Exam Questions Ch13 Foreign Exchange And The International

c13; Chapter 13: Foreign Exchange and the International Trade of Money

Learning Objectives

1. Understand how foreign exchange markets operate
2. Demonstrate how foreign exchange rates are determined
3. Describe how foreign exchange rate influence international trade

Multiple Choice

1. Foreign exchange markets facilitates
   1. the trade of domestic products.
   2. the trade of one currency for another.
   3. the trade of exports and imports.
   4. the trade of euros for American products.

LO-1

Level: Moderate

1. Exchange rates are determined in the __________________ for(of) currency.
   1. market.
   2. demand.
   3. supply.
   4. distribution.

LO-1

Level: Moderate

1. The conversion of one country’s currency into that of another is known as the
   1. net exports.
   2. trade deficit.
   3. trade surplus.
   4. foreign exchange.

LO-1

Level: Easy

1. The price of one country’s currency in terms of another country’s currency is known as the
   1. exchange rate.
   2. trade deficit.
   3. trade surplus.
   4. foreign exchange.

LO-1

Level: Easy

1. The rate at which one currency can be exchanged for another is the
   1. foreign trade.
   2. trade deficit.
   3. exchange rate.
   4. trade surplus.

LO-1

Level: Easy

1. The foreign exchange market is driven by
   1. demand.
   2. supply.
   3. demand and supply.
   4. government policy.

LO-1

Level: Easy

1. One Chinese Yuan Renminbi (CNY) costs .1604 U.S. dollar. What is the cost of 1 U.S. dollar?
   1. 0.84 CNY
   2. 1.16 CNY
   3. 4.06 CNY
   4. 6.23 CNY

LO-2

Level: Easy

1. Your dream vacation includes renting a cottage in the County Kerry in Ireland. The cost of this cottage will be, for the week, 330 British pounds. In U.S. dollars your cost will be $511.96. What is the rate of exchange?
   1. 0.64
   2. 0.55
   3. 1.55
   4. 1.64

LO-2

Level: Moderate

1. You decide to take a week off and rent a cottage in Ireland. The cost of the cottage will be €500. If the exchange rate is currently at 1USD = €0.644, what will be the cost of the cottage in U.S. dollars?
   1. $322.00
   2. $417.12
   3. $500.00
   4. $776.40

LO-2

Level: Difficulty

1. Which of the following statements is true about how exchange rates are determined?
   1. Exchange rates are determined through the interaction of government policies determining the openness to trade.
   2. Exchange rates are determined through the interaction of buyers and sellers of different currencies.
   3. Exchange rates are determined through the interaction of businesses.
   4. Exchange rates are determined through the interaction of consumers.

LO-2

Level: Easy

1. Of the following which would not contribute to the demand for a currency?
   1. A foreigner importing a domestic product
   2. A domestic citizen vacationing in a foreign country
   3. A domestic business investing in a foreign country
   4. A domestic citizen taking a “stay-ca” to a regional B and B

LO-2

Level: Moderate

1. A currency requires more foreign currency to buy it. It can be said that this currency has
   1. depreciated in value.
   2. appreciated in value.
   3. been inversed.
   4. been devalued.

LO-2

Level: Easy

Reference: Use the graphs to answer questions 13-14.

1. Which graph illustrates the effects on the appropriate currency when an increase in British citizens decide to vacation in the U.S.
   1. Graph A
   2. Graph B
   3. Either Graph A or Graph B
   4. Neither Graph A nor Graph B

LO-2

Level: Moderate

1. Which graph illustrates the effects on the appropriate currency when there is an increase in U.S. citizens importing British tea?
   1. Graph A
   2. Graph B
   3. Either Graph A or Graph B
   4. Neither Graph A nor Graph B

LO-2

Level: Moderate

1. If Americans increase demand for goods produced in Europe this can
   1. create a supply of Euros in the foreign exchange market.
   2. create a demand for Euros in the foreign exchange market.
   3. create both a supply and a demand for Euros in the foreign exchange market.
   4. create a demand for U.S. dollars in the foreign exchange market.

LO-2

Level: Medium

1. A currency requires less foreign currency to buy it. It can be said that this currency has
   1. depreciated in value.
   2. appreciated in value.
   3. been inversed.
   4. been devalued.

LO-2

Level: Easy

1. Exports are
   1. goods or services produced domestically but sold abroad.
   2. goods or services produced abroad but sold domestically.
   3. goods or services produced domestically and sold domestically.
   4. goods or services produced abroad and sold abroad.

LO-3

Level: Easy

1. A good or service produced domestically but sold abroad is a(n)
   1. import.
   2. export.
   3. capital good.
   4. consumer good.

LO-3

Level: Easy

1. A good or service produced abroad but sold domestically is a(n)
   1. import.
   2. export.
   3. capital good.
   4. consumer good.

LO-3

Level: Easy

1. An example of a U.S. export would be
   1. a bottle of a wine produced in California sold to a buyer in England.
   2. a bottle of wine produced in France sold to a buyer in California.
   3. a bottle of wine produced in France sold to a buyer in England.
   4. a bottle of wine purchased for use at home.

LO-3

Level: Moderate

1. Goods that we ______________ another country are known as imports.
   1. buy from
   2. sell to
   3. rent to
   4. recommend to

LO-3

Level: Easy

1. Goods that we _____________ another country are known as exports.
   1. buy from
   2. sell to
   3. rent to
   4. recommend to

LO-3

Level: Easy

1. You buy a car from Germany. This constitutes an
   1. export for the U.S. and an import for Germany.
   2. import for the U.S. and an export for Germany.
   3. export for Germany and an import for the U.S.
   4. import for Germany and an export for the U.S.

LO-3

Level: Moderate

1. The currency for the hypothetical country of Omicron is the omi. Omicron has had an unstable past and is currently facing further political upheaval. Which of the following statements best describes the effects of political upheaval on Omicron’s international trade and exchange rate?
   1. This has created an increase in supply of omis in the foreign exchange market.
   2. There has been an increase in demand for omis in the foreign exchange market.
   3. There has been an increase in investment in Omicron’s businesses.
   4. There has been an increase in demand for Omicron’s exports.

LO-3

Level: Difficult

1. In the graph, the price of the British pound

• 1. appreciated because the dollars buys more pounds.
  2. appreciated because the dollars buys fewer pounds.
  3. depreciated because the dollars buy more pounds.
  4. depreciated because the dollars buy fewer pounds.

LO-2

Level: Difficult

Reference: Use the following information to answer questions 26-27.

X = Exports

M = Imports

1. A trade surplus would be represented by the following equation.
   1. X < M
   2. X = M
   3. M > X
   4. M < X

LO-3

Level: Moderate

1. A trade deficit would be represented by the following equation.
   1. M < X
   2. M = X
   3. X> M
   4. M > X

LO-3

Level: Moderate

1. An exchange rate which is determined by the interactions of the forces of the market is known as a
   1. fixed exchange rate.
   2. flexible exchange rate.
   3. stationary exchange rate.
   4. pegged exchange rate.

LO-3

Level: Easy

1. An exchange rate determined by government action in the foreign exchange markets is a
   1. pegged exchange rate.
   2. floating exchange rate.
   3. fixed exchange rate.
   4. pegged or fixed exchange rate.

LO-3

Level: Easy

1. Which of the following would not support the use of a fixed exchange rate?
   1. There will be less susceptibility to risk.
   2. There will be less susceptibility to market expectations and uncertainties.
   3. More government resources will be needed to maintain it.
   4. It is a commonly used exchange rate.

LO-3

Level: Easy

1. An appreciation of a currency will
   1. increase exports because the price of goods will be relatively less expensive to other goods
   2. decrease exports because the price of goods will be relatively less expensive to other goods
   3. increase exports because the price of goods will be relatively more expensive to other goods
   4. decrease exports because the price of goods will be relatively more expensive to other goods

LO-3

Level: Moderate

1. A depreciation of a currency will
   1. increase exports because the price of goods will be relatively less expensive to other goods
   2. decrease exports because the price of goods will be relatively less expensive to other goods
   3. increase exports because the price of goods will be relatively more expensive to other goods
   4. decrease exports because the price of goods will be relatively more expensive to other goods

LO-3

Level: Moderate

1. If the U.S. dollar increases in price in the foreign exchange market the result is that
   1. it requires less of other currencies to buy U.S. dollars
   2. it requires more of other currencies to buy U.S. dollars
   3. it requires less U.S. dollars to buy other currencies
   4. it requires more U.S. dollars to buy other currencies.

LO-3

Level: Moderate