Compared to the no-trade situation, when a country exports a good
Answer(s): D
Domestic producers gain under export because only goods for which the international price is higher than the domestic price will be exported. Thus, the producer will receive a higher price abroad than it is receiving at home. Domestic consumers lose because producers will reduce their output for domestic consumption which will cause the price to rise. The gains outweigh the losses because the country will divert resources away from inefficient production to the efficient production of the exported goods.Producers will be motivated to divert these resources by higher prices abroad.
Which of the following is the best example of a quota?
Answer(s): B
An import quota is a specific quantity (or value) of a good permitted to be imported into a country during a given year.
For an upcoming sight-seeing visit to India, a U.S. resident recently purchased a hundred thousand Indian Rupees. His action
This is a point of convention where much confusion exists. Before you answer it, you should remember two things:In International Finance, a country's reserve of foreign currency and foreign- produced goods is treated as an asset.In Accounting, by convention, increases in assets are recorded as "debit" entries and reductions are treated as "credit" entries.In the above example, there is an inflow of Indian Rupees and is hence recorded as a debit to the U.S. BOP account.Of course, it is also quite important to remember that the BOP account must balance out, just as surely as you must have debits = credits in accounting. The subtle part in BOP accounting is to recognize the offsetting credit entry that arises. Consider how this happens in the above example:The dollars used to buy the Indian rupees represent a liability for the U.S. This debt will be extinguished during the year through a supply of goods by U.S. residents in the form of exports or end up as a recognition of liability on the Official Reserve account when the accounts are balanced at the end of an accounting period (quarter end or year end). When this happens, the offsetting credit entry shows up on the accounts and the national balance sheet balances out. Note that exports are thus treated as credits and imports are treated as debits on the BOP account.In summary,1. Any inflow of domestic currency represents a credit and any outflow of domestic currency represents a debit on the BOP account.2. Any inflow of foreign currency represents a debit and any outflow of foreign currency represents a credit on the BOP account.
The price for French francs is $0.1945-67. What is the percent spread for this currency?
The percent spread is the (ask price - bid price)/ask price times 100. In this case, (0.1967 - 0.1945)/0.1967 x 100 = 1.12%
Which of the following factors will cause country A's currency to appreciate relative to the currency of country B, all else equal?
A country's currency will appreciate relative to those of its trading partners if it has lower income growth (which will cause the increase in imports to lag behind the increase in exports), has a lower inflation rate or offers higher real interest rates.
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