International Finance Midterm Exam Questions Answered Correctly Latest Update 2025-2026
The official reserve account includes - Answersall purchases and sales of international reserve
assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs).
the balance of payments records - Answersnot only international trade, (exports and imports)
but also cross-border investments.
A currency depreciation will begin to improve the trade balance immediately - Answersif the
demand for imports and exports are elastic.
The US trade deficit - Answersis both a capital account surplus and a current account deficit.
What is the correct label for the vertical axis in the J-curve? - AnswersChange in the Trade
Balance
Under the pure flexible exchange rate regime, - Answersthe balance on the current and capital
accounts will be equal in size, but opposite in sign.
The world's largest debtor nation and creditor nation, respectively, are - AnswersThe U.S. and
Japan.
A country's international transactions can be grouped into the following three main types: -
Answerscurrent account, capital account, and official reserve account.
A country experiencing a significant balance-of-payments surplus would be likely to -
Answersexpand imports, offering marketing opportunities for foreign enterprises, and refrain
from imposing foreign exchange restrictions.
If a country must make a net payment to foreigners because of a balance-of-payments deficit,
the country should - Answerseither run down its official reserve assets or borrow anew from
foreigners.
The vast majority of the foreign-exchange reserves held by central banks are denominated in -
AnswersUS Dollars
The most important international reserve asset, comprising 94 percent of the total reserve
assets held by IMF member countries is - Answersforeign exchanges
Since security returns tend to have low correlations among countries, - Answersinvestors can
reduce risk more effectively if they diversify their portfolio holdings internationally rather than
purely domestically.
A country that gives foreign aid to another country can be viewed as - Answersimporting
goodwill from the latter
The "one word that haunts the dollar" is - Answers(Central bank) diversification.
,The capital account is divided into three subcategories: direct investment, portfolio investment,
and other investment. Direct investment involves - Answersacquisitions of controlling interests
in foreign businesses.
Credit entries in the U.S. balance of payments - Answersresult from foreign sales of U.S. goods
and services, goodwill, financial claims, and real assets, and give rise to the demand for dollars.
The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity for a
country with a pure flexible exchange rate regime. - AnswersBCA = −BKA
The capital account may be divided into three categories— - Answersdirect investment, portfolio
investment, and other investment
As of 2011, gold accounted for - Answersless than one percent of the total reserve assets held
by IMF member countries.
Currently, international reserve assets are comprised of - Answersgold, foreign exchanges,
special drawing rights (SDRs), and reserve positions in the International Monetary Fund (IMF).
Invisible trade refers to - Answerslegal, consulting, and engineering services.
Balance of payments - AnswersAll the options:
provides detailed information concerning the demand and supply of a country's currency.
can be used to evaluate the performance of a country in international economic competition.
is defined as the statistical record of a country's international transactions over a certain period
of time presented in the form of a double-entry bookkeeping.
Government controlled investment funds, known as sovereign wealth funds, - Answersare
mostly domiciled in Asian and Middle Eastern countries.
The US is considered - Answersa net debtor nation
Statistical discrepancy, which, by definition, represents errors and omissions, - Answersall the
options:
cannot be calculated directly.
,probably has some elements that are honest mistakes, it can't all be money laundering and
drugs.
is calculated by taking into account the balance-of-payments identity.
Factor Income - Answersconsists largely of interest, dividends, and other income on foreign
investments.
The capital account is divided into three subcategories: direct investment, portfolio investment,
and other investment. Portfolio investment involves - Answersinvestments in foreign stocks and
bonds that do not involve acquisitions of control.
A depreciation will begin to improve the trade balance immediately if - Answersimports and
exports are responsive to the exchange rate changes.
Generally speaking, any transaction that results in a payment to foreigners - Answerswill be
recorded as a debit, with a negative sign, in the U.S. balance of payments.
Suppose the InBev Corporation (a non-U.S. MNC) buys the Anheuser-Busch Corporation, paying
the U.S. shareholders cash. - AnswersPayment by InBev will be recorded as a credit.
If the United States imports more than it exports, then this means that - Answersthe supply of
dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus
Foreign direct investment (FDI) occurs - Answerswhen an investor acquires a measure of
control of a foreign business and when there is an acquisition, by a foreign entity in the U.S., of
10 percent or more of the voting shares of a business.
In 2012, the United States had a current account deficit. The current account deficit implies that
the United States - Answersconsumed more output than it produced.
Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
, The balance on the reserves account (BRA), under the PURE flexible exchange regime is -
AnswersNone of the options
Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
The balance on the reserves account (BRA), under the FIXED exchange regime is - Answers-$44
billion
If the central banks of the world chose to diversify their foreign-exchange reserves away from
the dollar and into the euro, - Answersthis have the result of a weakening in the value of the
dollar.
Over the last several years, the U.S. has run persistent - Answerscurrent account deficits.
The "J-curve effect" shows - Answersthe initial deterioration and the eventual improvement of a
country's trade balance following a currency depreciation.
The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity to
solve for the statistical discrepancy. - AnswersThe statistical discrepancy = BCA + BKA + BRA
Which of the following would not count as a foreign-exchange reserve held by a central bank? -
Answersthe local currency
International portfolio investments have boomed in recent years, as a result of - Answersthe
general relaxation of capital controls and regulation in many countries.
When Nestlé, a Swiss firm, bought the American firm Carnation, it was engaged in foreign direct
investment. If Nestlé had only bought a non-controlling number of shares of the firm, -
AnswersNestlé would have been engaged in portfolio investment.
When a country's currency depreciates against the currencies of major trading partners, -
Answersthe country's exports tend to rise and imports fall.
If the interest rate rises in the U.S. while other variables remain constant - Answerscapital
The official reserve account includes - Answersall purchases and sales of international reserve
assets such as dollars, foreign exchanges, gold, and special drawing rights (SDRs).
the balance of payments records - Answersnot only international trade, (exports and imports)
but also cross-border investments.
A currency depreciation will begin to improve the trade balance immediately - Answersif the
demand for imports and exports are elastic.
The US trade deficit - Answersis both a capital account surplus and a current account deficit.
What is the correct label for the vertical axis in the J-curve? - AnswersChange in the Trade
Balance
Under the pure flexible exchange rate regime, - Answersthe balance on the current and capital
accounts will be equal in size, but opposite in sign.
The world's largest debtor nation and creditor nation, respectively, are - AnswersThe U.S. and
Japan.
A country's international transactions can be grouped into the following three main types: -
Answerscurrent account, capital account, and official reserve account.
A country experiencing a significant balance-of-payments surplus would be likely to -
Answersexpand imports, offering marketing opportunities for foreign enterprises, and refrain
from imposing foreign exchange restrictions.
If a country must make a net payment to foreigners because of a balance-of-payments deficit,
the country should - Answerseither run down its official reserve assets or borrow anew from
foreigners.
The vast majority of the foreign-exchange reserves held by central banks are denominated in -
AnswersUS Dollars
The most important international reserve asset, comprising 94 percent of the total reserve
assets held by IMF member countries is - Answersforeign exchanges
Since security returns tend to have low correlations among countries, - Answersinvestors can
reduce risk more effectively if they diversify their portfolio holdings internationally rather than
purely domestically.
A country that gives foreign aid to another country can be viewed as - Answersimporting
goodwill from the latter
The "one word that haunts the dollar" is - Answers(Central bank) diversification.
,The capital account is divided into three subcategories: direct investment, portfolio investment,
and other investment. Direct investment involves - Answersacquisitions of controlling interests
in foreign businesses.
Credit entries in the U.S. balance of payments - Answersresult from foreign sales of U.S. goods
and services, goodwill, financial claims, and real assets, and give rise to the demand for dollars.
The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity for a
country with a pure flexible exchange rate regime. - AnswersBCA = −BKA
The capital account may be divided into three categories— - Answersdirect investment, portfolio
investment, and other investment
As of 2011, gold accounted for - Answersless than one percent of the total reserve assets held
by IMF member countries.
Currently, international reserve assets are comprised of - Answersgold, foreign exchanges,
special drawing rights (SDRs), and reserve positions in the International Monetary Fund (IMF).
Invisible trade refers to - Answerslegal, consulting, and engineering services.
Balance of payments - AnswersAll the options:
provides detailed information concerning the demand and supply of a country's currency.
can be used to evaluate the performance of a country in international economic competition.
is defined as the statistical record of a country's international transactions over a certain period
of time presented in the form of a double-entry bookkeeping.
Government controlled investment funds, known as sovereign wealth funds, - Answersare
mostly domiciled in Asian and Middle Eastern countries.
The US is considered - Answersa net debtor nation
Statistical discrepancy, which, by definition, represents errors and omissions, - Answersall the
options:
cannot be calculated directly.
,probably has some elements that are honest mistakes, it can't all be money laundering and
drugs.
is calculated by taking into account the balance-of-payments identity.
Factor Income - Answersconsists largely of interest, dividends, and other income on foreign
investments.
The capital account is divided into three subcategories: direct investment, portfolio investment,
and other investment. Portfolio investment involves - Answersinvestments in foreign stocks and
bonds that do not involve acquisitions of control.
A depreciation will begin to improve the trade balance immediately if - Answersimports and
exports are responsive to the exchange rate changes.
Generally speaking, any transaction that results in a payment to foreigners - Answerswill be
recorded as a debit, with a negative sign, in the U.S. balance of payments.
Suppose the InBev Corporation (a non-U.S. MNC) buys the Anheuser-Busch Corporation, paying
the U.S. shareholders cash. - AnswersPayment by InBev will be recorded as a credit.
If the United States imports more than it exports, then this means that - Answersthe supply of
dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus
Foreign direct investment (FDI) occurs - Answerswhen an investor acquires a measure of
control of a foreign business and when there is an acquisition, by a foreign entity in the U.S., of
10 percent or more of the voting shares of a business.
In 2012, the United States had a current account deficit. The current account deficit implies that
the United States - Answersconsumed more output than it produced.
Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
, The balance on the reserves account (BRA), under the PURE flexible exchange regime is -
AnswersNone of the options
Assume that the balance-of-payments accounts for a country are recorded correctly.
Balance on the current account = BCA = $130 billion
Balance on the capital account = BKA = −$86 billion
Balance on the reserves account = BRA =?
The balance on the reserves account (BRA), under the FIXED exchange regime is - Answers-$44
billion
If the central banks of the world chose to diversify their foreign-exchange reserves away from
the dollar and into the euro, - Answersthis have the result of a weakening in the value of the
dollar.
Over the last several years, the U.S. has run persistent - Answerscurrent account deficits.
The "J-curve effect" shows - Answersthe initial deterioration and the eventual improvement of a
country's trade balance following a currency depreciation.
The balance of payments identity is given by BCA + BKA + BRA = 0. Rearrange the identity to
solve for the statistical discrepancy. - AnswersThe statistical discrepancy = BCA + BKA + BRA
Which of the following would not count as a foreign-exchange reserve held by a central bank? -
Answersthe local currency
International portfolio investments have boomed in recent years, as a result of - Answersthe
general relaxation of capital controls and regulation in many countries.
When Nestlé, a Swiss firm, bought the American firm Carnation, it was engaged in foreign direct
investment. If Nestlé had only bought a non-controlling number of shares of the firm, -
AnswersNestlé would have been engaged in portfolio investment.
When a country's currency depreciates against the currencies of major trading partners, -
Answersthe country's exports tend to rise and imports fall.
If the interest rate rises in the U.S. while other variables remain constant - Answerscapital
