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International Trade
Examination 4

These questions are from the test bank. Some questions have multiple parts.

Short Answer Essay


1. Please define the following terms.

(a) What is the current account?

(b) What is the financial account?

(c) What is the official settlements balance?

(d) What is the statistical discrepancy?

2. What is a balance-of-payments deficit?

(a) Identify the methods a central bank can finance balance-of-payments deficits.

(b) Judge the size of the United States large current account deficit.

(c) Identify the equation that relates the current account and financial account?

(d) Could some countries experience a balance-of-payment surplus?

3. Where does the supply of currency in one foreign exchange market relate to the demand of currency in another?

(a) How do imports and exports relate to the currency exchange market?

(b) What is the difference between a spot and derivatives market?

(c) Why is the currency exchange market the largest market in the world?

4. Please draw the international market for U.S. dollars. You need a supply and demand function. What happens if the 2008 Financial Crisis caused Mexicans to decrease their demand for U.S. products, because their incomes are lower? Make sure you are clear which currency appreciates and which one depreciates.

5. Please draw the international market for U.S. dollars. What happens if the Federal Reserve System injects a massive quantity of U.S. dollars onto the foreign exchange markets. Make sure you are clear which currency appreciates and which one depreciates.

6. Please draw the international market for U.S. dollars. China, Russia, and South Korea hold a large amount of U.S. dollars and are afraid the dollar will collapse. What happens if these countries reduce their holdings of U.S. dollars? Make sure you are clear which currency appreciates and which one depreciates.

7. Please draw the international market for the Uzbek som. The Uzbek government established a fixed exchange rate between the some and the U.S. dollar.

(a) What happens if people have less demand for this currency?

(b) What should the Uzbek government do to maintain this exchange rate?

8. What is the gold standard?

(a) What are the two benefits of a gold standard?

(b) What are the two problems of a gold standard?

(c) If Britain defines the pound as 100 pounds = 1 ounce of gold, Japan defines it as 1,000 Yen = 1 ounce of gold, and the United States define $35 = 1 ounce of gold, what are the exchange rates among these countries?

9. What is the International Monetary Fund (IMF)

(a) How does a country join the IMF?

(b) What is the source of funding for the IMF?

(c) What are Special Drawing Rights (SDRs)?

10. What is the World Bank?

(a) Which system creates the World Bank and the International Monetary Fund (IMF)?

(b) What happened to the system that created the World Bank and the IMF?

11. Please define the following terms.

(a) What is a free float (or clean float)?

(b) What is a managed float (or dirty float)?

(c) What is a pegged (or fixed) exchange rate?

(d) What happens if a government refuses to support its pegged exchange rate?

12. What is hegemony?

(a) What are the three modern hegemonies?

(b) What are public goods?

(c) What kind of international public goods that a hegemon supplies?

(d) What happens if the hegemon fails?

13. What is the Bretton Woods System?

(a) How does the Bretton Woods System differ from a gold standard?

(b) Why did the United States support free trade after World War II?

(c) Why do some consider the United States to be a selfish hegemon?

14. What is dollarization?

(a) Which country has used dollarization?

(b) What are two benefits of dollarization?

(c) What are two problems of dollarization?

15. What three advantages does a hegemony have?

(a) What are the three modern hegemonies?

(b) How did the United States become a hegemon?

 

 

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