollars B) an increase in the demand for pesos
C) an increase in the demand for dollars D) a decrease in the supply of pesos.

6) Which of the following decreases the price of the dollar relative to the British pound?
A) a decrease in the supply of dollars B) a decrease in the demand for pounds
C) an increase in the demand for dollars D) an increase in the supply of dollars.

7) An increase in the supply of dollars and an increase in the demand for Japanese yen
A) increases the dollar price of yen.
B) decreases the dollar price of yen.
C) increases the yen price of dollars.
D) does not change the exchange rate between dollars and yen.

8) An increase in the supply of dollars and an increase in the demand for Japanese yen
A) increases the value of the dollar.
B) increases the value of the yen.
C) increases the yen price of dollars.
D) does not change the exchange rate between dollars and yen.

9) A decrease in the supply of dollars and a decrease in the demand for Japanese yen
A) increases the value of the dollar.
B) increases the value of the yen.
C) increases the yen price of dollars.
D) does not change the exchange rate between dollars and yen.

10) The value of the dollar relative to the euro would increase, if
A) the demand for dollars increases and the supply of euros increases.
B) the demand for dollars decreases and the supply of euros increases.
C) the supply of dollars increases and the demand for euros increases.
D) the supply of dollars increases and the demand for euros decreases.

11) The value of the dollar relative to the euro would decrease, if
A) the demand for dollars increases and the supply of euros increases.
B) the demand for dollars decreases and the supply of euros increases.
C) the supply of dollars increases and the demand for euros increases.
D) the supply of dollars increases and the demand for euros decreases.

12) The record of a countryʹs transactions in goods, services, and assets with the rest of the world
is its
A) balance of payments. B) balance of trade.
C) capital account. D) current account.

13) Any transaction that causes foreign exchange to leave a country is a

A) credit item in that countryʹs balance of trade.
B) debit item in that countryʹs balance of payments.
C) credit item in that countryʹs balance of payments.
D) debit item in that countryʹs balance of trade.

14) Imports
A) bring foreign exchange, and thus they are registered as credit in the balance of payments.
B) bring foreign exchange, and thus they are registered as debit in the balance of payments.
C) cause foreign exchange to leave the country, and thus they are registered as credit in the
balance of payments.
D) cause foreign exchange to leave the country, and thus they are registered as debit in the
balance of payments.

15) Exports
A) bring foreign exchange, and thus they are registered as credit in the balance of payments.
B) bring foreign exchange, and thus they are registered as debit in the balance of payments.
C) cause foreign exchange to leave the country, and thus they are registered as credit in the
balance of payments.
D) cause foreign exchange to leave the country, and thus they are registered as debit in the
balance of payments.

16) The difference between a countryʹs merchandise exports and its merchandise imports is the
A) balance of payments. B) capital account.
C) current account. D) balance of trade.

17) When a countryʹs exports of goods are greater than its imports of goods in a given period, it
has a
A) trade deficit. B) capital account surplus.
C) trade surplus. D) current account deficit.

18) When a countryʹs exports of goods are less than its imports of goods in a given period, it has a
A) trade deficit. B) capital account deficit.
C) trade surplus. D) current account surplus.

19) The balance of payments is divided into two major accounts, the
A) current account and the trade account.
B) current account and the capital account.
C) current account and the reserve account.
D) trade account and the capital account.

20) Which of the following is an item in the U.S. current account?

A) net investment income
B) the change in foreign private assets in the United States
C) the change in private U.S. assets abroad
D) the change in foreign government assets in the United States

21) An Italian citizen buys a U.S. bond. This transaction will be entered as
A) a credit in the U.S. current account. B) a credit in the U.S. capital account.
C) a debit in the U.S. current account. D) a debit in the U.S. capital account.

22) A U.S. individual buys shares in a Swiss company. This transaction will be entered as
A) a credit in the U.S. current account. B) a debit in the U.S. current account.
C) a credit in the U.S. capital account. D) a debit in the U.S. capital account.

23) A U.S. firm builds a factory in South Africa. This will be entered as a
A) debit in the U.S. capital account. B) debit in the U.S. current account.
C) credit in the U.S. capital account. D) credit in the U.S. current account.

24) When an American buys an asset abroad, the transaction

A) is registered as a credit in the capital account, and it decreases private U.S. assets abroad.
B) is registered as a debit in the current account, and it decreases private U.S. assets abroad.
C) is registered as a credit in the capital account, and it increases private U.S. assets abroad.
D) is registered as a debit in the capital account, and it increases private U.S. assets abroad.

25) When a foreigner buys shares in a U.S. company, the transaction

A) is registered as a credit in the capital account, and it decreases foreign private assets in
the United States.
B) is registered as a debit in the current account, and it decreases private U.S. assets abroad.
C) is registered as a credit in the capital account, and it increases foreign private assets in the
United States.
D) is registered as a debit in the capital account, and it increases private U.S. assets abroad.

26) Which of the following statements is TRUE?

A) A country runs a capital account deficit if it imports more than it exports.
B) If the current account is in surplus, the capital account must be in deficit.
C) The overall sum of all the entries in the balance of payments must be positive.
D) A country runs a current account surplus if it sells more of its assets abroad than it buys
abroad.

27) Which of the following statements is TRUE?

A) An increase in exports causes a balance of payments surplus.
B) A decrease in exports causes a balance of payments deficit.
C) A decreases in imports causes a balance of payments surplus.
D) The balance of payments is always in balance.

28) When foreign assets in the United States decrease,

A) the United States residents are reducing their debt to the rest of the world.
B) the United States residents are increasing their stock of assets.
C) the United States residents are increasing their debt to the rest of the world.
D) foreign residents debts to the United States residents also increase.
29) When foreign assets in the United States increase,
A) the United States residents are reducing their debt to the rest of the world.
B) the United States residents are increasing their debt to the rest of the world.
C) foreign residents debt to the United States residents also decrease.
D) the United States residents are reducing their stock of assets.

30) When United States residents acquire assets abroad, they are in essence
A) borrowing money, and foreign debts to the United States decrease.
B) borrowing money, and foreign debts to the United States increase.
C) lending money, and foreign debts to the United States decrease.
D) lending money, and foreign debts to the United States increase.

31) Until the mid-1970s the United States consistently ran

A) current account deficits and capital account surpluses.
B) current account surpluses and capital account deficits.
C) deficits in both the current account and the capital account.
D) surpluses in both the current account and the capital account.

32) In the United States, which of the following is NOT directly determined by U.S. income?
A) consumption B) income tax revenue
C) exports D) imports

2 True/False
1) the current international monetary system is based on a gold standard.

2) The record of a countryʹs transactions in goods, services, and assets with the rest of the world
is its balance of trade.

3) The overall sum of all the entries in the balance of payments must be zero.

4) A current account deficit means that foreigners do not like our goods.

5) When an American buys a factory in China, the transaction is registered a credit in the U.S.
capital account.

6) A current account deficit implies a capital account surplus.

7) Included in the U.S. current account is interest that U.S. residents receive on overseas assets.

8) The balance of trade is part of the current account which is part of the balance of payments.