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1
What does it mean for a country that is on a fixed exchange rate system to have a balance of payments surplus?
A)The quantity supplied of its currency on the international money market will exceed the quantity demanded.
B)The exchange rate is overvalued.
C)There is an inflow of foreign currencies into the country.
D)The balance of payments surplus is matched by a balance of trade deficit.
E)There is an outflow of foreign currencies from the country.
2

Refer to the graph in Figure 11.9 to answer this question. What is the value of the U.S. dollar if a flexible exchange rate system is in effect?
A)0J Canadian dollars for one U.S. dollar
B)0B Canadian dollars for one U.S. dollar
C)1/0B U.S. dollars for one Canadian dollar
D)0J U.S. dollars for one Canadian dollar
E)0B U.S. dollars for one Canadian dollar
3
Assuming flexible exchange rates, which of the following would result in an increase in a country’s exchange rate?
A)The purchase by the central bank of its own currency
B)The purchase by the central bank of foreign currencies
C)The sale by the central bank of its own currency
D)The central bank decreasing the country’s interest rates
E)Government imposing an export tax
4
The country of Lancores, which was on a fixed exchange rate system and had an undervalued currency, has just adopted a flexible exchange rate system. Which of the following statements is correct?
A)Lancores’s currency will depreciate, and its exports will increase.
B)Lancores’s currency will appreciate, and its exports will increase.
C)Lancores’s currency will depreciate, and its exports will decrease.
D)Lancores’s currency will appreciate, and its exports will decrease.





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