10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

IB1703 Progress Test 3 ECO201 FA22

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If R$ > R€ + (Ee€ – E€)/E€ 1 point

Investors will only deposit in USD

Expected return in euro deposit is higher

Expected return in USD deposit is lower

Investors will only deposit in EUR

Clear selection

Balance of payments accounts will balance at value 1 point

10

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

At the agreed time in the future contract, is it obliged to fufill the contract? 1 point

Yes

No

Maybe

Clear selection

1 point

Seigniorage
can cause financial crisis because

Banks frequently lend funds to poor or risky projects

the government pay for real goods and services by printing money.

allocating foreign exchange through government decree rather than through the
market, a practice (called exchange control)

circumvent government controls, taxes, and regulations have helped to make corrupt
practices such as bribery and extortion a way of life in many developing countries

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

1 point
Which
is/are the consequence(s) for China when they accumulate foreign
assets to
increase its export?

All of these

Because of China’s large current account surplus and because of large amounts of
financial asset inflows

The value of renminbi (Chinese Yuan) has been kept low relative to the U.S. dollar so
that its goods are not expensive in U.S. markets

As the China's central bank purchased foreign assets, the domestic money supply
has grown substantially, resulting in inflation

Clear selection

An exchange rate is quoted as USD/EUR. An increase in this exchange rate 1 point

means

Appreciation of USD, appreciation of EUR

Depreciation of USD, depreciation of EUR

Depreciation of EUR, appreciation of USD

Depreciation of USD, appreciation of EUR

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

The reason that EU cannot achieve labor mobility is 1 point

Inflation varies across countries

Distance is too far between countries

Labor is highly unionized and too many regulations

Law of one price does not hold

Clear selection

A trade deficit indicates a financial outflow 1 point

True

False

Clear selection

China often gives the US huge loans, holds US assets, or reserves US dollars 1 point

because

They want to make the USD to appreciate so they can sell USD for profits

They want to make the USD to appreciate so the US export less and import more

The expected return on deposits in the US is higher than in China

The expected return on financial assets in the US is higher than in China

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

When E = USD/EUR increases, in the US (2 anwers) 1 point

Export decreases

Import decreases

Export increases

Import increases

When a foreigner purchases an asset in Vietnam, it is a financial _____ for 1 point

Vietnam

Inflow

Outflow

Both in- and outflow

None is correct

Clear selection

In Vietnam, an USD equals to 23k VND then decreases to 20k. This means 1 point

Depreciation of USD, appreciation of VND

Depreciation of VND, appreciation of EUR

Depreciation of USD, depreciation of VND

Appreciation of USD, appreciation of VND

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

to "reschedule" a debt means 1 point

changing the meeting date to another day

changing the structure of a debt (principal, interest rate, repayment amount, or

repayment period, etc.)

to delay the repayments

to stop paying back a debt

Clear selection

Which
one is not a goal of the EU and EMS?
1 point

To create an assylum (safe place) for political refugees outside the EU

To enhance Europe’s power in international affairs

To make Europe a unified market

To make Europe politically stable and peaceful

Clear selection

When a person in Vietnam purchase an item from the US, the financial 1 point

account will mark this as

Financial inflow

Current account credit

Financial outflow

All of above

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

R$1 shifts to R$2 means 1 point

Interest rate of USD deposit decreases, increasing expected return on euro deposits,
making the euro appreciate

Interest rate of USD deposit increases, increasing expected return on euro deposits,
making the USD appreciate

Interest rate of USD deposit increases, reducing expected return on euro deposits,
making the USD appreciate

Interest rate of USD deposit decreases, reducing expected return on euro deposits,
making the USD appreciate

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

1 point

Evidence
shows which goal is not achieved by the EMS?

labor mobility

extensive trades

all the these

capital mobility

Clear selection

A person deposits 100 million VND into US at 1% interest rate. One US dollar 1 point

is valued now at 23k VND.  The expected exchange rate next year is 25.5k
VND per US dollar. How much VND will the person collect next year?

about 112 million VND

about 101 million VND

about 91 million VND

about 120 million VND

Clear selection

https://docs.google.com/forms/d/e/1FAIpQLSfYKv1s-Z4GTL3kPESuR3vgEWF_aL-vZ8gPFPPY_Y739cPpTA/formResponse 8/20
10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

The net value of Official reserve assets between owned by (sold to) foreign 1 point
central banks and owned by (purchased by) the domestic central bank are a
debit is called

statistical discrepancy

current account balance

official settlements balance

gross national product

Clear selection

A forward contract is risk-free because the expected exchange rate is 1 point

covered. True of False?

True

False

Clear selection

When there's significant differences between exchange rates in different 1 point

countries, there's an opportunity for arbitrage

True

False

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

Many
developing economies who have traditionally borrowed from 1 point

international
capital markets default their debts because

borrowed funds are used primarily for consumption purposes

economy stagnated or during financial crises

investment projects fail

All of these

Clear selection

A country must consider that the more integrated its economy to a system, 1 point
the higher economic stability loss. Stability loss includes

Relative prices will tend to fall

Domestic financial assets will migrate to areas with higher returns

Domestic labor will migrate to areas with higher wages

the automatic adjustment would have caused a depreciation of the domestic

currency and an appreciation of foreign currencies, which would have caused an
increase in many prices for domestic consumers when goods and services markets
are integrated

John has 10,000 Euros. If the euro in Hanoi is worth 25k VND each and 24.5k 1 point
VND each in HCMC, how much does John make from arbitrage?

24.5 million VND

5 million VND

25 million VND

10 million VND

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

Bank
examination, capital requirements, and asset restrictions do not work in 1 point
International Banking because

The activities of nonbank financial institutions are growing in international banking,

but they lack the regulation and supervision that banks have

the size of deposits in international banking is often much larger, the amount of
insurance is often minimal

Distance and language barriers make monitoring difficult. Different assets with
different characteristics (ex., risk) exist in different countries, making judgment
difficult.Jurisdiction is not clear in the case of subsidiary banks

countries cannot impose reserve requirements on foreign currency deposits in

agency offices, foreign branches, or subsidiary banks of domestic banks

Clear selection

Countries apply portfolio diversification on international capital market by 1 point

Lending to developing countries

Pegging the exchange rate

Holding both domestic and foreign (financial) assets

Issuing both bonds and equity assets

Clear selection

When VND appreciates against Thai baht, (2 answers) 1 point

Goods and services from Vietnam become more expensive

Goods and services from Vietnam become cheaper

Goods and services from Thailand become more expensive

Goods and services from Thailand become cheaper

https://docs.google.com/forms/d/e/1FAIpQLSfYKv1s-Z4GTL3kPESuR3vgEWF_aL-vZ8gPFPPY_Y739cPpTA/formResponse 11/20
10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

Three broad accounts of balance of payments include 1 point

Government purchases

Statistical discrepancy

Net exports

Capital account

Current account

Official settlements balance

Consumption

Financial account

Investment

At the agreed time in the option contract, should the contract buyer fufill the 1 point
contract?

Yes

No

Maybe

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

Participants in foreign exchange market include 1 point

Central Banks

Commercial banks

Export-import businesses

Non-bank financial institutions (mutual funds, hedge funds, securities firms,

insurance companies, pension funds)

All of above

Clear selection

National saving equals to 1 point

Public saving + private saving

National income - consumption - government purchases

National income - consumption - tax

Investment + current account

Tax - Government purchases

If a person buys a forward contract to sell USD, he/she is afraid that 1 point

USD will depreciate more than he/she expected

USD will appreciate more than he/she expected

he/she must buy USD at a higher price

he/she must sell USD at a higher price

Clear selection

https://docs.google.com/forms/d/e/1FAIpQLSfYKv1s-Z4GTL3kPESuR3vgEWF_aL-vZ8gPFPPY_Y739cPpTA/formResponse 13/20
10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

To be an optimum currency area, THREE criteria must be met, which are 1 point

financial assets flow freely between it and member countries

when degree of economic integration increases, the economic stability loss

decreases

people migrate freely between it and member countries

the monetary efficiency gain will exceed the economic stability loss for a member
considering whether to join a fixed exchange rate system

trade is extensive between it and member countries

1 point
The
Maastricht Treaty, proposed in 1991, required the provisions to transform
the
EMS into an economic and monetary union, which are

Unified market: the belief that greater market integration and economic growth
would occur.

The belief that German influence under the EMS would be moderated under a
European System of Central Banks.

Maintain a restrictive fiscal policy

Elimination of the possibility of devaluations/ revaluations"

Attain exchange rate stability defined by the ERM before adopting the euro.

Political stability: the belief that a common currency would make political interests
more uniform.

Attain price stability: a maximum inflation rate of 1.5% above the average of the
three lowest national inflation rates among EU members.

https://docs.google.com/forms/d/e/1FAIpQLSfYKv1s-Z4GTL3kPESuR3vgEWF_aL-vZ8gPFPPY_Y739cPpTA/formResponse 14/20
10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

"Contagion" in this course means 1 point

harmful or undesirable contact or influence.

the communication of disease by direct or indirect contact

an adverse event in one country leads to a similar event in other countries

Clear selection

When return on depositing dollars is higher than return on depositing euros, 1 point

Dollars will depreciate, making the principal of deposit become cheaper, balancing
the returns between two currencies

Dollars will appreciate, making the principal of deposit become expensive, balancing
the returns between two currencies

Clear selection

Appreciation of the domestic currency today raises the expected return of 1 point
deposits on foreign currency deposits.

True

False

Maybe

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

In an open economy, net export equals to 1 point

Current Account

Financial account

Capital account

All of above

Clear selection

A purchase from Vietnam to order goods from Taobao (China) is a _____ for 1 point
Vietnam

Debit in financial account

Credit in current account

Credit in capital account

Debit in current account

Clear selection

The holding of foreign assets to protect against financial instability is made 1 point

by

Central Banks

Governments

Firms

World Bank

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

1 point
Sovereign
debt, balance of payments, and banking crises can be self-
fulfilling, and
each crisis can lead to another within a country or in another
country

True

False

Clear selection

1 point
Fixing
the exchange rate has risks because of

high interest rates or high unemployment

government deficits must be reduced

central banks cannot print more money

government deficits must reduce

Clear selection

When the domestic currency depreciates, 2 points

Increase Decrease

Export prices

Import prices

Clear selection

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

Lender
of last resort means
1 point

Federal Reserve System/Central Bank may lend to banks with inadequate reserves

the central bank or fiscal authorities may organize the purchase of a failing bank by
healthier institutions, sometimes throwing their own money into the deal as a
sweetener

Regular examination prevents banks from engaging in risky activities.

Asset restrictions reduce risky investments by preventing a bank from holding too
many risky assets and encourage diversification by preventing a bank from holding
too much of one asset.

Clear selection

A trade surplus means financial outflow is larger than financial inflow 1 point

True

False

Clear selection

People expect that the value of the USD will increase next year. This 1 point

increases the demand for USD and makes it appreciate. This event is called

Self-fulfilling prophercy

USD Appreciation

Interest parity

Arbitrage

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

In this graph, higher E means 1 point

EUR appreciates, USD depreciates

Fewer USD per EUR

More EUR per USD

USD appreciates, EUR depreciates

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10/29/22, 9:49 AM IB1703 Progress Test 3 ECO201 FA22

Suppose return of VND deposit is 6% and of USD deposit is 4%. Exchange 1 point
rate last year was 23kVND/USD now increases to 25kVND/USD. What
happen to returns of two deposits?

Return of VND deposit become lower than USD deposits

Return of USD deposit become lower than VND deposits

Returns of both currencies are the same

A negative official settlements balance may indicate that a country 1 point

may be in a financial crisis

is depleting its official international reserve assets

may be incurring large debts to foreign central banks

may be cut off from foreign loans

domestic central bank can spend a lot to protect against financial instability

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