ECN 102 Lecture Notes - Lecture 21: Exchange Rate, Inverse Relation

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orangeminnow841

19 Dec 2020

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Document Summary

Balance of payments: all economic transactions during a given period between one country and the rest of the world. Credit=inflow of receipts from rest of the world. Debits: outflows of payments to rest of the world. Current account: records current flows of funds into and out of the country, including imports and exports, net income earned by u. s. residents from current assets, and net transfer payments from abroad. Merchandise trade balance: value of merchandise exports minus value of merchandise imports. Credits: value of u. s. merchandise exports; u. s. residents get paid. Debits: value of u. s. merchandise imports: u. s. residents pay foreigners. Net investment income u. s. investment earnings from foreign assets minus foreigner"s earnings from their u. s. assets. Earn investment income on assets owned in other countries. Gov"t transfers to foreign residents, foreign aid, money sent to families abroad, personal gifts sent abroad, charitable donations.

Related Questions

1. Which of the following trading partners of the United States became its number one "trade problem" at the beginning of the 21^st century?

United Kingdom

Japan

Germany

Canada

China

2. Which of the following presents the correct picture of the outcome of increased world trade after the 1950s, contrary to Servan-Schreiber's prediction?

Third World countries have been excluded from this economic growth leading to stark imbalances in wealth.

The European Union has become the center of world trade, taking the position away from the United States.

The United States has continuously maintained the positive balance of trade it attained during the 1950s.

Economic power and potential has become more evenly distributed among the countries of the world.

SDRs and gold have lost their utility as the basic medium of financial exchange and most monetary statistics have started relating to the U.S. dollar.

3. The _____ of the balance-of-payments statement is most likely to record all merchandise exports, imports, and services plus unilateral transfers of funds.

current account

capital account

credit account

receivables account

reserves account

4. The Foreign Corrupt Practices Act (FCPA) was specifically addressed in the _____ section of the Omnibus Trade and Competitiveness act.

market access

export expansion

import relief

foreign exchange regulation

trade deficit

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.

ECN 102 Lecture Notes - Lecture 21: Exchange Rate, Inverse Relation

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