International Trade and Finance: Master the Global Economy

Question 1

Which component is NOT included in the current account section of the balance of payments?

Accepted Answer

Capital transfers

Answer

Goods

Answer

Services

Answer

Investment income

Question 2

How does an appreciation of the pound sterling affect UK exports?

Accepted Answer

Makes them more expensive

Answer

Makes them cheaper

Answer

Has no impact

Answer

Makes them more profitable

Question 3

What is a key implication of a country having a high current account deficit?

Accepted Answer

It is importing more than it exports

Answer

It is exporting more than it imports

Answer

It has a stable exchange rate

Answer

It is experiencing deflation

Question 4

Which factor primarily determines the exchange rate between two currencies?

Accepted Answer

Supply and demand

Answer

Government intervention

Answer

Inflation rates

Answer

Interest rates

Question 5

What is the primary objective of the World Trade Organization (WTO)?

Accepted Answer

To promote free trade

Answer

To promote protectionism

Answer

To encourage bilateral trade agreements

Answer

To support regional trade blocs

Question 6

Which component is NOT found in the balance of payments?

Accepted Answer

Net domestic product

Answer

Current account

Answer

Capital account

Answer

Net exports of goods and services

Question 7

An appreciation of the domestic currency will result in:

Accepted Answer

Increased imports and decreased exports

Answer

Increased exports and decreased imports

Answer

No change in trade flows

Answer

A trade deficit

Question 8

The Bretton Woods system established:

Accepted Answer

Fixed exchange rates pegged to gold

Answer

Floating exchange rates

Answer

A common currency for all member countries

Answer

No international monetary system

Question 9

What is the primary purpose of a foreign exchange market?

Accepted Answer

To facilitate the exchange of currencies between buyers and sellers

Answer

To regulate the value of currencies

Answer

To provide loans to businesses and individuals

Answer

To store wealth

Question 10

What is the core function of the International Monetary Fund (IMF)?

Accepted Answer

To promote international monetary cooperation and stability

Answer

To provide financial assistance to member countries

Answer

To regulate global banks

Answer

To set exchange rates

Question 11

What is the fundamental distinction between a fixed and a floating exchange rate regime?

Accepted Answer

In a fixed regime, the exchange rate is fixed to a specific currency or a basket of currencies, while in a floating regime, it is allowed to fluctuate.

Answer

In a fixed regime, the exchange rate is determined by the market, while in a floating regime, it is set by the central bank.

Answer

There is no difference between the two regimes.

Answer

Only floating exchange rate regimes exist today.

Question 12

Which of the following is NOT a major component of the balance of payments?

Accepted Answer

External debt

Answer

Current account

Answer

Capital account

Answer

Financial account

Question 13

What term describes a situation where the value of a country's imports exceeds the value of its exports?

Accepted Answer

Trade deficit

Answer

Trade surplus

Answer

Balance of payments deficit

Answer

Balance of payments surplus

Question 14

What is the primary objective of a fixed exchange rate regime?

Accepted Answer

To maintain a stable value of the domestic currency against a foreign currency

Answer

To allow the domestic currency to fluctuate freely against foreign currencies

Answer

To regulate the flow of capital into and out of the country

Answer

To prevent inflation

Question 15

What term describes the inflow of foreign direct investment?

Accepted Answer

Capital inflow

Answer

Capital outflow

Answer

Current account surplus

Answer

Financial account deficit

Question 16

Which of the following is NOT a potential consequence of a trade deficit?

Accepted Answer

Increased foreign exchange reserves

Answer

Job losses in export industries

Answer

Appreciation of the domestic currency

Answer

Inflation

Question 17

What is the primary role of the International Monetary Fund (IMF)?

Accepted Answer

To provide financial assistance to countries experiencing balance of payments problems

Answer

To regulate international trade

Answer

To promote economic growth in developing countries

Answer

To set exchange rate policies

Question 18

Which characteristic is associated with a floating exchange rate regime?

Accepted Answer

The exchange rate is determined by market forces of supply and demand

Answer

The central bank intervenes to maintain a specific exchange rate

Answer

The exchange rate is pegged to a foreign currency

Answer

The exchange rate is fixed by the government

Question 19

What is the term for a decrease in the value of a country's currency relative to other currencies?

Accepted Answer

Depreciation

Answer

Appreciation

Answer

Devaluation

Answer

Revaluation

Question 20

The main purpose of the International Monetary Fund (IMF) is to:

Accepted Answer

Provide loans and financial assistance to countries experiencing economic difficulties

Answer

Promote international trade

Answer

Set interest rates for member countries

Answer

Control the global money supply

Question 21

A country with a positive trade balance is said to be:

Accepted Answer

Exporting more than it imports

Answer

Importing more than it exports

Answer

In equilibrium

Answer

Experiencing a trade deficit

Question 22

Analyze the contrasting impacts of international trade on economic growth and income disparity within nations.

Accepted Answer

International trade can promote economic growth while potentially exacerbating income disparities.

Answer

International trade invariably stimulates economic growth while reducing income inequality.

Answer

International trade has negligible effects on both economic growth and income inequality.

Answer

International trade inevitably leads to reduced economic growth and increased income inequality.

Question 23

Which of the following is a primary function of the balance of payments?

Accepted Answer

Recording economic transactions between residents and non-residents

Answer

Calculating the net change in a country's foreign exchange reserves

Answer

Determining the value of the domestic currency

Answer

Estimating the level of inflation

Question 24

A 'current account deficit' refers to a situation where:

Accepted Answer

Imports of goods and services exceed exports

Answer

Exports of goods and services exceed imports

Answer

Net foreign investment is positive

Answer

Net foreign investment is negative

Question 25

According to the principle of comparative advantage, countries should specialize in producing and exporting goods and services where they have:

Accepted Answer

A comparative advantage, even if it's not the absolute advantage

Answer

The lowest absolute advantage

Answer

The highest absolute advantage

Answer

Only goods and services they can produce domestically

Question 26

An upward adjustment in the exchange rate of the British pound will lead to:

Accepted Answer

Increased imports and reduced exports

Answer

Increased exports and reduced imports

Answer

Unaltered trade flows

Answer

Exclusively decreased exports

Question 27

Which of the following policies is geared towards enhancing a country's balance of trade?

Accepted Answer

Trade policy

Answer

Fiscal policy

Answer

Monetary policy

Answer

Industrial policy

Question 28

A surplus on the current account indicates:

Accepted Answer

Export earnings surpass import payments

Answer

Import payments surpass export earnings

Answer

The country is experiencing capital outflow

Answer

The value of the currency is depreciating

Question 29

Which of the following is NOT a factor that influences the demand for a currency?

Accepted Answer

Government revenue

Answer

Interest rates

Answer

Inflation

Answer

Political stability

Question 30

The J-curve effect suggests that:

Accepted Answer

A depreciation of the currency will initially worsen the trade deficit

Answer

A depreciation of the currency will immediately improve the trade deficit

Answer

An appreciation of the currency will worsen the trade deficit

Answer

Exchange rates have no impact on the trade balance

Question 31

A depreciation of the exchange rate will make a country's exports:

Accepted Answer

Less expensive

Answer

More expensive

Answer

Unaffected

Answer

Both more expensive and less expensive

Question 32

How do changes in exchange rates impact a country's ability to sell its goods abroad?

Accepted Answer

A decrease in the value of the domestic currency makes exports less expensive and more competitive in foreign markets.

Answer

A decrease in the value of the domestic currency makes exports more expensive and less competitive in foreign markets.

Answer

An increase in the value of the domestic currency has no effect on export competitiveness.

Answer

An increase in the value of the domestic currency makes exports less expensive and more competitive in foreign markets.

Question 33

International trade raises ethical concerns. Which of the following is NOT an ethical concern associated with international trade?

Accepted Answer

Promoting economic growth and job creation

Answer

Exploitation of workers in developing countries

Answer

Environmental degradation

Answer

Unequal distribution of trade benefits

Question 34

What are some of the economic advantages of globalization?

Accepted Answer

Increased variety of goods and services available to consumers.

Accepted Answer

Lower prices due to increased competition among businesses.

Answer

Loss of jobs in developed nations.

Answer

Increased government regulations on international trade.

Question 35

Which of the following is NOT a component of the balance of payments?

Accepted Answer

Natural gas reserves

Answer

Current account

Answer

Capital account

Answer

Financial account

Question 36

A depreciation of the exchange rate generally leads to:

Accepted Answer

Increased exports and decreased imports

Answer

No change in trade flows

Answer

Decreased exports and increased imports

Answer

Increased imports and decreased exports

Question 37

Which of the following is a potential benefit of international trade?

Accepted Answer

Increased consumer choice and lower prices

Answer

Stagnant economic growth

Answer

Loss of domestic jobs without creation of new ones

Answer

Reduced competition

Question 38

The World Bank's primary mission is to:

Accepted Answer

Provide financial assistance and promote economic development

Answer

Facilitate cultural exchange

Answer

Provide military aid

Answer

Protect the environment

Question 39

A country with a persistent current account deficit is likely to experience:

Accepted Answer

Depreciation of its currency and potential loss of foreign reserves.

Answer

No change in its currency value

Answer

Inflation without an effect on the currency

Answer

Appreciation of its currency

Question 40

The International Monetary Fund (IMF) is primarily responsible for:

Accepted Answer

Providing financial assistance and monitoring global economic trends

Answer

Promoting sustainable development

Answer

Resolving international conflicts

Answer

Enforcing trade agreements