ECO102H1 Lecture Notes - Lecture 21: Foreign Exchange Market, The Foreign Exchange, United States Dollar

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ECO102H1 Full Course Notes

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The balance of payments records all the transactions of residents of canada with the rest of the world. There are three main accounts in the balance of payments: The foreign exchange rate (or the exchange rate) is the value of one unit of foreign currency in terms of canadian dollars (e) There is, therefore, one exchange rate for each currency in the world. The value of the canadian dollar in terms of a foreign currency is equal to the inverse of the exchange rate (1/e) For example, the exchange rate for the u. s. dollar is at the present time approximately. 1. 12 (that is, one u. s. dollar is exchanged for . 12 canadian dollars) Therefore, the value of the canadian dollar in terms of u. s. dollars is 1/1. 12 = 0. 89 (that is, one canadian dollar is exchanged for sh. 89 u. s. dollars) There are 2 main systems determining the value of the exchange rate:

Related Questions

1. GDP =

a. GNP + net unilateral transfers.

b. GNP - net unilateral transfers.

c. GNP + balance on secondary income.

d. GNP - net receipts of production factor income coming from the rest of the world.

e. GNP + net receipts of production factor income coming from the rest of the world.

2. The spot exchange rate is the exchange that applies when:

a. you make a transaction today by purchasing one currency with another, executing the exchange of currencies immediately.

b. the volume on the currency market is low, i.e. "spotty", so exchange movements may be rapid with each trade.

c. you agree to make purchase one currency with another but the trading of the currencies happens, say, 3, 6, 9, or 12 months from now.

d. the exchange of currency is not electronic, but instead, you can see, i.e. "spot", the currency.

e. you agree to loan, i.e. "spot", the currency to another.

3. If Sweden's central bank sells US dollars to Swedish commercial banks in return for Swedish crowns, then according to IMF definitions, this transaction should show up in Sweden's

a. current account as a credit and in Sweden's financial account as a debit.

b. nonreserve financial account as a debit and in Sweden's official settlements balance as a credit.

c. capital account as a credit and in Sweden's financial account as a debit.

d. nonreserve financial account as a credit and in Sweden's official settlements balance as a debit.

e. capital account as a debit and in Sweden's financial account as a credit

whiteshark85

In the short run, a tighter monetary policy by the U.S. Federal Reserve leads to:

Select one:

a. an increase in the supply of dollars and a dollar depreciation.

b. a decrease in the supply of dollars and a dollar appreciation.

c. an increase in the demand for dollars and a dollar depreciation.

d. a decrease in the demand for dollars and a dollar appreciation.

Which theorem states that exchange rates will adjust until the prices of goods in different countries approximate one another?

Select one:

a. purchasing power parity

b. the law of multiple prices

c. the principle of comparative advantage

d. dollarization

A country's balance of trade is the difference between its:

Select one:

a. nominal and real exchange rates.

b. monetary and fiscal policy.

c. exports and imports.

d. capital inflow and capital outflow.

When a foreign business buys stock in a U.S. company, the U.S. capital account will:

Select one:

a. move in a positive direction.

b. move in a negative direction.

c. remain unchanged.

d. become more volatile.

Saying that the United States is running a large current account deficit is equivalent to saying that:

Select one:

a. exports exceed imports in the United States.

b. the United States is running a large capital account surplus.

c. the balance of payments is negative.

d. the value of the current capital stock in the United States exceeds the value of future capital flows.

10-

An increase in the demand for a country's exports will have what effect on its currency?

Select one:

a. Its value will not change.

b. Its value will increase.

c. Its value will decrease.

d. Its value will depreciate.

11-

When the United States has a current account deficit, the U.S. capital account:

Select one:

a. will have a deficit also.

b. will be balanced.

c. will have a surplus.

d. must be falling.

12-

Which of the following is NOT a way that a country can finance a trade deficit?

Select one:

a. increased borrowing

b. sale of assets

c. decreased exports

d. reduction in cash reserves

13-

A trade deficit occurs when the value of a country's:

Select one:

a. imports exceeds the value of its exports.

b. exports exceeds the value of its imports.

c. inflow of foreign capital exceeds the outflow of domestic capital.

d. outflow of domestic capital exceeds its inflow of foreign capital.

14-

Which of the following is a U.S. current account transaction?

Select one:

a. Selling a computer chip to a resident in Europe.

b. Buying stock shares of a Canadian company.

c. Selling U.S. dollars in exchange for euros.

d. A foreign investor's purchase of a manufacturing plant in the United States.

15-

An exchange rate is:

Select one:

a. a yearly summary of all the economic transactions between residents of one country and residents of the rest of the world.

b. the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

c. the price of one currency in terms of another currency.

d. a currency whose value is not pegged but governments will intervene extensively in the market to keep the value within a certain range.

amethysthedgehog627

QUESTION 1

If a real asset located in Brazil is sold to someone in the US, the transaction would result in a credit in Brazil's balance of payments.

True

False

6.25 points

QUESTION 2

The balance of payments for a given nation records

only imports and exports of good and servies

only foreign direct investment and portfolio investments between nations

both imports and exporst of good and servieces as well as forein direct investment and portolio investments between nations
QUESTION 36.25 points

Transactions between Canada and the rest of the world are shown below. Use the following information to answer the next four questions.

Canadian citizens receive C$5 million worth of dividends from foreign investments.

Imperial Oil (Canadian firm) invests C$60 million in overseas oil discovery.

Foreign tourists spend C$45 million in Canada.

Canadian government sells C$20 million worth of treasury securities to foreign nations.

Alcan (Canadian firm) sells C$8 million worth of aluminum to US companies.

Canadian government buys C$32 million worth of gold.

Canadian firm buys C$12 million worth of computer components from Sony.

Canada sends C$4 million in aid to Mexico.

Ford spends C$30 million in constructing an assembly plant in Canada.

Find Canada's balance of trade. Enter your final answer in terms of millions of dollars. Do not enter a non-numerical value when inputting your answer.

6.25 points

QUESTION 4

Find the capital account balance (in millions of C$).

		-39
		19
		70

6.25 points

QUESTION 5

Find Canada's current account balance. Enter your final answer in terms of millions of dollars. Do not enter a non-numerical value when inputting your answer.

6.25 points

QUESTION 6

Canada's capital account balance suggests that it is a net supplier of capital to the rest of the world.

True

False

6.25 points

QUESTION 7

Suppose a nation has a current account surplus. This surplus implies

		ation
		ation

		none of the above

6.25 points

QUESTION 8

Suppose that the value of the dollar moves from Â£=$1.5 to Â£=$1.75. What effect would this have on the UK's balance of trade, all else being equal?

		UK
		UK
		UK

6.25 points

QUESTION 9

There is an inverse relationship between the demand for US exports and the US inflation rate.

True

False

6.25 points

QUESTION 10

Transactions between Great Britian and the rest of the world are shown below. Use the following information to answer the next two questions.

British companies sell 50 million pounds worth of bonds to foreigners.

British government sells 20 million pounds of treasury securities to foreigners.

British citizens receive 2 million pounds in interest from foreign investments.

British companies buy 85 million pounds worth of American produced steel.

GlaxoSmithKline (British firm) sells 40 million pounds of pharmaceutical drugs abroad.

British government buys 15 million pounds of gold in FX market.

British bankers invest 12 million pounds in foreign banks.

Find Great Britian's balance of trade. Enter your answer in terms of millions of pounds. Do not use the pound sign or any other non-numerical value when inputting your answer.

and

Transactions between Great Britian and the rest of the world are shown below. Use the following information to answer the next two questions.

British companies sell 50 million pounds worth of bonds to foreigners.

British government sells 20 million pounds of treasury securities to foreigners.

British citizens receive 2 million pounds in interest from foreign investments.

British companies buy 85 million pounds worth of American produced steel.

GlaxoSmithKline (British firm) sells 40 million pounds of pharmaceutical drugs abroad.

British government buys 15 million pounds of gold in FX market.

British bankers invest 12 million pounds in foreign banks.

Find Great Britian's balance of trade. Enter your answer in terms of millions of pounds. Do not use the pound sign or any other non-numerical value when inputting your answer.

ECO102H1 Lecture Notes - Lecture 21: Foreign Exchange Market, The Foreign Exchange, United States Dollar

ECO102H1 Full Course Notes

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