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Free CFA-Level-I Exam Braindumps (page: 313)

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The exchange rate of a country's currency will ________ if the income of the country and its trading partners rises.

  1. neither of these answers
  2. increase
  3. This answer depends on which income rises the fastest: for countries that are similar in size and propensity to import, the country that is growing the fastest will increase its demand for imports relatively more than its trading partner, resulting in a decrease in the value of the more rapidly growing nation's currency.
  4. decrease

Answer(s): C

Explanation:

Fore countries are similar in size and propensity to import, the country that is growing the fastest will increase its demand for imports relatively more than its trading partner, resulting in a decrease in the value of the more rapidly growing nation's currency. Sluggish growth of income relative to one's trading partners tends to cause the slow-growth nation's currency to appreciate.



The supply curve for British pounds in the foreign exchange market:

  1. is independent on the purchases of British goods by foreigners.
  2. none of these answers.
  3. is dependent on the purchases of foreign goods by the British.
  4. is dependent on the purchases of British goods by foreigners.

Answer(s): C

Explanation:

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



When both exports and imports are considered, the major advantage of international trade is that it allows us to

  1. share our technology and efficiency with less-developed countries that would otherwise never have the opportunity to observe modern goods and services.
  2. sample foreign products that many of us would otherwise never see.
  3. consume a larger, more diverse quantity of goods and services at lower prices than would otherwise prevail.
  4. maintain jobs for workers who would otherwise have little to do.

Answer(s): C

Explanation:

In the absence of trade the consumption of each country is constrained by the country's production possibilities.
Trade expands the consumption possibilities of both countries. Specialization and exchange permits two countries to expand their joint output and as a result, both countries can increase their consumption of both all goods.



A tax levied on imported goods is called a(n)

  1. excise tax.
  2. foreign profits tax.
  3. tariff.
  4. quota.

Answer(s): C

Explanation:

A tariff is a tax levied on goods imported into a country.






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