Question

1)Suppose that the Fed is fixing the dollar-pound exchange rate at $2.75 = £1. If the Fed's reserve of pounds falls by £100 million, by how much would the supply of dollars increase, all other things equal?

a)275 million

b)500 million

c)0

d)-500 million

2) In 2009, the United States:

a)imported more services than it exported.

b)imported more goods than it exported.

c)traded mainly with developing nations such as Mexico and India.

d)had a small trade surplus in goods and services.

3) You know that (1 + 0.08)³ = 1.26. What is the present value of $126 received in three years if the annual interest rate is 8 percent?

a)$100

b)$10

c)$126

d)$144

Answer 1

1)

If the value of the pound is fixed at ₤1=$2.75, the value of ₤100 million in terms of US currency is

The correct option is : (a)

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2)

The table below gives the trade accounts of the US economy in 2009. The table shows that in the year 2009, the US imported more good than it exported and exported more services than it imported.

Table 1

US trade 2009 (billions of US dollar)
Exports of goods and services	1582
Goods1	1058.4
Services1	523.6
Imports of goods and services	1978.4
Goods1	1585.4
Services1	393.1

Therefore, the correct option is: (b)

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3)

The present value of a cash flow formula is

In this case, F is the future value of the cash, n is the number of years and i is the interest rate. Assuming F=$126, n=3 and i=0.08

Therefore, the correct option is: (a)