Question 1

A country's net outflow of funds ____ affect its interest rates, and ____ affect its economic conditions.

Accepted Answer

A)   does; does
B)   does; does not
C)   does not; does not
D)   does not; doesE) C) and D)
F) A) and B)

Question 2

If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same) .

Accepted Answer

A)   increase
B)   have no impact on
C)   reduce
D)   all of the above are equally possibleE) B) and C)
F) A) and D) C

Question 3

The capital account reflects changes in country ownership of long-term (but not short-term) assets.

Accepted Answer

A) True 
 B)False

Question 4

Without the international capital flows, there would be ____ funding available in the U.S. across all risk levels, and the cost of funding would be ____ regardless of the firm's risk level.

Accepted Answer

A)   more; lower
B)   more; higher
C)   less; lower
D)   less; higherE) C) and D)
F) B) and D) D

Question 5

Intracompany trade represents the exporting of products by one country to other countries below cost.

Accepted Answer

A) True 
 B)False

Question 6

The primary component of the capital account is the balance of trade.

Accepted Answer

A) True 
 B)False

Question 7

Portfolio investment represents transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.

Accepted Answer

A) True 
 B)False  True

Question 8

Which of the following would likely have the least direct influence on a country's current account?

Accepted Answer

A)   inflation.
B)   national income.
C)   exchange rates.
D)   tariffs.
E)   a tax on income earned from foreign stocks.F) None of the above
G) C) and D)

Question 9

Which of the following is not likely to represent a strategy by the government of Country X to reduce its balance of trade deficit with Country Y?

Accepted Answer

A)   The government of Country X eliminates environmental restrictions.
B)   The government of Country X subsidizes firms in its country to facilitate dumping.
C)   The government of Country X provides tax breaks to firms in specific industries.
D)   The government of Country X removes a tariff on goods imported from Country Y.E) B) and C)
F) A) and B)

Question 10

The sale of patent rights by a U.S. firm to a Russian firm reflects a credit to the U.S. balance of payments account.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following countries purchases the largest amount of exports by U.S. firms?

Accepted Answer

A)   Mexico
B)   Japan
C)   Canada
D)   FranceE) All of the above
F) B) and D)

Question 12

An increase in the current account deficit will place ____ pressure on the home currency value, other things equal.

Accepted Answer

A)   upward
B)   downward
C)   no
D)   upward or downward (depending on the size of the deficit) E) C) and D)
F) All of the above

Question 13

If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments) .

Accepted Answer

A)   decrease
B)   increase
C)   remain unaffected
D)   either A or C are possibleE) A) and B)
F) All of the above

Question 14

A balance of trade surplus indicates an excess of imports over exports.

Accepted Answer

A) True 
 B)False

Question 15

The demand for U.S. exports tends to increase when:

Accepted Answer

A)   economic growth in foreign countries decreases.
B)   the currencies of foreign countries strengthen against the dollar.
C)   U.S. inflation rises.
D)   none of the above.E) A) and D)
F) A) and B)

Question 16

The primary component of the current account is the:

Accepted Answer

A)   balance of trade.
B)   balance of money market flows.
C)   balance of capital market flows.
D)   unilateral transfers.E) B) and C)
F) A) and D)

Question 17

Over the last several years, international trade has generally:

Accepted Answer

A)   increased for most major countries.
B)   decreased for most major countries.
C)   stayed about constant for most major countries.
D)   increased for about half the major countries and decreased for the others.E) All of the above
F) A) and B)

Question 18

Direct foreign investment by U.S.-based MNCs occurs primarily in the Bahamas and Brazil.

Accepted Answer

A) True 
 B)False

Question 19

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

Accepted Answer

A) True 
 B)False

Question 20

Assume that some U.S. firms will purchase supplies from either China or from U.S. firms. If the Chinese yuan appreciates against the dollar, it should reduce the U.S. balance of trade deficit with China.

Accepted Answer

A) True 
 B)False

Exam 2: International Flow of Funds

A country's net outflow of funds ____ affect its interest rates, and ____ affect its economic conditions.

Correct AnswerverifiedShow Answer

If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same) .

Correct AnswerverifiedC

The capital account reflects changes in country ownership of long-term (but not short-term) assets.

Correct AnswerverifiedShow Answer

Without the international capital flows, there would be ____ funding available in the U.S. across all risk levels, and the cost of funding would be ____ regardless of the firm's risk level.

Correct AnswerverifiedD

Intracompany trade represents the exporting of products by one country to other countries below cost.

Correct AnswerverifiedShow Answer

The primary component of the capital account is the balance of trade.

Correct AnswerverifiedShow Answer

Portfolio investment represents transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.

Correct AnswerverifiedTrue

Which of the following would likely have the least direct influence on a country's current account?

Correct AnswerverifiedShow Answer

Which of the following is not likely to represent a strategy by the government of Country X to reduce its balance of trade deficit with Country Y?

Correct AnswerverifiedShow Answer

The sale of patent rights by a U.S. firm to a Russian firm reflects a credit to the U.S. balance of payments account.

Correct AnswerverifiedShow Answer

Which of the following countries purchases the largest amount of exports by U.S. firms?

Correct AnswerverifiedShow Answer

An increase in the current account deficit will place ____ pressure on the home currency value, other things equal.

Correct AnswerverifiedShow Answer

If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments) .

Correct AnswerverifiedShow Answer

A balance of trade surplus indicates an excess of imports over exports.

Correct AnswerverifiedShow Answer

The demand for U.S. exports tends to increase when:

Correct AnswerverifiedShow Answer

The primary component of the current account is the:

Correct AnswerverifiedShow Answer

Over the last several years, international trade has generally:

Correct AnswerverifiedShow Answer

Direct foreign investment by U.S.-based MNCs occurs primarily in the Bahamas and Brazil.

Correct AnswerverifiedShow Answer

The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.

Correct AnswerverifiedShow Answer

Assume that some U.S. firms will purchase supplies from either China or from U.S. firms. If the Chinese yuan appreciates against the dollar, it should reduce the U.S. balance of trade deficit with China.

Correct AnswerverifiedShow Answer

A country's net outflow of funds affect its interest rates, and affect its economic conditions.

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C

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Without the international capital flows, there would be funding available in the U.S. across all risk levels, and the cost of funding would be regardless of the firm's risk level.

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D

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True

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