assignment 1 for FIN340.doc

Assignment One for FIN340Answer Sheet Question 11234567891011121314151617181920Question 2Question 3Question 1 Multiple Choice Questions1.The trade balance, which is the difference between a countrys exports and imports, is a component of the countrys GDP. Other components of GDP includeA.Consumption and investment and government expenditure.B.Consumption and government expenditure and net exports.C.Consumption and net exports and government expenditure.D.Consumption less imports.2.If the United States imports more than it exports, then this means thatA.The supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus.B.The demand for dollars is likely to exceed the supply in the foreign exchange market, ceteris paribus.C.The U.S. dollar would be under pressure to appreciate against other currencies.D.Both b) and c) are correct3.Generally speaking, any transaction that results in a receipt from foreignersA.Will be recorded as a debit, with a negative sign, in the U.S. balance of paymentsB.Will be recorded as a debit, with a positive sign, in the U.S. balance of paymentsC.Will be recorded as a credit, with a negative sign, in the U.S. balance of paymentsD.Will be recorded as a credit, with a positive sign, in the U.S. balance of payments4.Suppose the McDonalds Corporation imports Canadian beef, paying for it by transferring the funds to a New York bank account kept by the Canadian Beef producer.A.Payment by McDonalds will be recorded as a debitB.The deposit of the funds by the seller will be recorded as a debitC.Payment by McDonalds will be recorded as a creditD.The deposit of the funds by the buyer will be credit5.When a countrys currency depreciates against the currencies of major trading partners,A.The countrys exports tend to rise and imports fall.B.The countrys exports tend to fall and imports rise.C.The countrys exports tend to rise and imports rise.D.The countrys exports tend to fall and imports fall.6.With regard to the capital accountA.The capital account balance measures the difference between U.S. sales of assets to foreigners and U.S. purchases of foreign assets.B.U.S. sales (or exports) of assets are recorded as credits, as they result in capital inflow.C.U.S. purchases (imports) of foreign assets are recorded as debits, as they lead to capital outflow.D.All of the above7.The most important international reserve asset, comprising 94 percent of the total reserve assets held by IMF member countries isA.GoldB.Foreign exchangesC.Special Drawing Rights (SDRs)D.Reserve positions in the International Monetary Fund (IMF)8.If a country must make a net payment to foreigners because of a balance-of-payments deficit, the country shouldA.Either increase its official reserve assets or borrow anew from foreigners.B.Either run down its official reserve assets or borrow anew from foreigners.C.Either run down its official reserve assets or lend more foreigners.D.None of the above9.The current account balance is given byA.C + I + G + X + MB.X - MC.I + X + MD.M - X10. Which of the following explanations for official settlement balance is incorrect?A. It is the sum of current account balance and net capital and financial account balance.B. It reflects the net flows of all the private transactions.C. It is the sum of trade balance and net financial account balance.D. It is counterbalanced against official reserve assets.11.The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows(i) Bimetallism(ii) Bretton Woods system(iii) Classical gold standard(iv) Flexible exchange rate regime(v) Interwar periodThe chronological order that they actually occurred is:A.(iii), (i), (iv), (ii), and (v)B.(i), (iii), (v), (ii), and (iv)C.(vi), (i), (iii), (ii), and (v)D.(v), (ii), (i), (iii), and (iv)12.Greshams Law states thatA.Bad money drives good money out of circulation.B.Good money drives bad money out of circulationC.If a country bases its currency on both gold and silver, at an official exchange rate, it will be the more valuable of the two metals that circulate.D.None of the above.13.Suppose that the pound is pegged to gold at 20 per ounce and the dollar is pegged to gold at $35 per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange rate is $1.80 per pound, how would you take advantage of this situation? Hint: assume that you have $350 available for investment.A.Start with $350. Buy 10 ounces of gold with dollars at $35 per ounce. Convert the gold to 200 at 20 per ounce. Exchange the 200 for dollars at the current rate of $1.80 per pound to get $360.B.Start with $350. Exchange the dollars for pounds at the current rate of $1.80 per pound. Buy gold with pounds at 20 per ounce. Convert the gold to dollars at $35 per ounce.C.a) and b) both workD.none of the above14.Prior to the 1870s, both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. Suppose that the dollar was pegged to gold at $30 per ounce, the French franc is pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce of silver, and the German mark pegged to silver at 1 mark per ounce of silver. What would the exchange rate between the U.S. dollar and German mark be under this system?A.1 German mark = $2B.1 German mark = $0.50C.1 German mark = $3D.1 German mark = $115.The gold standard still has ardent supporters who believe that it providesA.an effective hedge against price inflationB.fixed exchange rates between all currenciesC.monetary policy autonomyD.all of the above16.Under the gold standard, international imbalances of payment will be corrected automatically under theA.Gresham Exchange Rate regimeB.European Monetary SystemC.Price-specie-flow mechanismD.Bretton Woods Accord17.The Triffin paradoxA.Was first proposed by Professor Robert TriffinB.Warned that the gold-exchange system of the Bretton Woods agreement was programmed to collapse in the long run.C.Was indeed responsible for the eventual collapse of the dollar-based gold-exchange system in the early 1970s.D.all of the above are correct18.The choice between the alternative exchange rate regimes (fixed or floating) is likely to involve a trade-off betweenA.National monetary policy autonomy and international economic integrationB.Exchange rate uncertainty and national policy autonomyC.Balance of Payments autonomy and inflationD.Unemployment and inflation19. The advent of the euro marks the first time that sovereign countries have voluntarily given up their:A.National borders to foster economic integration.B.Monetary independence to foster economic integration.C.Fiscal policy independence to foster economic integrationD.National debt to foster economic integration20.Consider the supply-demand framework for the British pound relative to the U.S. dollar shown in the nearby chart. The exchange rate is currently $1.80 = 1.90. Which of the following is correct?A.To fix the exchange rate at $1.80 = 1.90, the Federal Reserve could use contractionary monetary policy to shift the demand curve to the left.B.To fix the exch