Chap021

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Chapter 21: International Finance

Multiple Choice Questions

EXCHANGE RATES: THE GLOBAL LINK

1. The exchange rate is the: A) Opportunity cost at which goods are produced domestically. B) Balance-of-trade ratio of one country to another. C) Price of one country's currency expressed in terms of another country's currency. D) Amount of currency that can be purchased with 1 ounce of gold.

Answer: C Type: Complex Understanding Page: 437

2. An exchange rate is: A) Always fixed. C) The price of one currency in terms of another. B) Tied to the price of gold. D) All of the above.

Answer: C Type: Basic Understanding Page: 437

FOREIGN-EXCHANGE MARKETS

3. The U.S. demand for foreign currency
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A) 5,000 euros. B) 16,667 euros. C) 60,000 euros. D) 10,000 euros.

Answer: B Type: Analytical Page: 438

18. Suppose a U.S. firm purchases some English china. The china costs 1,000 British pounds. At the exchange rate of $1.45 = 1 pound, the dollar price of the china is: A) $250. B) $690. C) $1,450. D) $2,000.

Answer: C Type: Analytical Page: 438

19. If the exchange rate between the U.S. dollar and Japanese yen changes from $1=100 yen to $1=90 yen, then: A) All Japanese producers and consumers will lose. B) U.S. auto producers and autoworkers will lose. C) U.S. consumers of Japanese TV sets will benefit. D) Japanese tourists to the U.S. will benefit.

Answer: D Type: Basic Understanding Page: 438

20. Merchandise exports minus merchandise imports defines a country's: A) Current-account balance. C) Balance of payments. B) Capital-account balance. D) Trade balance.

Answer: D Type: Definition Page: 439

21. The merchandise trade balance for the United States equals: A) The difference between service exports and service imports. B) The difference between dollar value of merchandise exports and dollar value of merchandise imports. C) Exports minus imports. D) The current-account balance minus the capital-account balance.

Answer: B Type: Definition Page: 439

22. The merchandise trade balance is equal to: A)

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