Question

1. What does the market for foreign-currency exchange coordinate?

1. foreign investment
2. foreign trade
3. people exchanging domestic currency for the currency of other countries
4. investment and saving

2. Jill, a Canadian citizen, uses some previously obtained euros to purchase a bond issued by a French vineyard. How does this transaction affect Canadian net capital outflow?

1. It increases Canadian net capital outflow by more than the value of the bond.
2. It increases Canadian net capital outflow by the value of the bond.
3. It does not change Canadian net capital outflow.
4. It decreases Canadian net capital outflow.

3. Suppose Canada imposes an import quota on steel. Which of the following describes the most likely effects of this quota?

1. Canadian exports would increase, the real exchange rate of the Canadian dollar would appreciate, and Canadian net capital outflow would increase.
2. Canadian exports would increase, the real exchange rate of the Canadian dollar would depreciate, and Canadian net capital outflow would remain unchanged.
3. Canadian exports would decrease, the real exchange rate of the Canadian dollar would appreciate, and Canadian net capital outflow would remain unchanged.
4. Canadian exports would decrease, the real exchange rate of the Canadian dollar would depreciate, and Canadian net capital outflow would decrease.

Answer 1

1) C) people exchanging domestic currency for the currency of other countries

Foreign exchange (Forex or FX) is the conversion of one currency into another at a specific rate known as the foreign exchange rate. The conversion rates for almost all currencies are constantly floating as they are driven by the market forces of supply and demand.

2) C) It does not change Canadian net capital outflow.

It's the net flow of funds being invested abroad by a country over a certain period of time. When the net capital outflow (NCO) is positive, domestic residents are buying more foreign assets than foreigners are purchasing domestic assets.

3) b) Canadian exports would increase, the real exchange rate of the Canadian dollar would depreciate, and Canadian net capital outflow would remain unchanged.

Import quotas quantity restrictions imposed by the government of one nation on imports from other nations. Because the quantity of imports is restricted, the price of imports increases, which thus encourages domestic consumers to buy more domestic production.