Module 41-45

American retailers import toys from China. In the U.S. balance of payments account, this transaction would be entered as:

• a payment from foreigners in the net export account.
• a payment to foreigners in the financial account.
• a payment to foreigners in the current account.
• a payment from foreigners in the current account.

The nominal exchange rate:

• is unadjusted for inflation.
• is adjusted for inflation.
• can never decline.
• always equals the purchasing power parity.

If the demand for British pounds in the United States rises, then:

• the supply of dollars decreases.
• the U.S. dollar price of the British pound increases.  
• the pound depreciates.
• the U.S. dollar appreciates.

A deficit in the current account means there will be:

• a deficit in the financial account.
• a balanced financial account.  
• a balanced current account.  
• a surplus in the financial account.

A country that pursues a contractionary monetary policy will MOST likely experience:

• a decrease in its interest rate.  
• a depreciation in the value of the nation’s currency.
• an increase in the supply of its currency in the foreign exchange market.  
• an increase in the demand for its currency in the foreign exchange market

To fix its exchange rate, a government can use:

• arbitrage
• competition
• speculation
• exchange market intervention

Countries that follow floating exchange rate regimes:

• typically have both budget and trade deficits
• tend to insulate themselves from economic fluctuations in other countries
• find that they are more susceptible to economic fluctuations in other countries.
• give up the ability to use monetary policy as a stabilization tool

The rule that governs a country's policy toward its exchange rate is known as

• the fixed exchange rate system
• the floating exchange rate system
• an exchange rate regime
• the rules of exchange

A nation’s statement that tracks the purchase and sale of assets during a particular period is the nation's

• financial account
• current account
• statistical discrepancy
• budget deficit or surplus

An American buys a new Volvo, a car built in Sweden. In the U.S. balance of payments, this transaction would cause the balance on the _____ account to _____.

• net export; increase
• current; increase
• financial; decrease
• current; decrease