ECS3703
EXAM
PACK
2025
,ECS3703 ~ Quizz Questions
1. Which of the following is false?
a. A credit transaction leads to a payment from foreigners
b. A debit transaction leads to a payment to foreigners
c. A credit transaction is entered with a negative sign
d. Double-entry bookkeeping refers to each transaction entered twice.
2. Financial inflows:
a. refer to an increase in foreign assets in the nation
b. refer to a reduction in the nation's assets abroad
c. lead to a payment from foreigners
d. all of the above
3. When a S.A. firm imports goods to be paid in three months the S.A. credits:
a. the current account
b. unilateral transfers
c. the financial account
d. official reserves
4. Accommodating transactions are:
a. transactions in official reserve assets
b. transactions to balance autonomous transactions
c. needed to balance international transactions
d. all of the above
5. Which of the following is false?
a. a net debit balance in the current and financial accounts measures the surplus in
the nation's balance of payments
b. a balance of payments deficit must be settled by a net credit in the official reserve
account
c. a deficit in the balance of payments can be measured by the excess of credits over
debits in the official reserve account
d. a net debit balance in the official reserve account refers to a surplus
A. Carefully define the balance of payments.
The balance of payments is a summary statement of the transactions one nation has with the rest of
the world during a particular period of time, usually one year.
B. What is meant by autonomous transactions?
Autonomous transactions are all transaction in the current, capital, and financial accounts other than
official reserve assets recorded within the balance of payments.
,C. What is the difference between a credit transaction and a debit transaction in the
balance of payments?
Credit transactions involve a receipt of payment from foreigners and debit transactions involve the
making of payment to a foreigner. For example, the purchase of an import would be recorded as a
debit in the current account and the sale of an export would be recorded as a credit in the current
account. Similarly, the purchase of a foreign asset would be recorded as a debit in the financial
account and the sale of an asset to a foreigner would be recorded as a credit in the financial account.
D. From your textbook, study Table 13.2 and calculate the official settlement balance of the
United States for each year from 1965 to 2011.
Year Bal. Pay. $ Year Bal. Pay. $ Year Bal. Pay. $ Year Bal. Pay. $
1965 -1 1977 -37 1990 16 2002 -112
1966 0 1978 -35 1991 -32 2003 -280
1967 -3 1979 14 1992 -23 2004 -401
1968 2 1980 -8 1993 -44 2005 -273
1969 2 1981 -1 1994 -71 2006 -490
1970 -10 1982 1 1995 -45 2007 -481
1971 -30 1983 -5 1996 -$100 2008 -550
1972 -11 1984 0 1997 -134 2009 -428
1973 -6 1985 5 1998 27 2010 -348
1974 -10 1986 -36 1999 -53 2011
1975 -6 1988 -54 2000 -43 2012
1976 -15 1989 -36 2001 -23 2013
, Quiz_2: Foreign exchange markets and exchange rates
1. Which is not a function of the foreign exchange market?
a. to transfer funds from one nation to another
b. to finance trade
c. to diversify risks
d. to provide the facilities for hedging
2. A shortage of pounds under a flexible exchange rate system results in:
a. a depreciation of the pound
b. a depreciation of the dollar
c. an appreciation of the dollar
d. no change in the exchange rate
3. Hedging refers to:
a. the acceptance of a foreign exchange risk
b. the covering of a foreign exchange risk
c. foreign exchange speculation
d. foreign exchange arbitrage
4. A change from R1=€1 to R2=€1 represents
a. depreciation of the rand
b. an appreciation of the rand
c. a depreciation of the pound
d. none of the above
5. Destabilizing speculation refers to the:
a. sale of the foreign currency when the exchange rate falls or is low
b. purchase of the foreign currency when the exchange rate falls or is low
c. sale of the foreign currency when the exchange rate rises or is high
d. all of the above
From your textbook (Silvertore,11th Edition), in page 437 do Problems 1; 2 and 6.
1. a. With supply curve of pounds S£, the equilibrium exchange rate is R=$2/£1 and the
equilibrium quantity is Q=£40 million (point E in Figure 1 on the next page) under a flexible
exchange rate system. On the other hand with supply curve of pounds S’£, the equilibrium
exchange rate would be R=$3/£1 and the equilibrium quantity would be Q=£20 million
(point B in Figure 1).
b. If the United States wanted to maintain the exchange rate fixed at R=3 in Figure 1
with supply curve S£, the U.S. central bank would gain £40 million in reserves per day.
EXAM
PACK
2025
,ECS3703 ~ Quizz Questions
1. Which of the following is false?
a. A credit transaction leads to a payment from foreigners
b. A debit transaction leads to a payment to foreigners
c. A credit transaction is entered with a negative sign
d. Double-entry bookkeeping refers to each transaction entered twice.
2. Financial inflows:
a. refer to an increase in foreign assets in the nation
b. refer to a reduction in the nation's assets abroad
c. lead to a payment from foreigners
d. all of the above
3. When a S.A. firm imports goods to be paid in three months the S.A. credits:
a. the current account
b. unilateral transfers
c. the financial account
d. official reserves
4. Accommodating transactions are:
a. transactions in official reserve assets
b. transactions to balance autonomous transactions
c. needed to balance international transactions
d. all of the above
5. Which of the following is false?
a. a net debit balance in the current and financial accounts measures the surplus in
the nation's balance of payments
b. a balance of payments deficit must be settled by a net credit in the official reserve
account
c. a deficit in the balance of payments can be measured by the excess of credits over
debits in the official reserve account
d. a net debit balance in the official reserve account refers to a surplus
A. Carefully define the balance of payments.
The balance of payments is a summary statement of the transactions one nation has with the rest of
the world during a particular period of time, usually one year.
B. What is meant by autonomous transactions?
Autonomous transactions are all transaction in the current, capital, and financial accounts other than
official reserve assets recorded within the balance of payments.
,C. What is the difference between a credit transaction and a debit transaction in the
balance of payments?
Credit transactions involve a receipt of payment from foreigners and debit transactions involve the
making of payment to a foreigner. For example, the purchase of an import would be recorded as a
debit in the current account and the sale of an export would be recorded as a credit in the current
account. Similarly, the purchase of a foreign asset would be recorded as a debit in the financial
account and the sale of an asset to a foreigner would be recorded as a credit in the financial account.
D. From your textbook, study Table 13.2 and calculate the official settlement balance of the
United States for each year from 1965 to 2011.
Year Bal. Pay. $ Year Bal. Pay. $ Year Bal. Pay. $ Year Bal. Pay. $
1965 -1 1977 -37 1990 16 2002 -112
1966 0 1978 -35 1991 -32 2003 -280
1967 -3 1979 14 1992 -23 2004 -401
1968 2 1980 -8 1993 -44 2005 -273
1969 2 1981 -1 1994 -71 2006 -490
1970 -10 1982 1 1995 -45 2007 -481
1971 -30 1983 -5 1996 -$100 2008 -550
1972 -11 1984 0 1997 -134 2009 -428
1973 -6 1985 5 1998 27 2010 -348
1974 -10 1986 -36 1999 -53 2011
1975 -6 1988 -54 2000 -43 2012
1976 -15 1989 -36 2001 -23 2013
, Quiz_2: Foreign exchange markets and exchange rates
1. Which is not a function of the foreign exchange market?
a. to transfer funds from one nation to another
b. to finance trade
c. to diversify risks
d. to provide the facilities for hedging
2. A shortage of pounds under a flexible exchange rate system results in:
a. a depreciation of the pound
b. a depreciation of the dollar
c. an appreciation of the dollar
d. no change in the exchange rate
3. Hedging refers to:
a. the acceptance of a foreign exchange risk
b. the covering of a foreign exchange risk
c. foreign exchange speculation
d. foreign exchange arbitrage
4. A change from R1=€1 to R2=€1 represents
a. depreciation of the rand
b. an appreciation of the rand
c. a depreciation of the pound
d. none of the above
5. Destabilizing speculation refers to the:
a. sale of the foreign currency when the exchange rate falls or is low
b. purchase of the foreign currency when the exchange rate falls or is low
c. sale of the foreign currency when the exchange rate rises or is high
d. all of the above
From your textbook (Silvertore,11th Edition), in page 437 do Problems 1; 2 and 6.
1. a. With supply curve of pounds S£, the equilibrium exchange rate is R=$2/£1 and the
equilibrium quantity is Q=£40 million (point E in Figure 1 on the next page) under a flexible
exchange rate system. On the other hand with supply curve of pounds S’£, the equilibrium
exchange rate would be R=$3/£1 and the equilibrium quantity would be Q=£20 million
(point B in Figure 1).
b. If the United States wanted to maintain the exchange rate fixed at R=3 in Figure 1
with supply curve S£, the U.S. central bank would gain £40 million in reserves per day.
