Title: Cat for Lesson 7 - The Balance of Payments and The Ex...
Course: 383-303-FD-55-01 • International Economics

Test info catégorie

Question

Among the following activities, which did not result in an inflow of currency for Canada?

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Réponse | Choix de réponses
1 | Pharmaplus, a Quebec company, sells equipment to American pharmacists.
2 | The Thomas family from France visits Quebec for the marriage of their son to a Quebecer.
3 | The Canadian organization Development and Peace subsidizes the construction of a school in Ivory Coast.
4 | The New York Rangers team pays retirement income to a hockey player living in Ontario.

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 3, If the organization Development and Peace gives a subsidy to build a school, this results in an outflow of currency from Canada to Ivory Coast.
Feedback: La(es) bonne(s) réponse(s) est(sont): 3, If the organization Development and Peace gives a subsidy to build a school, this results in an outflow of currency from Canada to Ivory Coast.

Question

In 1999, when the United States posted a negative current account balance, this meant that:

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Réponse | Choix de réponses
1 | They were spending more abroad than they were receiving from abroad.
2 | All of their businesses were less competitive than those of other countries.
3 | This negative balance may be compensated by a positive balance from other countries, such as Europe or Japan.
4 | All of the above.

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 4, All of these options can lead to a negative current account balance.
Feedback: La(es) bonne(s) réponse(s) est(sont): 4, All of these options can lead to a negative current account balance.

Question

In terms of the capital and financial account of the following countries, it is true that:

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Réponse | Choix de réponses
1 | Canada has considerable net foreign capital.
2 | Switzerland is an example of a country with negative foreign capital.
3 | Japan is a major creditor to other countries.
4 | The United Kingdom is a major creditor to other countries.

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 3, Japan is a major creditor. This is not true of the United Kingdom. Switzerland has considerable net foreign capital, which is not the situation in Canada.
Feedback: La(es) bonne(s) réponse(s) est(sont): 3, Japan is a major creditor. This is not true of the United Kingdom. Switzerland has considerable net foreign capital, which is not the situation in Canada.

Question

A rise in the exchange rate of the Canadian dollar expressed in US dollars means that:

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Réponse | Choix de réponses
1 | It will cost more for Americans to buy in Canada.
2 | It will cost less for Americans to buy in Canada.
3 | Canadian exports will benefit.
4 | Canadian imports will suffer.

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, If the exchange rate of the Canadian dollar rises, this means that it will cost more for foreigners to buy in Canada.
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, If the exchange rate of the Canadian dollar rises, this means that it will cost more for foreigners to buy in Canada.

Question

How might a rise in interest rates in Canada affect the exchange rate of the Canadian dollar?

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Réponse | Choix de réponses
1 | A reduction in borrowing by Canadians, which would make the exchange rate go down.
2 | An increase in savings in Canada, which would make the exchange rate go up.
3 | An increase in US investment in Canada, which would make the exchange rate go up.
4 | A decrease in US investment in Canada, which would make the exchange rate go up.

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 3, An increase in U.S. investment in Canada would make the exchange rate go up. If foreigners have money to invest, an increase in interest rates in Canada will make this market attractive for them. With higher interest rates, they will get higher returns on their investments, so these foreigners will invest their money in Canada. This will increase the demand for Canadian dollars and, consequently, the exchange rate.
Feedback: La(es) bonne(s) réponse(s) est(sont): 3, An increase in U.S. investment in Canada would make the exchange rate go up. If foreigners have money to invest, an increase in interest rates in Canada will make this market attractive for them. With higher interest rates, they will get higher returns on their investments, so these foreigners will invest their money in Canada. This will increase the demand for Canadian dollars and, consequently, the exchange rate.

Q: Question

With reference to the foreign exchange market, indicate whether these statements are true or false.

Sélectionnez la bonne réponse pour chaque énoncé.

Supply and demand determine the exchange rate, but central banks can intervene to prevent strong fluctuations.[...] Member countries of a regional union, such as NAFTA or the European Union, often come to an agreement among themselves to minimize foreign exchange risks within the region.[...] When central banks intervene on the foreign exchange market, they use foreign currencies and not their national currency.[...]
A: Vrai; Vrai; Vrai
Gap 1 offers: Vrai; Faux
Gap 2 offers: Vrai; Faux
Gap 3 offers: Vrai; Faux

Question

If the dollar was worth less in New York than in London, foreign exchange dealers would...

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Réponse | Choix de réponses
1 | Buy dollars in New York and in London.
2 | Buy dollars in New York and sell them in London..
3 | Sell dollars in New York and buy them in London..
4 | Sell dollars in New York and in London.

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 2, If the dollar is worth less in New York than in London, foreign exchange dealers will buy in New York (this will cause the value of the dollar in New York to increase) and sell in London (this will cause the value of the dollar in London to decrease). Certain foreign exchange dealers are experts in arbitration; they analyze the foreign exchange markets and make sure that the value of currencies is similar everywhere. If, by chance, there is a slight difference, they will take action to eliminate this difference.
Feedback: La(es) bonne(s) réponse(s) est(sont): 2, If the dollar is worth less in New York than in London, foreign exchange dealers will buy in New York (this will cause the value of the dollar in New York to increase) and sell in London (this will cause the value of the dollar in London to decrease). Certain foreign exchange dealers are experts in arbitration; they analyze the foreign exchange markets and make sure that the value of currencies is similar everywhere. If, by chance, there is a slight difference, they will take action to eliminate this difference.

Question

On which date was the Canadian dollar worth the most?

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Réponse | Choix de réponses
1 | Exchange rate on April 22, 2002: US$1 = C$1.47
2 | Exchange rate on March 22, 2002: US$1 = C$1.49

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, On April 22, 2002, only C$1.47 was needed to buy US$1, whereas on March 22, 2002, $1.49 was needed. Therefore, our currency was worth more in April.
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, On April 22, 2002, only C$1.47 was needed to buy US$1, whereas on March 22, 2002, $1.49 was needed. Therefore, our currency was worth more in April.

Question

When the Bank of Canada decides to lower interest rates in its monetary policy, this may decrease the exchange rate of the Canadian dollar.
What will be the effect on the current account balance?

Entrez votre réponse ci-dessous.
Feedback: If Canada's exchange rate goes down, the price of Canadian goods for foreigners becomes less expensive. Foreigners are thus inclined to buy more Canadian goods and services. The current account balance records this reaction with the sign (+). In addition, Canadian exports should increase since with the decrease in the exchange rate, the price of Canadian goods is lower than before.
Feedback: If Canada's exchange rate goes down, the price of Canadian goods for foreigners becomes less expensive. Foreigners are thus inclined to buy more Canadian goods and services. The current account balance records this reaction with the sign (+). In addition, Canadian exports should increase since with the decrease in the exchange rate, the price of Canadian goods is lower than before.