QUESTION: 1261

The supply curve for American dollars in the foreign exchange market:

none of these answers.
is dependent on the purchases of American goods by foreigners.
is independent on the purchases of American goods by foreigners.
is dependent on the purchases of foreign goods by Americans.

Answer(s): D

Explanation:

The supply curve for dollars is dependent on the purchases of foreign goods by Americans. An increase in the foreign price of the dollar means that a dollar will purchase more foreign currency and more goods priced in terms of foreign currency. The Americans buy more from abroad and therefore supply more dollars to the market as the foreign price of the dollar rises.

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QUESTION: 1262

International trade can benefit domestic firms because:

the market contracts and allows economies of scale in production.
consumers purchase more from local firms.
none of these answers.
competition is promoted in domestic markets and consumers can purchase a wide diversity of goods at economic prices.
opportunity costs for all goods increase.

Answer(s): D

Explanation:

Competition from abroad helps keep domestic producers on their toes. Domestic producers that otherwise might have few rivals will have to constantly be seeking ways to improve quality and keep costs low.
Simultaneously, the diversity of goods that is available from abroad provides consumers with a broader array of choices than would be available in the absence of international trade.

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QUESTION: 1263

Inflation contributes to the depreciation of a nation's currency only when a country's rate of inflation is ________ that of its trading partners.

less rapid than
equal to
more rapid than
none of these answers, inflation rate is irrelevant

Answer(s): C

Explanation:

If the rate of inflation in a nation is greater than that of its trading partners prices are rising faster at home than abroad. As a result, foreign consumers demand less of the nation's exports because they are now relatively more expensive. Falling demand for exports causes the demand for the nation's currency to decline and thus the currency depreciates.

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QUESTION: 1264

Which one of the following will most likely cause a depreciation in the U.S. dollar on the foreign exchange market under a system of flexible exchange rates?

a sudden increase in the demand for California cabernet wines by Europeans
an increase in real interest rates among European nations
a switch from French stocks and bonds to U.S. stocks and bonds by U.S. speculators
rampant inflation in Japan, a major trading partner of the U.S.

Answer(s): B

Explanation:

An increase in real interest rates abroad will cause the demand for high yield assets in those countries to increase. As a result the demand for assets in the U.S. will fall, as will the demand for U.S. currency. The U.S.
dollar will depreciate under falling demand.

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Free CFA-Level-I Exam Braindumps (page: 316)

QUESTION: 1261

Explanation:

QUESTION: 1262

Explanation:

QUESTION: 1263

Explanation:

QUESTION: 1264

Explanation: