EconomicsinaGlobalContext

TestID:7659162

Question#1of104

QuestionID:413936

Whichofthefollowinglistsoftradingblocsismostaccuratelyorderedbydegreeofeconomicintegration,fromleasttomost
integrated?
A) Customsunion,economicunion,monetaryunion.
B) Freetradearea,economicunion,commonmarket.
C) Freetradearea,commonmarket,customsunion.
Explanation
Theorderbydegreeofeconomicintegration(fromleasttomostintegrated)isasfollows:freetradeareas,customsunion,
commonmarket,economicunion,andmonetaryunion.

Question#2of104

QuestionID:413929

WhichofthefollowinggroupsinthecountryofMinidoniawouldleastlikelybehelpedbytheimpositionoftariffsonMinidonian
importsoftransportationequipment?
A) Automotivemanufacturers.
B) Truckingcompanies.
C) Minidonia'sgovernment.
Explanation
Tariffsontransportationequipmentbenefitthegovernmentintheformoftariffrevenue,andbenefitdomesticproducersand
industryworkersintheformofhigherpricesfortransportationequipment.Theusersoftransportationequipment,suchas
truckingcompanies,sufferfromhighercostsduetothehigherpricesoftransportationequipment.

Question#3of104

QuestionID:434262

Acurrencyexchangeratethatissettodayforanexchangetobemade90daysinthefutureisbestdescribedasa:
A) forwardexchangerate.
B) spotexchangerate.
C) realexchangerate.
Explanation
Aforwardexchangerateisacurrencyexchangerateforanexchangetobemadeinthefuture.Forwardratesarequotedfor
variousfuturedates(e.g.,30days,60days,90days,oroneyear).

Question#4of104

QuestionID:413966

AnanalystobservesthattheexchangerateforMexicanpesosisMXN/USD8.0000,andtheexchangerateforPolishzlotysis
PLN/USD6.0000.TheMXN/PLNexchangerateisclosestto:
A) 0.7500.
B) 1.3333.
C) 14.0000.
Explanation
ThecrossrateofMXN/PLNis(MXN/USD8)/(PLN/USD6)=1.3333MXN/PLN.

Question#5of104

QuestionID:413962

IftheexchangeratevalueoftheCADgoesfromUSD0.60toUSD0.80,thentheCAD:
A) depreciatedandCanadianswillfindU.S.goodscheaper.
B) appreciatedandCanadianswillfindU.S.goodscheaper.
C) depreciatedandCanadianswillfindU.S.goodsmoreexpensive.
Explanation
TheCADisnowmoreexpensiveintermsofUSD,andthusithasappreciated.Therefore,eachCADyieldsmoreUSDthan
before,andCanadiansareabletopurchasemoreU.S.goodswitheachCAD,makingU.S.goodsrelativelycheaper.

Question#6of104

QuestionID:434251

In20X5,Carthage'smerchandiseimportsexceededthevalueofitsmerchandiseexports.Inthiscase,Carthagewouldmost
likelyhavewhichofthefollowing?
A) Balanceoftradesurplus.
B) Capitalaccountsurplus.
C) Currentaccountsurplus.
Explanation
Ifacountryisrunningacurrentaccountdeficit,itmusthaveaninflowofforeigncapital,creatingasurplusinthecapital
account.

Question#7of104

QuestionID:445333

ThemostaccuratedescriptionoftherelativerolesplayedbytheInternationalMonetaryFund,WorldBank,andWorldTrade
Organizationisthattheonlyoneexplicitlyfocusedon:
A) reducingpovertyistheWorldBank.

 B) expandinginternationaltradeistheWorldTradeOrganization.
C) providingfundingtomembernationsistheInternationalMonetaryFund.
Explanation
TheWorldBankhastheexplicitmissionoffightingpoverty.BoththeWTOandIMFworktoexpandinternationaltrade.Both
theWorldBankandIMFprovidefundstomembernations,theWorldBankfordevelopmentandtheIMFwhenmember
nationsexperiencebalanceofpaymentsdifficulties.

Question#8of104

QuestionID:413954

Participantsinforeignexchangemarketsthatcanbecharacterizedas"realmoneyaccounts"mostlikelyinclude:
A) centralbanks.
B) insurancecompanies.
C) hedgefunds.
Explanation
Realmoneyaccountsareforeignexchangebuysideinvestorsthatdonotusederivatives.Manymutualfunds,pensionfunds,
andinsurancecompaniescanbeclassifiedasrealmoneyaccounts.Hedgefundstypicallyusederivatives.Centralbanks
usuallydonotactasinvestorsinforeignexchangemarketsbutmayinterveneinforeignexchangemarketstoachieve
monetarypolicyobjectives.

Question#9of104

QuestionID:413974

ThespotCHF/EURexchangerateis1.2025.Ifthe90dayforwardquotationis+0.25%,the90dayforwardrateisclosestto:
A) 1.2000.
B) 1.2055.
C) 1.2050.
Explanation
The90dayforwardCHF/EURexchangerateis1.20251.0025=1.20551.TheEURisataforwardpremiumtotheCHF.

Question#10of104

QuestionID:413948

Otherthingsequal,arealexchangerate(statedasunitsofdomesticcurrencyperunitofforeigncurrency)willdecreaseasa
resultofanincreaseinthe:
A) nominalexchangerate(domestic/foreign).
B) foreignpricelevel.
C) domesticpricelevel.
Explanation

Anincreaseinthedomesticpricelevel,otherthingsequal,willdecreasearealexchangerate.Increasesinthenominal
exchangerateortheforeignpricelevel,otherthingsequal,willincreasearealexchangerate.

Question#11of104

QuestionID:413925

SupposetheworldpriceofMercurytennisshoesis$60,buttheysellintheU.S.for$75duetoa$15importtariff.Whowill
mostlikelybenegativelyaffectedbythetariff?
A) Foreignconsumers.
B) Producers.
C) U.S.consumers.
Explanation
Tariffsbenefitdomesticproducersofproductsbecausethelevelofimportswillbereducedduetoaneffectiveincreaseinthe
priceofthegoods.Consumersinthecountryloseduetohigherprices.

Question#12of104

QuestionID:413944

Holdingotherfactorsconstant,acountrycanreduceitstradedeficitbyincreasingits:
A) governmentbudgetdeficit.
B) domesticcapitalinvestment.
C) privatesaving.
Explanation
Otherthingsequal,increasingsavingswoulddecreaseacurrentaccountdeficit,whileincreasingagovernmentbudgetdeficit
ordomesticinvestmentwouldincreaseacurrentaccountdeficit.

Question#13of104

QuestionID:413917

Whichtypeofadvantagedeterminesthepatternoftradeintheworld?

A) Absoluteadvantage.
B) Advantagesduetotariffsandquotas.
C) Comparativeadvantage.

Explanation
Comparativeadvantageistheabilitytoproduceagoodataloweropportunitycostthanotherscanproduceit.Accordingtothelawof
comparativeadvantage,tradingpartnersarebothbetteroffiftheyspecializeintheproductionofgoodsforwhichtheyarethelow
opportunitycostproducerandtradeforgoodsforwhichtheyarethehighopportunitycostproducer.

Question#14of104

QuestionID:413914

Thelawofcomparativeadvantageexplainswhyanationwillbenefitfromtradewhenit:
A) exportsgoodsforwhichitisalowcostproducer,whileimportingthosefor
whichitisahighcostproducer.
B) exportsgoodsforwhichitisahighcostproducer,whileimportingthoseforwhichitis
alowcostproducer.
C) exportsmorethanitimports.
Explanation
Comparativeadvantageistheabilitytoproduceagoodataloweropportunitycostthanotherscanproduceit.Whentrading
partnersspecializeinproducingproductsforwhichtheyhaveacomparativeadvantagecostsareminimized,outputis
greater,andbothtradingpartnersbenefit.

Question#15of104

QuestionID:413928

Theprimarybenefitsderivedfromtariffsusuallyaccrueto:

A) domesticproducersofexportgoods.
B) domesticsuppliersofgoodsprotectedbytariffs.
C) foreignproducersofgoodsprotectedbytariffs.
Explanation
Tariffsraisedomesticprices,benefitingdomesticsuppliers.

Question#16of104

QuestionID:434255

Inthebalanceofpaymentsaccounts,goodsandfinancialassetsthatmigrantsbringtoacountryareincludedinthe:
A) capitalaccount.
B) financialaccount.
C) currentaccount.
Explanation
Thecapitalaccountincludesgoodsandfinancialassetsthatmigrantsbringwhentheycometoacountryortakewiththem
whentheyleave.

Question#17of104

QuestionID:413965

Giventhefollowingquotes,GBP/USD2.0000andMXN/USD8.0000,calculatethedirectMXN/GBPspotcrossexchangerate.

 A) 0.2500.
B) 0.6250.
C) 4.0000.
Explanation
InvertthefirstquotetoreadUSD/GBP0.5000.Then,0.50008.0000=4.0000MXN/GBP.

Question#18of104

QuestionID:413926

Whobenefitsleastfromtariffs?

A) Domesticconsumers.
B) Domesticproducers.
C) Foreignconsumers.

Explanation
Ataximposedonimportsiscalledatariff,whichbenefitsdomesticproducersanddomesticgovernments.Domesticconsumerslose
throughhigherprices,lesschoiceofproducts,andlowerqualityproducts.

Question#19of104

QuestionID:472414

Agovernmentthatimposesrestrictionsoncapitalflowsintooroutofthecountryismostlikelyattemptingto:
A) increasedomesticinterestrates.
B) reducethevolatilityofdomesticassetprices.
C) encouragecompetitionindomesticindustries.
Explanation
Reasonscommonlycitedbygovernmentsforimposingcapitalrestrictionsincludereducingthevolatilityofdomesticasset
prices,maintainingcontrolofexchangerates,keepingdomesticinterestrateslow,andprotectingstrategicindustriesfrom
foreignownership.

Question#20of104

QuestionID:413960

TheexchangerateforJapaneseyen(JPY)pereuro(EUR)changesfrom98.00to103.00JPY/EUR.Howhasthevalueofthe
EURchangedrelativetotheJPYinpercentageterms?
A) Appreciatedby5.1%.
B) Appreciatedby4.9%.

 C) Depreciatedby4.9%.
Explanation
BecausetheexchangeratesarequotedwiththeEURasthebasecurrency,thepercentagechangeissimply103.00/98.00
1=5.1%.TheincreaseinthequotedJPY/EURexchangeratemeansitnowrequires5.1%moreJPYtopurchaseoneEUR.
Thus,theEURhasappreciatedby5.1%againsttheJPY.

Question#21of104

QuestionID:413956

Whichofthefollowingwouldleastlikelybeaparticipantintheforwardmarket?

A) Traders.
B) Longterminvestors.
C) Arbitrageurs.

Explanation
Forwardcontractsarefor30,90,180,and360dayperiodsandwould,therefore,beconsideredshortterminvestmentchoices.Other
participantsintheforwardmarketarehedgerswhouseforwardcontractstoprotectthehomecurrencyvalueofforeigncurrency
denominatedassetsontheirbalancesheetsoverthelifeofthecontractsinvolved.

Question#22of104

QuestionID:485768

Twocountriestradefreelywitheachotherandhaveagreedtospecifictariffsonimportsfromothercountries.Theworkersin
eithercountrymayfreelycrossthecommonbordertoworkintheothercountry.Thetwocountrieshaveagreedtocommon
economicpolicies,buttheyuseseparatecurrencies.Thistypeofcooperationisbestdescribedasa(n):
A) economicunion.
B) customsunion.
C) monetaryunion.
Explanation
Thetwocountriesareapartofaneconomicunion.Inaneconomicunion,thereis(1)freetradeamongmembers,(2)
commonrestrictions(tariffs)onimportsfromnonmembers,(3)freemovementofproductionfactors(labor),and(4)common
economicinstitutionsandcoordinationofeconomicpolicies.Whileacustomsunionhascommontariffsonimportsfromnon
unioncountriesandfreetrade,itdoesnotallowworkerstocrossthebordersfreelyanddoesnothavecommoneconomic
institutions.Amonetaryunionrequiresallofthelisteditemsandacommoncurrency.

Question#23of104

QuestionID:413968

IfthespotexchangeratebetweentheBritishpoundandtheU.S.dollarisGBP/USD0.7775,andthespotexchangerate

betweentheCanadiandollarandtheBritishpoundisCAD/GBP1.8325,whatistheUSD/CADspotcrossexchangerate?
A) 0.70186.
B) 0.42428.
C) 1.42477.
Explanation
First,convertGBP/USD0.7775to1/0.7775=USD/GBP1.28617.
Then,divideUSD/GBP1.28617byCAD/GBP1.8325=USD/CAD0.70187.

Question#24of104

QuestionID:413964

GivenanexchangerateofUSD/CAD0.9250andUSD/CHF1.6250,whatisthecrossrateforCAD/CHF?
A) 1.5032.
B) 1.7568.
C) 0.5692.
Explanation
(USD/CHF1.6250)/(USD/CAD0.9250)=CAD/CHF1.7568

Question#25of104

QuestionID:413907

Whichofthefollowingstatementsaboutthecostsandbenefitsofinternationaltradeismostaccurate?
A) Thecostsoftradeprimarilyaffectthoseindomesticindustriesthatcompete
withimports.
B) Thecostsoftradearegreaterthanthebenefitswithregardtodomesticemployment.
C) Increasedinternationaltradebenefitsallgroupsinthetradingcountries.
Explanation
Thebenefitsoftradearegreaterthanthecostsfortheoveralleconomy,butthoseindomesticindustriescompetingwith
importsmaysuffercostsintheformofreducedprofitsoremployment.

Question#26of104
Thebalanceofpaymentsaccountsconsistof:
A) capitalaccount,financialaccount,andnonfinancialaccount.
B) currentaccount,capitalaccount,andcurrencyaccount.
C) currentaccount,capitalaccount,andfinancialaccount.
Explanation

QuestionID:434252

AccordingtotheU.S.FederalReserve,"TheBOP[balanceofpayments]includesthecurrentaccount,whichmainlymeasures
theflowsofgoodsandservicesthecapitalaccount,whichconsistsofcapitaltransfersandtheacquisitionanddisposalof
nonproduced,nonfinancialassetsandthefinancialaccount,whichrecordsinvestmentflows."

Question#27of104

QuestionID:413975

IfthenoarbitrageforwardexchangerateforaeuroinJapaneseyenislessthanthespotrate,thentheinterestratein:
A) theeurozoneislessthaninJapan.
B) Japanislessthanintheeurozone.
C) Japanisthesameasintheeurozone.
Explanation
IfthequoteisintermsofJPYperEUR,thisimpliesthattheJPYisexpectedtoappreciaterelativetotheEUR.Therewillbeno
arbitrageopportunityonlyiftheinterestrateinJapanislowerthantheinterestrateintheeurozone.

Question#28of104

QuestionID:413903

Foracountrythatproduces
100millionmoreincomefromforeigncapitalinvestedwithinthecountrythanfromdomestic
investmentabroad,andproduces
100millionmoregoodsandservicesbyforeignlaborwithinthecountrythanbyitscitizens
abroad,grossnationalproductis:
A) equaltogrossdomesticproduct.
B) greaterthangrossdomesticproduct.
C) lessthangrossdomesticproduct.
Explanation
GNPmeasuresoutputproducedbyacountry'scitizensandcapitalownedbyitscitizens.GDPmeasuresoutputproduced
withinacountry.Inthisexample,productionwithinthecountry(GDP)isgreaterthanproductionbythecountry'scitizens
(GNP).

Question#29of104

QuestionID:413938

TheNorthAmericanFreeTradeAgreement(NAFTA)ismostaccuratelydescribedasa:
A) commonmarket.
B) customsunion.
C) freetradearea.
Explanation
NAFTAisafreetradearea,inwhichthemembernationsremovebarrierstoimportsandexportsamongthemselves.Ina
customsunion,allmembersadoptcommontradepolicieswithnonmembers.Acommonmarketgoesfurther,removingall

barrierstomovementoflaborandcapitalamongmembers.

Question#30of104

QuestionID:413909

ThetablebelowoutlinesthepossibletradeoffsofproducingbeerandcheeseforGermanyandHolland.
Germany

Holland

Cheese

Beer

Cheese

Beer

10

Whichofthefollowingstatementsismostaccurate?

A) Germanywouldnotgainfromtrade,becauseithasanabsoluteadvantageinthe
productionofbothgoods.

B) BothcountrieswouldgainifGermanytradedcheeseforHolland'sbeer.
C) BothcountrieswouldgainifGermanytradedbeerforHolland'scheese.
Explanation
GermanyhasanabsoluteadvantageinbothbeerandcheesebecauseitcanproducemoreofboththanHolland.Theopportunitycostof
producingbeeris5/10=0.5inGermanyand4/6=0.67inHolland.Theopportunitycostofproducingcheeseis10/5=2inGermanyand
6/4=1.5inHolland.HollandhasacomparativeadvantageinproducingcheeseandGermanyhasacomparativeadvantageinproducing
beer.BothcountriesgainifGermanytradesbeerforHolland'scheese.

Question#31of104

QuestionID:434266

ThespotrateforJapaneseyenperUKpoundis138.78.IftheUKinterestrateis1.75%andtheJapaneseinterestrateis
1.25%,the6monthnoarbitrageforwardrateisclosestto:
A) 138.44JPY/GBP.
B) 138.95JPY/GBP.
C) 138.10JPY/GBP.
Explanation
Thecalculationisasfollows:

Question#32of104

QuestionID:413905

Incontrasttogrossdomesticproduct(GDP),grossnationalproduct(GNP)includesincomeearnedby:
A) foreigncapitalinvesteddomestically.
B) foreignlaborworkingdomestically.
C) domesticcapitalinvestedabroad.
Explanation
GNPincludesgoodsandservicesproducedoutsidethecountrybydomesticfactorsofproduction,bothlaborandcapital.

Question#33of104

QuestionID:413918

ThefollowingchartindicatestheproductionpossibilitiesoffoodanddrinkperdayinCountryAandCountryB.
UnitsofOutputPerDay
CountryA

CountryB

Food

Drink

Whichofthefollowingstatementsismostaccurate?

A) MutualgainscouldberealizedfromtradeifAspecializedinfoodproductionandB
specializedindrinkproduction.

B) MutualgainscouldberealizedfromtradeifAspecializedindrinkproductionandB
specializedinthefoodproduction.

C) SinceBworkerscanproducemoreoffoodanddrinkthanAworkers,nogainsfromtradeare
possible.

Explanation
MutualgainscouldberealizedfromtradeifAspecializedinfoodproductionandBspecializedindrinkproduction.Thereasoncenterson
comparativeadvantage.CountryAmustgiveup7/9th unitofdrinktoproduceoneunitoffood.CountryBmustgiveup1unitofdrinkto
produceoneunitoffood.Therefore,theopportunitycostofproducingfoodisgreaterforBthanforA.IfBproduces5unitsofdrinkandA
produces9unitsoffood,totalproductionwillbegreaterthanitwouldbeifbothcountriesproducedbothgoods.Bytrading,bothcountries
benefit.

Question#34of104
Inacountrythathasacurrentaccountsurplus,itismostlikelythat:
A) domesticsavingsaregreaterthandomesticinvestment.
B) domesticinvestmentisgreaterthangovernmentsavings.
C) privatedomesticsavingsaregreaterthanthebudgetdeficit.

QuestionID:413943

Explanation
Therelationshipbetweensaving,investment,andthetradedeficitcanbeexpressedas:
(exportsimports)=privatesavings+governmentsavingsinvestment
Acountrywillhaveacurrentaccountsurplus(exports>imports)ifthesumofdomesticprivatesavingsandgovernment
savingsisgreaterthandomesticinvestment,oracurrentaccountdeficit(imports>exports)ifthesumofdomesticprivate
savingsandgovernmentsavingsislessthandomesticinvestment.

Question#35of104

QuestionID:413957

Whichofthefollowingwouldleastlikelybeaparticipantintheforwardmarket?
A) Traders.
B) Arbitrageurs.
C) Longterminvestors.
Explanation
Forwardcontractsarefor30,90,180,and360dayperiodsandwould,therefore,beconsideredshortterminvestment
choices.Otherparticipantsintheforwardmarketarehedgerswhouseforwardcontractstoprotectthehomecurrencyvalue
offoreigncurrencydenominatedassetsontheirbalancesheetsoverthelifeofthecontractsinvolved.

Question#36of104

QuestionID:413937

Theformofregionaltradingagreement(RTA)leastlikelytohavetheunintendednegativeeffectofreducingamember
country'slowcostimportsfromanonmembercountryisa:
A) freetradearea.
B) customsunion.
C) commonmarket.
Explanation
Afreetradearearemovesbarrierstotradeamongitsmembersbutdoesnotrequireanyofitsmemberstochangetheirtrade
policieswithnonmembers.Acommonmarketandacustomsunionbothimposeuniformityontraderuleswithnonmember
nations,whichcouldrestrictamember'slowcostimportsfromanationthatisnotamember.

Question#37of104
Accordingtothelawofcomparativeadvantage:

A) ifaforeigngovernmentsubsidizesthetextileindustry,thedomesticgovernment
shouldimposeatariff.

B) MexicoisconsideredtohaveacomparativeadvantageinplasticsifMexicocanproduce
plasticusingfewerresourcesthantheU.S.

QuestionID:413915

 C) anationwillbenefitfromtradewhenitimportsgoodsforwhichitisthehighcostproducerand
exportsgoodsforwhichitisthelowcostproducer.

Explanation
Thisstatementisthelawofcomparativeadvantage.
Theotherchoicesareincorrect.Thelawofcomparativeadvantagesupportsinternationaltrade.Accordingtothelawof
comparativeadvantage,bothtradingpartnersarebetteroffiftheyspecializeintheproductionofgoodsforwhichtheyarethe
lowopportunitycostproducerandtradeforthosegoodsforwhichtheyarethehighopportunitycostproducer.Mexicois
consideredtohaveanabsoluteadvantageinplasticsifMexicocanproduceplasticusingfewerresourcesthantheU.S.

Question#38of104

QuestionID:413919

IntheHeckscherOhlinmodel,whetheracountryhasacomparativeadvantagerelativetoanothercountryisdeterminedby:
A) amountsoflaborandcapitalthecountriespossess.
B) laborproductivitydifferences.
C) capitalproductivitydifferences.
Explanation
IntheHeckscherOhlinmodelacountrythathasrelativelymorecapitalwillexportcapitalintensivegoodsandimportlabor
intensivegoods,whileacountrythathasrelativelymorelaborwillexportlaborintensivegoodsandimportcapitalintensive
goods.

Question#39of104

QuestionID:434247

Comparedtonotengagingininternationaltrade,acountrythatengagesininternationaltradeismostlikelytoexperience:
A) higherpricesforconsumergoods.
B) increasedspecializationofdomesticindustries.
C) loweremploymentinexportingindustries.
Explanation
Internationaltradeshouldresultingreaterspecializationindomesticindustriesbecauseproductionshiftstolinesinwhich
domesticproducershaveacomparativeadvantage.

Question#40of104

QuestionID:413933

Priortothebeginningofsummer,thegovernmentofJapanplacesa150percenttariffonimportedchainsaws.Assumeforthisexample
thatthistariffhasasignificantimpactonthesupplyofchainsaws.Thegovernment'saction:

A) willprotectthejobsandhighwagesofJapanesechainsawindustryworkers.
B) ismoreharmfulthanifthegovernmenthadlimitedtheamountofchainsawsimported.

 C) benefitstheJapanesegovernmentanddomesticproducers.
Explanation
TheJapanesegovernment'sactionisanexampleofatariff.AtariffisataximposedonimportsandbenefitstheJapanesegovernment
becauseitcollectsthetariff.Domesticproducersbenefitbecausethereductioninthesupplyofimportedgoodsmeansahigherdomestic
price.
Theotherchoicesareincorrect.Atariffisconsideredlessharmfulthanaquota(animportquantitylimitation)becauseunderaquota,the
domesticgovernmentdoesnotreceiveanyfundsasitwouldunderatariff(theforeignproducersreceivetherevenuetransfer).Inthelong
run,traderestrictionsdonotprotectthenetnumberofjobsinthecountry.Thenumberofjobsprotectedbyimportrestrictionswillbe
offsetbyjobslostintheimport/exportindustry.Import/exportfirmswillbeunabletoselltheoverpriceddomesticproductsabroador
importandsellthelowerpricedrestrictedforeignmadeproduct.

Question#41of104

QuestionID:434253

Capitaltransfersandsalesofnonfinancialassetsareincludedinwhichofthebalanceofpaymentsaccounts?
A) Capitalaccount.
B) Financialaccount.
C) Currentaccount.
Explanation
Capitaltransfersandsalesofnonfinancialassetsaresubaccountsofthecapitalaccount.

Question#42of104

QuestionID:413989

TheMarshallLernerconditionsuggeststhatacountry'sabilitytonarrowatradedeficitbydevaluingitscurrencydependson:
A) capacityutilizationinthedomesticeconomy.
B) nationalsavingrelativetodomesticinvestment.
C) elasticityofdemandforimportsandexports.
Explanation
TheMarshallLernerconditionisanoutcomeoftheelasticitiesapproachtoanalyzingthebalanceoftrade.Itsuggeststhat
depreciationordevaluationofacurrencyismorelikelytonarrowacountry'stradedeficitifdomesticdemandforimportsand
foreigndemandforthecountry'sexportsaremoreelastic.Theabsorptionapproachtoanalyzingthebalanceoftradeimplies
thatnationalsavingmustincreaserelativetodomesticinvestmentforacurrencydevaluationtonarrowatradedeficit,whichin
turndependsonwhethertheeconomyisproducingatmaximumcapacity(fullemploymentorpotentialGDP)whenthe
devaluationoccurs.

Question#43of104

QuestionID:413980

TheUSD/EURspotexchangerateis1.3500and6monthforwardpointsare75.The6monthforwardexchangerateis:

 A) 1.3425,andtheUSDisataforwarddiscount.
B) 1.3425,andtheUSDisataforwardpremium.
C) 1.3575,andtheUSDisataforwarddiscount.
Explanation
Foranexchangeratequotedtofourdecimalplaces,eachforwardpointrepresents0.0001.The6monthforwardexchange
rateis1.35000.0075=1.3425USD/EUR.TheUSDisexpectedtoappreciateagainsttheEURandistradingataforward
premium.

Question#44of104

QuestionID:434250

Themostintegratedtypeoftradingblocorregionaltradeagreementisa(n):
A) economicunion.
B) monetaryunion.
C) commonmarket.
Explanation
Amonetaryunion,suchastheEuropeanUnion,isthemostintegratedtypeoftradingblocorregionaltradeagreement
becausethemembersadoptacommoncurrency.

Question#45of104

QuestionID:413924

Anantidumpingrestrictionontrade:
A) protectsinfantindustries.
B) keepssomehighlysensitiveproductsinthecountry.
C) prohibitsforeignfirmsfromsellingproductsbelowcosttogainmarketshare.

Explanation
Firmsdumptheirgoodsatapricelowerthancostinordertodriveoutthecompetition.Oncethisiscomplete,theywillbeable
toraisepricestomuchhigherlevelsinordertogainabnormalprofits.Ofcourse,oncepricesareincreased,newcompetitors
mayarise.

Question#46of104

QuestionID:413906

CountryPimportsgoodsfromCountryQ.Inthelongrun,thebenefitsofinternationaltrademostlikelyaccrueto:
A) CountryPonly.
B) BothCountryPandCountryQ.

 C) CountryQonly.
Explanation
Theoverallbenefitsofinternationaltradearegreaterthanthecostsfortheglobaleconomyasawhole.Allcountriesshould
benefitinthelongrunascostsofinternationaltradearemostlyshortruneffects.

Question#47of104

QuestionID:413969

TheJapaneseyenistradingatJPY/USD115.2200andtheDanishkrone(DKK)istradingatJPY/DKK16.4989.TheUSD/DKK
exchangerateis:
A) 6.9835.
B) 0.5260.
C) 0.1432.
Explanation
ThecrossratebetweenUSDandDKKiscalculatedinthefollowingmanner:
(USD/JPY)(JPY/DKK)=(1/115.2200)16.4989=USD/DKK0.1432(theYencancelsout)

Question#48of104

QuestionID:413920

ThesourceofcomparativeadvantageintheHeckscherOhlinmodeloftradeisdifferencesamongcountriesin:
A) technologicaladvancement.
B) relativescarcityoflaborandcapital.
C) laborproductivity.
Explanation
IntheHeckscherOhlinmodeloftrade,thesourceofcomparativeadvantageistherelativescarcityoflaborandcapitalineach
country.

Question#49of104

QuestionID:413970

ThespotexchangerateforCHF/EURis0.8342andthe1yearforwardquotationis0.353%.The1yearforwardexchange
rateforEUR/CHFisclosestto:
A) 1.2029.
B) 1.2022.
C) 0.8313.
Explanation
TheforwardrateforCHF/EURis0.8342(10.00353)=0.8313.The1yearforwardEUR/CHFexchangerateis1/0.8313

=1.2030.

Question#50of104

QuestionID:413934

Regionaltradeagreementsexistprimarilyto:
A) lowercurrencyvolatilityfortheirmembers.
B) protecttheirmembersfromunfairtradingpracticesbynonmembers.
C) improveeconomicwelfarefortheirmembers.
Explanation
Theprimaryreasoncountriesjoinregionaltradeagreementsistoimproveeconomicwelfarebyreducingoreliminatingtrade
restrictions.

Question#51of104

QuestionID:413952

Anexchangerateatwhichtwopartiesagreetotradeaspecificamountofonecurrencyforanotherayearfromtodayiscalled
a:
A) realexchangerate.
B) forwardexchangerate.
C) spotexchangerate.
Explanation
Aforwardexchangeratespecifiestheamountoftwocurrenciesthatwillbeexchangedataspecificpointoftimeinthefuture.
Atransactionthatusesthespotexchangerateisonethatwouldoccurimmediately.Arealexchangerateisonethathasbeen
adjustedfortherelativeinflationratesintwocountries,andcouldbereferringtoanexchangeratethatprevailsatanygiven
time.

Question#52of104

QuestionID:413930

Whichofthefollowingargumentsinfavoroftraderestrictionsisleastlikelytobesupportedbyeconomists?
A) Infantindustriesshouldbeprotected.
B) Nationaldefenseindustriesshouldbeprotected.
C) Tradewithlowwagecountriesdepresseswageratesinhighwagecountries.
Explanation
Tradewithlowwagecountriesdoesnotinitselfdepresswageratessinceproductivitymustbeconsidered.Theother
argumentshavesomesupportamongeconomists.

Question#53of104

QuestionID:413982

Currencydepreciationismostlikelytoaffectthebalanceoftradewhenacountry'simportsaregoodsthat:
A) haveclosesubstitutes.
B) representasmallproportionofconsumerspending.
C) haverelativelyinelasticdemand.
Explanation
Accordingtotheelasticitiesapproach,themoreelasticthedemandforimportsorexports,thegreatertheeffectonthe
balanceoftradefromcurrencydepreciation.Demandismoreelasticforimportsorexportswhentheyareprimarilygoodswith
closesubstitutes,luxurygoods,orgoodsthatrepresentalargeproportionofaconsumer'sspending.

Question#54of104

QuestionID:434259

Ensuringthatinternationaltradeflowssmoothlyandfreely,settlingtradedisputes,andestablishingagreementsbetween
tradingpartnersmostaccuratelydescribetheactivitiesofthe:
A) InternationalMonetaryFund.
B) WorldTradeOrganization.
C) WorldBank.
Explanation
TheWorldTradeOrganization(WTO)dealswiththeglobalrulesoftradebetweennations.Itsmainfunctionistoensurethat
tradeflowsassmoothly,predictably,andfreelyaspossible.

Question#55of104

QuestionID:434264

IfthecurrentspotexchangerateforquotesofJPY/GBPisgreaterthanthenoarbitrage3monthforwardexchangerate,the
3monthGBPinterestrateis:
A) lessthanthe3monthJPYinterestrate.
B) greaterthanthe3monthJPYinterestrate.
C) equaltothe3monthJPYinterestrate.
Explanation
.IfthenoarbitrageforwardJPY/GBPrateislessthanthespotrate,theinterestratefor
JPYmustbelessthantheinterestrateforGBP.

Question#56of104

QuestionID:441026

ThespotexchangerateforCanadiandollars(CAD)perSwissfranc(CHF)is1.1350CAD/CHFandthe12monthforward

exchangerateis1.1460CAD/CHF.Theforwardquoteisa:
A) premiumof110pointsandtheCADisataforwarddiscounttotheCHF.
B) premiumof11pointsandtheCADisataforwardpremiumtotheCHF.
C) discountof110pointsandtheCADisataforwarddiscounttotheCHF.
Explanation
BecausetheforwardCAD/CHFexchangerateishigherthanthespotrate,thequoteisaforwardpremium.Forwardpoints
represent0.0001foranexchangeratequotedtofourdecimalplaces.Here,theforwarddiscountis14601350=110points.
Thebasecurrency,theCHF,isataforwardpremiumtotheCAD,thereforetheCADisataforwarddiscounttotheCHF.

Question#57of104

QuestionID:413910

ThetablebelowoutlinesthepossibletradeoffsofproducingunitsofclothandcornforbothCountryAandCountryB.

CountryA

CountryB

UnitsofCloth UnitsofCorn UnitsofCloth UnitsofCorn

0

14

16

Whichscenariobestdescribestheeffectsoftradebetweenthecountries?

A) BothcountrieswouldgainifCountryAtradedclothforCountryB'scorn.
B) BothcountrieswouldgainifCountryAtradedcornforCountryB'scloth.
C) CountryBwouldnotgainfromtrade,becauseithasanabsoluteadvantageintheproduction
ofbothgoods.

Explanation
IfCountryBdevotesallofitsresourcestoproducingcorn,itwillmake8unitswhile,underthesamecircumstances,CountryAwillmake
4units.Therefore,CountryBistwiceasproductivewithrespecttocornasCountryA.CountryBcanalsoproducemorecloth(16units)
inrelationtoCountryA(14units)supposingallresourcesareusedforcloth.However,ratherthanbeingtwiceasproductiveaswasthe
caseforcorn,itisonlyslightlymoreproductive.Therefore,CountryBhasacomparativeadvantageincorn,andthusshouldspecializein
itsproduction,whileCountryAshouldspecializeintheproductionofcloth.

Question#58of104
TheprimarygoalsoftheInternationalMonetaryFund(IMF)include:
A) reducingglobalpoverty.
B) promotingexchangeratestability.
C) resolvingtraderelateddisputesamongnations.

QuestionID:413945

Explanation
TheprimarygoalsoftheIMFaretopromoteinternationalmonetarycooperation,facilitategrowthofinternationaltrade,
promoteexchangeratestability,assistinestablishingamultilateralpaymentsystem,andprovideresourcestomemberswith
balanceofpaymentsdifficulties.ReducingglobalpovertyisaroleoftheWorldBank.Resolvingtradedisputesisaroleofthe
WorldTradeOrganization.

Question#59of104

QuestionID:434257

Governmentownedassetsabroadandforeignownedassetsinthecountryareincludedinwhichofthebalanceofpayments
accounts?
A) Capitalaccount.
B) Financialaccount.
C) Currentaccount.
Explanation
Governmentownedassetsabroadandforeignownedassetsinthecountryaresubaccountsofthefinancialaccount.

Question#60of104

QuestionID:413985

Inwhichofthefollowingexchangerateregimescanacountryparticipatewithoutgivingupitsowncurrency?
A) Monetaryunionorcurrencyboard.
B) Targetzoneorconventionalfixedpeg.
C) Crawlingpegorformaldollarization.
Explanation
Withformaldollarizationoramonetaryunion,acountrydoesnothaveitsowncurrency.Withacurrencyboard,conventional
fixedpeg,targetzone,orcrawlingpeg,acountryhasitsowncurrencyandmanagesitsexchangeratewithanothercurrency
orbasketofcurrencies.

Question#61of104

QuestionID:413949

Ifwecomparethepricesofgoodsintwocountriesthroughtime,wecanusethepriceinformationinconcertwiththequoted
foreignexchangeratetocalculatethe:
A) interestratespread.
B) nominalexchangerate.
C) realexchangerate.
Explanation
Acomparisonofconsumptioncostsbetweentwomarketscan,inconcertwiththeforeignexchangerate(alsocalledthe

nominalexchangerate),beusedtocalculatetherealexchangerate.

Question#62of104

QuestionID:413979

Spotandonemonthforwardexchangeratesareasfollows:

Spot

1monthforward

EUR/DEF

2.5675

2.5925

EUR/GHI

4.3250

4.2800

EUR/JKL

7.0625

7.0075

Basedontheseexchangerates,theEURisclosesttoa1monthforward:
A) premiumof1%totheGHI.
B) discountof1%totheJKL.
C) premiumof1%totheDEF.
Explanation
TheEURisataforwardpremiumtotheGHIbecausetheEUR/GHIforwardrateislessthantheEUR/GHIspotrate.Thebase
currency,GHI,isataforwarddiscountofforward/spot1=4.2800/4.32501=1.04%.TheEURisataforwarddiscountto
theDEFandaforwardpremiumtotheJKL.

Question#63of104

QuestionID:434246

Theincomefromacountry'scitizensworkingabroadisincludedin:
A) grossnationalproduct,butnotgrossdomesticproduct.
B) grossdomesticproduct,butnotgrossnationalproduct.
C) bothgrossdomesticproductandgrossnationalproduct.
Explanation
Grossdomesticproductincludesthetotalvalueofgoodsandservicesproducedwithinacountry'sborders.Theincomeofa
country'scitizensworkingabroadisincludedinitsGNPbutnotinitsGDP.

Question#64of104

QuestionID:434265

CountryGandCountryHhavecurrenciesthattradefreelyandhavemarketsforforwardcurrencycontracts.IfCountryGhas
aninterestrategreaterthanthatofCountryH,thenoarbitrageforwardG/Hexchangerateis:
A) greaterthantheG/Hspotrate.
B) equaltotheG/Hspotrate.
C) lessthantheG/Hspotrate.
Explanation

.IftheinterestrateinCountryGisgreaterthantheinterestrateinCountryH,thenumerator
isgreaterthanthedenominatorontherightsideoftheequation.Theleftsidemusthavethesamerelationship,sotheforward
ratemustbegreaterthanthespotrate.

Question#65of104

QuestionID:413939

Inthecontextofinternationaltradingblocs,theprimaryfeatureofaneconomicunionthatdistinguishesitfromacommon
marketistheadoptionofacommon:
A) setofeconomicpolicies.
B) currency.
C) setoftraderestrictionswithnonmembers.
Explanation
Aneconomicunionisacommonmarketthathasalsoadoptedcommoninstitutionsandeconomicpolicy.Bothcommon
marketsandeconomicunionsadoptacommonsetoftraderestrictionswithnonmembers.Neitherrequirestheadoptionofa
commoncurrency,whichisacharacteristicofamonetaryunion.

Question#66of104

QuestionID:413904

Ananalystisinterestedinmeasuringtheeconomicactivitywithinonenation.Themostappropriatemeasuretouseis:
A) grossnationalproduct.
B) grossdomesticproduct.
C) nationalincome.
Explanation
Grossdomesticproductmeasuresoutputproducedwithinacountry,regardlessofwherethefactorsofproductioncomefrom.
Grossnationalproductincludesoutputproducedbycitizensworkingabroad,anddoesnotincludeoutputproduced
domesticallybyforeigners.GDPaccountsfortheneedtoreplacephysicalcapitalasitwearsoutnationalincomedoesnot.

Question#67of104

QuestionID:413955

Thesellsideoftheforeignexchangemarketsprimarilyconsistsof:
A) retailinvestors.
B) multinationalbanks.
C) accountingfirms.
Explanation
Thesellsideofforeignexchangemarketsisprimarilylargemultinationalbanks.Theyaretheprimarydealersincurrencies
andoriginatorsofforwardforeignexchangecontracts.

Question#68of104

QuestionID:413942

Otherthingsequal,acurrentaccountdeficitwilltendtonarrowif:
A) privatesavingsdecrease.
B) domesticinvestmentdecreases.
C) taxesdecrease.
Explanation
Therelationbetweenthetradedeficit(thecurrentaccount),savings(bothprivateandgovernment)anddomesticinvestments
isstatedas(XM)=privatesavings+governmentsavingsinvestment.Acurrentaccountdeficitwilltendtonarrowifprivate
savingsincrease,governmentsavingsincrease(eithertaxesincreaseorgovernmentspendingdecreases),ordomestic
investmentdecreases.

Question#69of104

QuestionID:413927

DavidForsytheandLindaNovakarediscussingtheadvantagesanddisadvantagesofimportrestrictions.Theystatethe
following:
Forsythe:Oneofthegroupsthatbenefitsfromimportrestrictionsisoftenthegovernmentthatimposesthem.

Novak:Importrestrictionsimposecostsonspecificgroups,suchasthecountry'simportindustries,butthese
costsaremorethanoffsetbythebenefitstoothergroupsandtotheeconomyasawhole.
Withrespecttothesestatements:
A) onlyoneiscorrect.
B) botharecorrect.
C) bothareincorrect.
Explanation
Forsytheiscorrect.Aprimaryreasonwhytraderestrictionsremainwidespreadistherevenuethatgovernmentsreceivefrom
tariffs.Novakisincorrect.Traderestrictionsbenefitspecificgroups,suchasworkersintheprotectedindustries,butthose
benefitsaremostoftenlessthanthecostsimposedonconsumersandotherindustriesasawhole.

Question#70of104

QuestionID:413972

Thespotexchangerateis1.1132GBP/EURandthe1yearforwardrateisquotedas+1349points.The1yearforward
exchangerateforGBP/EURisclosestto:
A) 1.2481.
B) 1.2634.
C) 1.1267.

Explanation
Theoneyearforwardis1.1132+(1349/10,000)=1.2481.

Question#71of104

QuestionID:413923

WhichoftheitemsbelowisNOTavalidreasonwhynationsadopttraderestrictions?To:
A) protectindustriesinwhichtheyhaveacomparativeadvantage.
B) protectindustriesthatarehighlysensitivetonationalsecurity.
C) prohibitforeignfirmsfromincreasingmarketsharebysellingproductsbelowcost.

Explanation
Ifaparticularcountryenjoysacomparativeadvantageinaparticularindustry,noprotectionisneeded.

Question#72of104

QuestionID:434260

Assumingnochangesinthepricesofarepresentativeconsumptionbasketintwocurrencyareasoverthemeasurement
period,changesinthenominalexchangerate:
A) canbeextrapolatedtocalculateinterestrates.
B) areequaltochangesintherealexchangerate.
C) canbeconvertedtotherealexchangerateusinginterestrates.
Explanation
Therealinterestrate=thenominalinterestrateratioofconsumptionbasket(orindex)pricelevelsinbothcountries.
Assumingnopricechanges,therealexchangeratehasremainedthesameasthenominalinterestrateduringtheperiod.
Youcanthinkoftheratiooftheconsumptionbasket(orindex)pricelevelsintwocountriesasthebracketedportionofthe
Fisherrelationfortwocountries.HereistheFisherrelationfortwocountries:

Hereistheratiooftheconsumptionbasket(orindex)pricelevelsintwocountries:

IfinflationinAis10%andinflationinBis0%,theratioofconsumptionbasket(orindex)pricelevelsis1.1.Ifinflationinboth
countriesis0%,theratioofconsumptionbasket(orindex)pricelevelsis1andthenominalinterestrate=therealinterest
rate.Ifthenominalinterestrate=therealinterestrate,changesinthenominalexchangerate=changesintherealexchange
rate.

Question#73of104

QuestionID:413967

IftheCADistradingatUSD/CAD0.6403andtheGBPistradingCAD/GBP2.5207,theUSD/GBPexchangerateis:
A) 0.6196.
B) 3.9367.
C) 1.6140.
Explanation
USD/CAD0.643CAD/GBP2.5207=USD/GBP1.6140.

Question#74of104

QuestionID:413932

Whobenefitsthemostfromaquota?

A) Domesticproducers.
B) Foreignconsumers.
C) Foreignproducers.

Explanation
Quotasrestrictthesupplyofimportedgoods,whichincreasesthepricedomesticallybenefitingdomesticproducers.Someforeign
producersalsobenefitfromthehigherpricescreatedbythequotaiftheyreceivetherevenuetransfer(duetohigherpricesreceivedforall
goodssoldundertheimportlicense).However,overalltheforeignproducersdonotsellasmuchoftheirproductandhavelostrevenues.

Question#75of104

QuestionID:413958

TheexchangerateforChineseyuan(CNY)pereuro(EUR)changedfromCNY/EUR8.1588toCNY/EUR8.3378overa3
monthperiod.Itismostaccuratetostatethatthe:
A) EURhasappreciated2.15%relativetotheCNY
B) EURhasappreciated2.19%relativetotheCNY.
C) CNYhasdepreciated2.19%relativetotheEUR.
Explanation
ThepercentagechangeintheCNYvalueofoneEURis(8.3378/8.1588)1=0.0219.TheEURhasappreciated2.19%
relativetotheCNY.ThisisnotthesameasCNYdepreciatingby2.19%relativetotheEUR.Thepercentagechangeinthe
CNYis[(1/8.3378)/(1/8.1588)]1=0.0215=2.15%.

Question#76of104

QuestionID:434254

Merchandiseandservices,incomereceipts,andunilateraltransfersareincludedinwhichofthebalanceofpayments

accounts?
A) Capitalaccount.
B) Currentaccount.
C) Financialaccount.
Explanation
Merchandiseandservices,incomereceipts,andunilateraltransfersaresubaccountsofthecurrentaccount.

Question#77of104

QuestionID:413935

Whichformofregionaltradingagreementisleastlikelytoallowfreemovementoflabor?
A) Economicunion.
B) Commonmarket.
C) Customsunion.
Explanation
Economicunionsandcommonmarketsremoveallbarrierstothemovementoflaborandcapitalamongtheirmembers.
Customsunionsdonothavethisfeature.

Question#78of104

QuestionID:413916

Acountryhasacomparativeadvantageoveranotherwhen:

A) anationcanproducemoreoutputwithagivenamountofinputthananothernation.
B) itcanproduceaproductwiththefewestresources.
C) anationhastheabilitytoproduceagoodwithaloweropportunitycostthananothernation.

Explanation
AnationwillhaveacomparativeadvantageintheproductionofgoodAwhenthenumberofunitsofB,givenuptoproduceoneunitofA,
islowerthanthatforanyothercountry.

Question#79of104

QuestionID:413940

Salesandpurchasesofnonproduced,nonfinancialassetsareincludedinwhichofacountry'stradeaccounts?
A) Capitalaccount.
B) Financialaccount.
C) Currentaccount.

Explanation
Thecapitalaccountconsistsofsalesandpurchasesofnonproduced,nonfinancialassetspluscapitaltransfers.

Question#80of104

QuestionID:413912

SupposelaborinVenezuelaislessproductivethanlaborintheUnitedStatesinallareasofproduction.Whichofthefollowingstatements
abouttradingbetweenVenezuelaandtheU.S.ismostaccurate?

A) Venezuelawillnothaveacomparativeadvantageinanygood.
B) Bothnationscanbenefitfromtrade.
C) VenezuelacanbenefitfromtradebuttheU.S.cannot.
Explanation
Althoughonecountrymayhaveanabsoluteadvantageinallareas,tradeisbasedondifferencesinopportunitycosts,orcomparative
advantage.Anycountrywillalwayshaveacomparativeadvantageintheproductionofsomegoodsthus,allcountriescanbenefitfrom
trade.

Question#81of104

QuestionID:413973

IftheAUD/CADspotexchangerateis0.9875and60dayforwardpointsare25,the60dayAUD/CADforwardrateisclosest
to:
A) 0.9850.
B) 0.9900.
C) 0.9870.
Explanation
Foranexchangeratequotedtofourdecimalplaces,forwardpointsareexpressedinunitsof0.0001.The60dayforwardrate
is0.9875+0.0001(25)=0.9850.

Question#82of104

QuestionID:413951

Inthecurrencymarket,tradersquotethe:
A) basecurrencyrate.
B) realexchangerate.
C) nominalexchangerate.
Explanation
Thenominalexchangerateisquitesimplythepriceofonecurrencyrelativetoanother.Itisthequoteobservedincurrency
markets.

Question#83of104

QuestionID:413984

ThespotexchangerateforUnitedStatesdollarsperUnitedKingdompound(USD/GBP)is1.5775.If30dayinterestratesare
1.5%intheUnitedStatesand2.5%intheUnitedKingdom,andinterestrateparityholds,the30dayforwardUSD/GBP
exchangerateshouldbe:
A) 1.5621.
B) 1.5788.
C) 1.5762.
Explanation
ForwardUSD/GBP=spotUSD/GBP(1+U.S.interestrate)/(1+UKinterestrate)
=1.5775[(1+0.015/12)/(1+0.025/12)]
=1.5762

Question#84of104

QuestionID:413959

TheexchangerateforAustraliandollarsperBritishpound(AUD/GBP)was1.4800fiveyearsagoandis1.6300today.The
percentchangeintheAustraliandollarrelativetotheBritishpoundisclosestto:
A) depreciationof9.2%.
B) depreciationof10.1%.
C) appreciationof10.1%.
Explanation
TocorrectlycalculatethepercentagechangeinAUDrelativetoGBP,converttheexchangeratessothatAUDisthebase
currency:1/1.4800=0.6757GBP/AUDfiveyearsagoand1/1.6300=0.6135GBP/AUDtoday.Thepercentagechangein
theAustraliandollaragainsttheBritishpoundis0.6135/0.67571=9.2%.
NotethattheGBPhasappreciatedagainsttheAUDby1.6300/1.48001=10.1%overthesameperiod.

Question#85of104

QuestionID:413921

IntheRicardianmodeloftrade,thesourceofcomparativeadvantageis:
A) capitalproductivity.
B) laborproductivity.
C) thedifferencebetweenlaborproductivityandcapitalproductivity.
Explanation
TheRicardianmodeloftradeonlyconsiderslaborasafactorofproduction.Comparativeadvantageresultsfromdifferences
inlaborproductivity.LaborandcapitalinputsarebothconsideredintheHeckscherOhlinmodeloftrade.

Question#86of104

QuestionID:434249

Ifacountrycanproduceagoodataloweropportunitycostrelativetoanothercountry,itissaidtohavea(n):
A) absoluteadvantage.
B) autarkianadvantage.
C) comparativeadvantage.
Explanation
Acountryissaidtohaveacomparativeadvantageintheproductionofagoodifitsopportunitycost,intermsofothergoods
thatcouldbeproducedinstead,islowerthanthatofanothercountry.

Question#87of104

QuestionID:413911

ThefollowingchartindicatestheproductionpossibilitiesoffoodanddrinkperdayinCountryAandCountryB.
UnitsofOutputPerDay
CountryA

CountryB

Food

Drink

Whichofthefollowingstatementsaboutthechartismostaccurate?

A) MutualgainscouldberealizedfromtradeifAspecializedinfoodproductionandB
specializedindrinkproduction.

B) MutualgainscouldberealizedfromtradeifAspecializedindrinkproductionandB
specializedinthefoodproduction.

C) SinceBworkerscanproducemoreoffoodanddrinkthanAworkers,nogainsfromtradeare
possible.

Explanation
MutualgainscouldberealizedfromtradeifAspecializedindrinkproductionandBspecializedinfoodproduction.Thereasoncenterson
comparativeadvantage.CountryAmustgiveup1.5unitsofdrinktoproduceoneunitoffood.CountryBmustgiveup0.875unitsofdrink
toproduceoneunitoffood.Therefore,theopportunitycostofproducingfoodisgreaterforAthanforB.IfBproduces8unitsoffoodand
Aproduces6unitsofdrink,totalproductionwillbegreaterthanitwouldbeifbothcountriesproducedbothgoods.Bytrading,both
countriesbenefit.

Question#88of104

QuestionID:413963

TheexchangerateoftheAthelstanriyal(ATH)withtheBritishpoundis9.00ATH/GBP.TheexchangerateoftheMordred
ducat(MOR)withtheU.S.dollaris2.00MOR/USD.IftheUSD/GBPexchangerateis1.50,theATH/MORcrossrateisclosest
to:
A) 6.75ATH/MOR.

 B) 3.00ATH/MOR.
C) 12.00ATH/MOR.
Explanation
TheATH/MORcrossrate=9.00ATH/GBP(1/1.50)GBP/USD(1/2.00)USD/MOR=3.00ATH/MOR.

Question#89of104

QuestionID:434256

Acountrythathasimportsvaluedmorethanitsexportsissaidtohavea:
A) currentaccountdeficit.
B) currentaccountsurplus.
C) capitalaccountdeficit.
Explanation
Acountrythathasimportsvaluedmorethanitsexportsissaidtohaveacurrentaccount(trade)deficit,whilecountrieswith
moreexportsthanimportsaresaidtohaveacurrentaccountsurplus.

Question#90of104

QuestionID:413908

ThistablebelowoutlinesthepossibletradeoffsofproducingmilkandbreadforCountryAandCountryB,inunitsofeach
product.

CountryA

CountryB

Milk

Bread

Milk

Bread

10

12

Giventhesepossibleunitsofproduction:
A) neithercountrywouldgainfromtrade.
B) bothcountrieswouldgainifCountryAtradedmilkforB'sbread.
C) bothcountrieswouldgainifCountryAtradedbreadforB'smilk.
Explanation
CountryAgivesup1breadtoproduce2milk.CountryBgivesup1breadtoproduce1.5milk.CountryAshouldmakemilk
andCountryBshouldmakebread.

Question#91of104
Costsofinternationaltradearemostlikelyborneby:

QuestionID:434248

 A) consumerswhopayhigherpricesforconsumergoods.
B) industriescompetingwithimportedgoods.
C) consumerswhohavefewerchoicesofgoods.
Explanation
Industriescompetingwithimportedgoodsmayexperiencelowerprofitandemploymentduetointernationaltrade.

Question#92of104

QuestionID:413922

Inthecontextofforeigntrade,quotasarebestdescribedas:
A) limitsontheamountsofimportsacountryallowsoversomeperiod.
B) taxesonimportedgoodscollectedbythegovernment.
C) governmentpaymentstofirmsthatexportgoods.
Explanation
Quotasarelimitsontheamountsofimportsallowedintoacountryinaperiodoftime.Governmentpaymentstofirmsthat
exportgoodsareknownasexportsubsidies.Taxesonimportedgoodscollectedbythegovernmentareknownastariffs.

Question#93of104

QuestionID:413946

Theinternationalorganizationwhoseprimaryroleissettlingdisputesamongtradingnationsisthe:
A) WorldBank.
B) WorldTradeOrganization.
C) InternationalMonetaryFund.
Explanation
TheroleoftheWorldTradeOrganizationistodealwithrulesofglobaltradeandsettletraderelateddisputesamongnations.

Question#94of104

QuestionID:413961

IftheexchangeratevalueoftheCADgoesfromUSD0.60toUSD0.80,thentheCAD:

A) appreciatedandCanadianswillfindU.S.goodscheaper.
B) depreciatedandCanadianswillfindU.S.goodsmoreexpensive.
C) depreciatedandCanadianswillfindU.S.goodscheaper.
Explanation
TheCADisnowmoreexpensiveintermsofUSD,andthusithasappreciated.Therefore,eachCADyieldsmoreUSDthanbefore,and
CanadiansareabletopurchasemoreU.S.goodswitheachCAD,makingU.S.goodsrelativelycheaper.

Question#95of104

QuestionID:413987

Acountry'scentralbankannouncesamonetarypolicygoalofastableexchangeratewiththeeuro,whichitdefinesas
deviationsofnomorethan3%fromitscurrentexchangerateof2.5000.Thecountry'sexchangerateregimeisbestdescribed
asa:
A) crawlingband.
B) targetzone.
C) fixedpeg.
Explanation
Thisexchangerateregimeisbestdescribedasatargetzone,orasystemofpeggedexchangerateswithinhorizontalbands.
Atargetzoneallowswiderexchangeratefluctuationsthanaconventionalfixedpegarrangement,whichtypicallylimitsthe
permittedrangetowithin1%ofthepeggedexchangerate.Managementofexchangerateswithincrawlingbandsallowsthe
percentagedeviationfromthepeggedexchangeratetoincreaseovertime.

Question#96of104

QuestionID:434263

Intheforeignexchangemarkets,transactionsbyhouseholdsandsmallinstitutionsfortourism,crossborderinvestment,or
speculativetradingcomprisethe:
A) sovereignwealthmarket.
B) realmoneymarket.
C) retailmarket.
Explanation
Theretailforeignexchangemarketreferstotransactionsbyhouseholdsandrelativelysmallinstitutionsandmaybefor
tourism,crossborderinvestment,orspeculativetrading.

Question#97of104

QuestionID:413971

Thespotexchangerateis0.6243USD/GBPandthe1yearforwardrateisquotedas3.016%.The1yearforwardexchange
rateforUSD/GBPisclosestto:
A) 0.6054.
B) 0.6431.
C) 0.6544.
Explanation
Theoneyearforwardrateis0.6243(1+0.03016)=0.6431.

Question#98of104

QuestionID:434267

ThespotrateforChineseyuanperCanadiandollaris6.4440.IftheCanadianinterestrateis2.50%andtheChineseinterest
rateis3.00%,the3monthnoarbitrageforwardrateisclosestto:
A) 6.475CNY/CAD.
B) 6.436CNY/CAD.
C) 6.452CNY/CAD.
Explanation
Thecalculationisasfollows:

Question#99of104

QuestionID:413931

Inwhatwaydoesatariffdifferfromaquota?Atariffis:
A) notsignificantlydifferentfromaquotatariffsareimposedbyworld
organizations,whereasquotasareimposedbyindividualcountries.
B) ataximposedonimports,whereasaquotaisalimitonthenumberofunitsofagood
thatcanbeimported.
C) ataximposedbyaforeigngovernment,whereasaquotaisalimitonthetotalamount
oftradeallowed.
Explanation
Thedifferencebetweenatariffandaquotaisthatatariffisataximposedonimportedgoods,whileaquotaisanimport
quantitylimitation.Also,atariffwillgeneratetaxrevenue,butaquotadoesnot.

Question#100of104

QuestionID:413988

Thetendencyforcurrencydepreciationtoincreaseacountry'stradedeficitintheshortrunisknownasthe:
A) Jcurveeffect.
B) absorptioneffect.
C) MarshallLernereffect.
Explanation
TheJcurvereferstoagraphoftheeffectofcurrencydepreciationonthetradebalanceovertime.Intheshortrun,atrade
deficitmayincreasebecausecurrentimportandexportcontractsmaybefixedinforeigncurrencyunitsoverthenearterm,
andonlyreflecttheexchangeratechangeovertime.Inthelongrun,currencydepreciationshoulddecreaseatradedeficit.

Question#101of104

QuestionID:413913

Thelawofcomparativeadvantageholdsthattradingpartnerscanbemadebetteroffifthey:
A) specializeinproductionofgoodsforwhichtheyarethelowopportunitycost
producer.
B) specializeinproductionofgoodsforwhichtheyarethelowexchangerateadjusted
producer.
C) importthosegoodsforwhichtheyhaveacomparativeadvantage.
Explanation
Thelawofcomparativeadvantageholdsthattradingpartnerscanbemadebetteroffiftheyspecializeinproductionofgoods
forwhichtheyarethelowopportunitycostproducer.Theyshouldexport,notimport,goodsforwhichtheyhaveacomparative
advantage.Absoluteandexchangerateadjustedcostsarenotrelevanttotheconceptofcomparativeadvantage.

Question#102of104

QuestionID:434258

Promotinginternationalmonetarycooperation,promotingexchangestability,andassistingmembersexperiencingbalanceof
paymentsdifficultiesarethegoalsofthe:
A) InternationalMonetaryFund.
B) WorldTradeOrganization.
C) WorldBank.
Explanation
TheIMF'smaingoalsarepromotinginternationalmonetarycooperationfacilitatingtheexpansionandbalancedgrowthof
internationaltradepromotingexchangestabilityassistingintheestablishmentofamultilateralsystemofpaymentsand
makingresourcesavailable(withadequatesafeguards)tomembers.

Question#103of104

QuestionID:434261

ThedifferencebetweenCountryD'snominalandrealexchangerateswithCountryFismostcloselyrelatedto:
A) theriskfreeinterestratesofthetwocountries.
B) CountryD'sinflationrate.
C) theratioofthetwocountries'pricelevels.
Explanation
Thedifferencebetweenrealexchangeratesandnominalexchangeratesistherelativeinflationratesovertimebetweenthe
twocountries.Realexchangerate(D/F)=nominalexchangerate(D/F)

Question#104of104

QuestionID:413986

Withrespecttoexchangerateregimes,crawlingbandsaremostlikelyusedinatransitiontoward:
A) amonetaryunion.
B) floatingexchangerates.
C) afixedpegarrangement.
Explanation
Whenexchangeratesaremanagedwithincrawlingbands,themarginaroundatargetexchangerateincreasesovertime.
Thistechniqueissometimesusedinatransitionfromfixedexchangeratestofreelyfloatingexchangerates.