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Understanding Balance of Payments and Foreign Exchange Markets

Learn about the balance of payments accounts and the foreign exchange market, including concepts like current account balance, capital account balance, exchange rates, and interest rate parity.

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Understanding Balance of Payments and Foreign Exchange Markets

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  1. 34 International Finance CLICKER QUESTIONS

  2. Checkpoint 34.1 Checkpoint 34.2 Question 1 Question 6 Question 2 Question 7 Question 3 Question 8 Question 9 Question 4 Question 5 Question 10

  3. CHECKPOINT 34.1 Question 1 If a country has a current account balance of $100 billion and the official settlements account balance is zero, then the country’s capital account balance is ____. • $100 billion • positive but not necessarily equal to $100 billion • $100 billion • negative but not necessarily equal to $100 billion • zero

  4. CHECKPOINT 34.1 Question 2 A debtor nation is a country that _______. • borrows more from the rest of the world than it lends to it • lends more to the rest of the world than it borrows from it • during its entire history has invested more in the rest of the world than other countries have invested in it • during its entire history has borrowed more from the rest of the world than it has lent to it • during its entire history has consistently run a capital account deficit

  5. CHECKPOINT 34.1 Question 3 Which balance of payments account records payments for imports and receipts from exports? • current account • capital account • official settlements account • reserves account • trade account

  6. CHECKPOINT 34.1 Question 4 If an investment of $100 million from the United Kingdom is made in the United States, in the U.S. balance of payments accounts the $100 million is listed as a ____ entry in the ____ account. • positive; current • negative; capital • positive; capital • negative; current • positive; official settlements

  7. CHECKPOINT 34.1 Question 5 The current account balance is equal to ______. • imports  exports + net interest + net transfers • imports  exports + net interest  net transfers • exports  imports  net interest + net transfers • exports  imports + net interest + net transfers • exports  imports  net interest  net transfers

  8. CHECKPOINT 34.2 Question 6 In the foreign exchange market, as the exchange rate (expressed as euros per dollar) rises, other things remaining the same, the ____. • quantity of dollars demanded increases • demand curve for dollars shifts rightward • demand curve for dollars shifts leftward • quantity of dollars demanded decreases • supply curve of dollars shifts rightward

  9. CHECKPOINT 34.2 Question 7 In the foreign exchange market, the demand for dollars increases if the _________. • U.S. interest rate differential increases • expected future exchange rate falls • foreign interest rate rises • U.S. interest rate falls • exchange rate falls

  10. CHECKPOINT 34.2 Question 8 If a shortage of dollars arises in the foreign exchange market, the ________. • demand for dollars decreases to restore equilibrium • U.S. exchange rate will appreciate • U.S. exchange rate will depreciate • supply of dollars decreases to restore equilibrium • supply of dollars increases to restore equilibrium

  11. CHECKPOINT 34.2 Question 9 In the foreign exchange market, when the U.S. interest rate rises, the supply of dollars ____ and the foreign exchange rate ____. • increases; rises • increases; falls • decreases; rises • decreases; falls • increases; does not change

  12. CHECKPOINT 34.2 Question 10 Interest rate parity occurs when _________. • the interest rate in one currency equals the interest rate in another currency when exchange rate changes are taken into account • interest rate differentials are always maintained across nations • interest rates are equal across nations • prices are equal across nations when exchange rates are taken into account • interest rates no longer affect the exchange rate

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