Unit 6: Open Economy International Trade and Finance

All of the following are true regarding international trade EXCEPT

• Countries experience a trade deficit when imports are greater than exports

• Net exports will increase when that country's currency depreciates

• An increase in exports will decrease a country's net exports

• The balance of payment is a summary of a country's transactions with other countries

• The primary components of the balance of payments are the current account and the financial account

Which of the following would definitely be included in the capital and financial account for Japan?

• A German company buys toy parts from Japan

• A man living in Japan buys equities in the Tokyo stock exchange

• A Japanese company purchases capital equipment

• A Canadian bank buys Japanese Treasury bonds

• A Japanese citizen living in France sends a portion of her earnings to her family in Japan

Which of the following is the best example of foreign direct investment?

• The Chinese government buying United States Treasury bonds

• A business in the United States selling machinery to a company in Japan

• A United States citizen buying Mexican pesos

• The United States sending earthquake relief aid to Haiti

• A Japanese software company buying a factory in the United States

New capital outflow refers to which of the following

• The difference between the prime rate and the discount rate

• The difference between the amount of foreign assets purchased by domestic investors and domestic assets purchased by foreigners

• The difference between exports and imports

• The difference between private debt and public debt

• The difference between the amount of foreign assets purchased by public entities and the amount purchased by private entities

If there is a large increase in the number of Europeans traveling to the United States while US citizens' travel to Europe remains unchanged, which of the following is true

• The euro will depreciate because the demand for euros will decrease

• The euro will depreciate because the supply of euros will increase

• The euro will appreciate because the demand for euros will increase

• The dollar will appreciate because the demand for dollars will increase

• The dollar will appreciate because the supply of dollars will increase

Assume the inflation rate in Mexico is significantly higher than its trading partners. Which of the following will occur to the demand, supply, and international value of the Mexican peso?

• The demand will increase, the supply will increase, and the peso will depreciate

• The demand will increase, the supply will decrease, and the peso will appreciate

• The demand will decrease, the supply will increase, and the peso will appreciate

• The demand will decrease, the supply will increase, and the peso will depreciate

• The demand will decrease, the supply will decrease, and the peso will depreciate

Assume the real interest rate in country x increases relative to other countries. What will happen to the value of the currency and net exports in country x?

• The currency will appreciate and net exports will decrease

• The currency will depreciate and net exports will increase

• The currency will stay the same and net exports will stay the same

• The currency will appreciate and net exports will increase

• The currency will depreciate and net exports will decrease

An increase in the international value of the US dollar will most likely benefit which of the following?

• Japanese citizens vacationing in the US

• US exporters

• Currency traders holding large quantities of Mexican Pesos

• Canadian citizens expecting to purchase real estate in the United States

• US citizens that regularly purchase foreign goods