7 Which of the following would likely have the least direct

7. Which of the following would likely have the least direct influence on a country\'s current account? A) inflation B) national income. C) exchange rates D) tariffs E) a tax on income earned from foreign stocks & The \"J curve\" effect describes A) the continuous long-term inverse relationship between a country\'s current account B) the short-run tendency for a country\'s balance of trade to deteriorate even while its C) the tendency for exporters to initially reduce the price of goods when their own currency D) the reaction of a country\'s currency to initially depreciate after the country\'s inflation rate balance and the country\'s growth in gross national product currency is depreciating. appreciates. declines. The primary component of the current account is the: A) balance of trade. B) balance of money market flows. C) balance of capital market flows. D) unilateral transfers 9. 10. The demand for U.S. exports tends to increase when: A) economic growth in foreign countries decreases. B) the currencies of foreign countries strengthen against the dollar. C) U.S. inflation rises. D) none of these II. Without the international capital flows, there would be across all risk levels, and the cost of funding would be funding available in the U.S regardless of the firm\'s risk level. A) more; lower B) more; higher C) less; lower D) less; higher 12. Assume that a bank\'s bid rate on Swiss francs is $.45 and its ask rate is S.47. Its bid-ask percentage spread is: A) about 4.44%. B) about 4.26%. about 4.03%. D) about 4.17%. C)

Solution

Q7)

Answer: E

Current account is the aggregate of trade balance (export – import), earning from abroad, and transfer. The tax on stock doesn’t fall in these categories; therefore, it has the least influence.

Q8)

Answer: B

This is a balance of trade model, which shows how an initial loss turns into gain. Suppose a country’s exchange rate is high. It leads to costly imports, known as devaluation or depreciation of currency, and cheaper exports. This is the loss situation.

Later, such cheap exports attract foreign buyers and products start getting demand in abroad. Domestic buyers will ensure of purchasing local products, since imported goods are costly. This is the situation of loss recovery and trade improvement.

Q9)

Answer: A

The balance of trade is the primary component; it indicates the difference of export and import.

Q10)

Answer: B

Export increases if a foreign currency has higher value than the US dollar, because it gives higher earnings to those exporters.