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Unit 6 Study Guide

The document outlines key concepts related to balance of payments, exchange rates, and the foreign exchange market. It explains the components of the balance of payments, the effects of currency appreciation and depreciation, and the relationship between interest rates and capital flows. Additionally, it includes true/false questions and scenarios to assess understanding of these economic principles.

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Meltem Taskin
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32 views2 pages

Unit 6 Study Guide

The document outlines key concepts related to balance of payments, exchange rates, and the foreign exchange market. It explains the components of the balance of payments, the effects of currency appreciation and depreciation, and the relationship between interest rates and capital flows. Additionally, it includes true/false questions and scenarios to assess understanding of these economic principles.

Uploaded by

Meltem Taskin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BIG PICTURE IDEAS

#1. Balance of .. measures all international transactions in a year including exports and imports and the
purchase and sale of .. , like bonds.
#2. The value of one currency relative to a different currency is called the .. rate.
#3. A .. and .. graph can be used to explain changes in the foreign exchange market.
#4. When a currency .. , exports decrease because products become more expensive for foreigners.
#5. When interest rates .. , net capital inflow increases as foreigners buy more domestic assets, like bonds.

Topic 6.1- Balance of Payments Accounts


1. Balance of payment is made up of two accounts: the .. account records net exports, income from abroad,
and unilateral transfers and the .. account records the international purchase and sales of assets.
2. Define net exports (XN). 6. Identify if each transaction is included in the current account (CA) or the
financial/capital account (CFA) for the US:

3. A trade .. is when exports


are greater than imports.
4. A trade .. is when exports
are less than imports.
True or False
5. When cars produced in Mexico are sold in the US
the transaction is recorded in the current account
as a credit for the US.

Topic 6.2- Exchange Rates Topic 6.3- The Foreign Exchange Market
\

7. A country's currency .. when the 13. Draw the foreign exchange market for Indian rupees (INR)
value increases relative to the value of a foreign currency. relative to Canadian dollars (CAD) and label the equilibrium
8. A country's currency .. when the exchange rate ER1.
value decreases relative to the value of a foreign currency.
9. True or False: Two currencies can both appreciate relative to
each other at the same time.

10. Assume it now takes 100 yen to purchase 1 US dollar instead of


120 yen. Which currency appreciated and which currency
depreciated?

11. Assume 1 US dollar went from equaling .9 euros to equaling 1


euro. Which currency appreciated and which currency
depreciated?

12. If 1 US dollar equals 20 Mexican pesos, 1 peso equals how many


dollars? 14. In most cases, people from .. supply
rupees and people from .. demand rupees.
©Jacob Clifford 2023. UltimateReviewPacket.com- Annual license required. Do not share or post online. Page 1 of 2
Topic 6.4- Changes in the Foreign Exchange Market
15. What are the four shifters of demand and supply in the foreign exchange market?

16. Draw the foreign exchange market for Mexican pesos (MXN) 6. For each scenario, identify if the dollar and yen will appreciate (APP) or
relative to US dollars (USD) and show what will happen if depreciate (DEP).
inflation increases in Mexico?

17. Will the peso appreciate or depreciate?

Topic 6.5- Foreign Exchange and Net Exports


Use arrows (↑or↓) to complete the following:
18. The US dollar will appreciate relative to another currency if the demand for the dollar .. or if the supply of the dollar .. . This will
cause US exports to .. and imports to .. .
19. The US dollar will depreciate relative to another currency if the demand for the dollar .. or if the supply of the dollar .. . This will
cause US exports to .. and imports to .. .

Topic 6.6- Real Interest Rates and International Capital Flows


20. A change in the real .. rate shifts both the demand and supply in the foreign exchange market.
21. Why does an increase in the real interest rate cause an 23. Draw the foreign exchange market for the US dollar relative to the
increase in net capital inflow? euro and show what happens if real interest rates increase in the US.

22. Will a decrease in the real interest rate move a country’s


capital/financial account (CFA) toward a deficit or toward a
surplus? Explain.

24. Will the dollar appreciate or depreciate?


←Easter Egg
©Jacob Clifford 2023. UltimateReviewPacket.com- Annual license required. Do not share or post online. Page 2 of 2

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