Chapter 29 Preliminary Quiz
Exchange Rates and the International Financial System

Multiple Choice Questions:

Enter your answer to each of the questions in the blank to the left of the question. Be sure to use lowercase letters only!

	1. An open economy is one that: a. has a high level of inflation. b. has a high level of economic growth. c. engages in international trade. d. all of the above.
	2. Which of the following correctly describes the United States since 1950? a. The American economy has become an increasingly open economy. b. A growing share of output and consumption in the United States is related to international trade. c. The United States has become the world's largest debtor nation. d. All of the above.
	3. A systematic statement of all economic transactions between a country and the rest of the world is called that country's: a. balance of international transactions. b. trade balance. c. foreign exchange rate. d. financial account.
	4. All of the purchases and sales of financial assets and liabilities will appear on a nation's: a. balance of international transactions. b. trade balance. c. foreign exchange rate. d. financial account.
	5. All imports and exports of goods and services along with investment income and transfer payments will appear on a nation's: a. balance of international transactions. b. trade balance. c. balance on current account. d. financial account.
	6. Which of the following is incorrect? a. Services are no longer an important part of international trade for the United States. b. The trade balance consists of all imports and exports. c. The balance of international payments as a whole must by definition show a final zero balance. d. None of the above.
	7. The price of one currency in terms of another is called the: a. purchasing-power-parity (PPP) theory of exchange rates. b. trade balance. c. foreign exchange rate. d. financial account.
	8. In the foreign exchange market, Americans _______ dollars in order to obtain _______ to buy foreign goods, services, or assets. Foreigners _______ dollars in order to obtain dollars in order buy American goods, services or assets. a. demand; dollars; demand b. demand; foreign currency; supply c. supply; dollars; demand d. supply; foreign currency; supply
	9. Depreciation and appreciation occur when the exchange rate is _______. Devaluation and revaluation occurs when the exchange rate is _______. Depreciation and Devaluation are both _______ in the value of the currency. a. fixed; floating; decreases b. fixed; floating; increases c. floating; fixed; decreases d. floating; fixed; increases
	10. Which of the following states that a nation's exchange rate will tend to equalize the cost of buying traded goods at home with the cost of buying those goods abroad? a. purchasing-power-parity (PPP) theory of exchange rates. b. trade balance. c. foreign exchange rate. d. financial account.
	11. The important difference between the gold standard and the Bretton Woods system is that: a. the Bretton Woods system was a system dominated by Great Britain while the gold standard was dominated by France. b. the Bretton Woods system allowed the fixed exchange rates to be adjusted when there were clear market disequilibria present. c. the Bretton Woods system focused on the use of silver where the gold standard focused on gold. d. none of the above.
	12. Which of the following is a monetary institution that issues only currency that is fully backed by foreign assets in a key foreign currency, usually the U.S. dollar? a. common currency b. fixed exchange rate c. currency board d. managed exchange rates
	13. In order to defend a fixed currency against appreciation, the central bank should: a. buy the appreciating currency. b. sell the appreciating currency. c. print dollars. d. put a currency board in place.