Unit – I

Part – A (1 Mark)
1) The currency used to buy imported goods is
A. The buyer's home currency. C. The seller's home currency.
B. The currency of a third country. D. Special drawing rights.

2) If portable disk players made in China are imported into the United States, the Chinese
manufacturer is paid with
A. International monetary credits. C. Dollars.
B. Euros or any other third currency. D. Yuan, the Chinese currency.

3) If the United States sells beef to Japan, the U.S. beef producer is paid with
A. International monetary credits. C. Dollars.
B. Euros or any other third currency. D. Yuan, the Chinese currency.
4) An increase in the Japanese interest rate will ________ the demand for dollars and lead the
dollar to ________.
A. Increase; Appreciate C. Decrease; Depreciate
B. Decrease; Appreciate D. Increase; Depreciate
5) An increase in the Japanese interest rate will ________ the supply of dollars and lead the
dollar to ________.
A. Increase; Appreciate C. Decrease; Depreciate
B. Decrease; Appreciate D. Increase; Depreciate
6) If the prices in the United States rise faster than those in other countries,
A. then interest rate parity must not hold. C. the exchange rate falls.
B. the interest rate in the United States falls. D. the exchange rate rises

7) The value of net exports increases when the value of ________.

A. Imports of goods and services increase
B. Imports of goods and services decrease
C. Exports of goods and services minus imports of goods and services decreases
D. Exports of goods and services decrease
8) A country records its international finance accounts in its
 A. Balance of payments accounts. C. Import/export log accounts.
B. Trade payments accounts. D. Net exports payments account.
9) If a nation during its entire history has borrowed more from the rest of the world than it has
lent to the rest of the world, the country is a
A. Net lender. C. Creditor nation.
B. Net borrower. D. Debtor nation.

10) If a country is currently lending more to the rest of the world than it is borrowing from the
rest of the world, the country is a
A. Creditor nation. C. Debtor nation.
B. Net lender. D. Net borrower.

11) A net borrower is a country that ________, while a net lender is a country that ________.
A. decreases its stock of outstanding foreign debt; lends more than it borrows
B. borrows more than it lends; lends more than it borrows
C. borrows more than it lends; owes more to foreigners than foreigners owe to it
D. lends more than it borrows; borrows more than it lends
12) If a country during its entire history has invested more in the rest of the world than the rest of
the world has invested in it, the country is a
A. Net lender. C. Net borrower.
B. Creditor nation. D. Debtor nation.
13) If a country is currently borrowing more from the rest of the world than it is lending to the
rest of the world, the country is a
A) Net lender. C. Net borrower.
B) Creditor nation. D. Debtor nation.
14) A creditor nation is a country that ________ and a debtor nation is a country that ________.
A. currently lends more than it borrows; currently borrows more than it lends
B. through its history has lent more than it has borrowed; through its history has
borrowed more than it has lent
C. currently borrows more than it lends; currently lends more than it borrows
D. through its history has borrowed more than it has lent; through its history has lent
more than it has borrowed
15) A creditor nation means a nation whose
A. Total investments in the rest of the world exceed the rest of the world's
investments in that country.
B. Exports exceed its imports.
C. Current account is larger than its capital account.
D. Lending to the rest of the world exceeds its borrowing from the rest of the world.
16) A debtor nation means a nation whose
A. Total investments in the rest of the world are less than the rest of the world's
investments in that country.
B. Lending to the rest of the world exceeds its borrowing from the rest of the world.
C. Current account is less than its capital account.
D. Imports exceeds its exports.
17) Today, the United States is a I. net borrower II. net lender III. debtor nation IV. creditor
nation
A. II and III C. II and IV
B. I and III D. I and IV

18) Net exports equals

A. Government saving plus private saving.
B. Imports of goods and services minus exports of goods and services.
C. Exports of goods and services minus imports of goods and services.
D. Both answers A and C are correct.

19) A net exports deficit or surplus equals

A. Taxes minus savings plus public and private investment.
B. Net worth plus the government sector surplus or deficit minus the private sector
surplus or deficit.
C. The government sector surplus or deficit plus the private sector surplus or
deficit.
D. Net lending by both the private and public sector plus savings minus investment.
[[[

20) When the U.S. dollar depreciates against the yen, the yen becomes ________ expensive and
the exchange rate ________.
A. More; Rises C. Less; Falls
 B. More; Falls D. Less; Rises
UNIT – II
PART – A (1 Mark)
1) At the present time, the currency or asset to which the largest number of countries ties or
fixes their currency values is _____.
A. US dollar       C. Gold        
B. French franc      D. SDR
2) Under the international monetary system as it actually operated between 1947 and 1971, the
emergence of seemingly-chronic deficits and surpluses in various countries' balance of
payments position (i.e. deficits and surpluses which did not seem to get eliminated) was
called _____.
A. The liquidity problem           C. The confidence problem
B. The adjustment problem           D. The IMF problem
3) When the U.S. dollar depreciates against the yen, the yen ________ and the exchange rate
________.
A. Appreciates; Rises C. Depreciates; Rises
B. Depreciates; Falls D. Appreciates; Falls
4) In its lending to member countries, the International Monetary Fund (IMF)
A. Concentrates its lending on long-term development loans and does not engage
in short-term balance of payments loans.
B. Can lend to a country, at a maximum, only 25% of the value of that country's
"quota" in the IMF.
C. Lends whatever amounts member countries may wish to borrow, and at zero
interest rate and no service charge on all loans.
D. May increase the difficulty of obtaining loans and may insist on internal policy
changes by borrowing countries as the borrowers ask for additional loans.
5) In the current exchange rate arrangements of IMF members,
A. Most countries do not have a freely floating exchange rate.
B. The EU countries fix their exchange rate against US dollar.
C. No countries are tied or pegged to the US dollar.
D. The US dollar is the only currency which is floating.
6) The market in which the currency of one country is exchanged for the currency of another
country is the ________.
A. Foreign currency market C. Foreign exchange
market
B. Chicago money exchange D. G8

7) Under the Bretton Woods system set up at the end of WWII, exchange rates were
A. Absolutely fixed, i.e. No deviations from parity were permitted.
B. Permitted to vary 1% above or below parity.
C. Permitted to vary 2.25% above or below parity.
D. Completely flexible, i.e. Continuous rate changes of any magnitude were
permitted.
8) In the European Monetary System, currencies of the member countries are in a situation of
relatively _____ exchange rates against each other and _____ exchange rates against the US
dollar.
A. Fixed; also relatively fixed C. Fixed; relatively flexible
B. Flexible; also relatively flexible D. Flexible; relatively fixed
 
9) The post-Bretton-Woods international monetary system is generally thought to have been
characterized by all except one of the following features. Which one does not seem to have
been a characteristic of the system?
A. There has been substantial variability in the nominal exchange rates of developed
countries, and this variability has included the phenomenon of "overshooting".
B. Real exchange rates have been relatively constant during the period, and so the
existence of the system per se has not had real economic effects.
C. Countries with basically floating rates have not been completely insulated
from outside economic disturbances.
D. The size of international reserves held by central banks has increased
substantially during the period.
10) The quantity of dollars supplied will decrease if
A. The interest rate in the United States falls.
B. Imports into the United States increase.
C. Fewer U.S. residents travel abroad.
D. The expected future exchange rate falls.
11) Under the Bretton-Woods agreement,
A. Countries were to permit absolutely no variation in exchange rates.
B. Gold was demonetized as an international reserve assets.
C. The IMF was primarily to engage itself in long-term development loans.
D. A country joining the IMF was assigned a quota to be paid in gold and the
country's own currency.
12) The "debt service ratio" for a country is the ratio of the country's _____ to _____.
A. Total external debt; GDP.
B. Annual interest payments on external debt; exports of services.
C. Annual interest payments on external debt and scheduled annual external debt
repayments; export earnings.
D. Annual interest payments on external debt; export earnings.
13) In the current international monetary system, all countries
A. Must keep their currency values absolutely fixed.
B. Must keep their currency values fixed within a certain small deviation from
par values.
C. Must adopt floating exchange rates.
D. Can choose whatever exchange rate arrangements they wish.

14) By definition, currency appreciation occurs when

A. The value of all currencies fall relative to gold.
B. The value of all currencies rise relative to gold.
C. The value of one currency rises relative to another currency.
D. The value of one currency falls relative to another currency
15) The value of net exports increases when the value of ________.
A. Imports of goods and services increase
B. Imports of goods and services decrease
C. Exports of goods and services minus imports of goods and services
decreases
D. Exports of goods and services decrease
16) International borrowing in the United States is financing ________.
A. Private and public investment C. Consumption
B. Government purchases of goods and services D. Net exports
17) The IMF was developed to oversee the functioning of the international monetary system
out of which international meeting?
A. Bretton woods system C. Louvre accord
B. Smithsonian conference D. Jamaica agreement
18) A country's membership quota for the International Monetary Fund must be made in which
forms of deposit.
A. Silver and gold C. US dollars and gold
B. The country's own currency and gold D. Own currency and silver
19) What are convertible currencies?
A. Currencies that can be freely exchanged for gold
B. Currencies that can be freely exchanged for silver
C. Determines IMF voting power
D. Currencies that can be freely exchanged for other currencies without legal
restrictions.
20) This is the official name of the World Bank.
A. The International Finance Corporation
B. International Development Association
C. International Bank for Reconstruction and Development
D. Multilateral Investment Guarantee Agency