The Balance of Payments, Exchange Rates, and Trade Deficits

What are the two main categories of international financial transactions?

What is the definition of a nation's balance of payments?

Based on the 2007 data provided in the text, what was the U.S. balance on goods?

What two accounts comprise the balance on the capital and financial account?

Why must the balance of payments always sum to zero?

Under a flexible-exchange-rate system, what determines the exchange rate between two currencies?

What does it mean if the U.S. dollar depreciates relative to the British pound?

If U.S. consumers develop a stronger preference for British goods, what is the likely effect on the exchange rate under a flexible system?

What does the purchasing-power-parity theory suggest about exchange rates?

If real interest rates rise in the United States while staying constant in Great Britain, what is the expected impact on the exchange rate?

How do flexible exchange rates automatically correct a U.S. balance-of-payments deficit caused by an increase in demand for British pounds?

What is considered a major disadvantage of flexible exchange rates?

Under a fixed-exchange-rate system, how would a country like the United States deal with a payments deficit that creates a shortage of pounds?

What is a primary objection to using trade policies like tariffs and quotas to maintain a fixed exchange rate?

What term describes the current international exchange-rate system, which began after 1971?

According to the text, which of these is NOT a cited cause of the large U.S. trade deficits in recent years?

What is a major implication of the U.S. trade deficit for American consumers and the nation's indebtedness?

What is the primary role of currency speculators in the foreign exchange market?

According to the 'Last Word' section, how can speculation have a positive effect on foreign exchange markets?

What is the capital account in the U.S. balance of payments primarily a measure of?

In the balance of payments, U.S. exports of goods are recorded with a plus sign. Why?

What is the 'financial account' in the balance of payments designed to summarize?

Based on the 2007 data provided, the U.S. financial account had a surplus of $741 billion. What does this surplus signify?

What is the definition of a balance-of-payments deficit?

Why is the demand curve for a foreign currency, such as the British pound, downward-sloping from the U.S. perspective?

What happens to the value of the British pound relative to the U.S. dollar if the dollar appreciates?

Which of these is NOT a method for a government to maintain a fixed exchange rate when faced with a payments deficit?

What is a major criticism leveled against the current managed floating exchange rate system?

Why would currency speculators who expect the U.S. dollar to depreciate relative to the pound act in a way that creates a self-fulfilling prophecy?

What is the function of hedging in the futures market for a U.S. company that has contracted to buy Swiss watches in 3 months?

In the balance of payments, net investment income is the difference between what two figures?

If a U.S. automobile dealer contracts to buy 10 British cars for 150,000 pounds when the exchange rate is $2 per pound, what is the initial expected dollar cost? If the dollar depreciates to $3 per pound before payment, what is the new dollar cost?

What is the term for the group of major nations, including the United States, Canada, Japan, and Germany, that meet regularly to coordinate economic policies?

What is the primary difference between a trade deficit and a current account deficit?

In the context of the balance of payments, net transfers are included in the current account. What do these transfers include?

If a country has a financial account surplus, what does this imply about asset transactions?

What is the relationship between a country's current account balance and its capital and financial account balance?

If a country is running a persistent balance-of-payments deficit under a fixed-exchange-rate system, what is the ultimate risk?

What is meant by the term 'currency intervention'?

One of the major arguments in favor of the managed float system is that it has:

What is the primary way a large capital and financial account surplus might contribute to a large trade deficit in the U.S.?

Which of the following is a potential consequence of the large and persistent U.S. trade deficits?

According to the Big Mac index example, if the U.S. dollar price of a Big Mac in Britain is higher than the price in the U.S., the purchasing-power-parity theory implies that:

If a government uses domestic macroeconomic adjustments to maintain a fixed exchange rate in the face of a payments deficit, what would be the likely policy and outcome?

In 2007, the U.S. had a trade deficit in goods of $816 billion and a trade surplus in services of $107 billion. What was the balance on goods and services?

Which two major components are part of the U.S. current account?

If speculators believe a country will enter a major recession, how is this likely to affect its currency value?

What is the primary risk associated with a country financing a large and persistent trade deficit?

If the exchange rate is $2 equals 1 pound, what is the pound price of a dollar?

Which of the following would NOT be a transaction recorded in a country's balance of payments?