Q1. If Canada and the United Kingdom are both on flexible exchange-rate systems, what would happen if the United Kingdom experiences rapid inflation, while prices remain steady in Canada?

Multiple Choice

a. The Canadian dollar will depreciate.

b. The British pound will depreciate.

c. The British pound will appreciate.

d. The exchange rate will not change.

Q2. Which of the following creates a supply of Japanese yen in foreign exchange markets?

Multiple Choice

a. A Japanese tourist takes a trip to the Canadian Rockies.

b. A Canadian student purchases a new Japanese car.

c. A Canadian goes on a business trip to Japan.

d. A Japanese investor receives dividends on some Canadian stock.

e. A Japanese company sells an insurance policy to a Canadian citizen.

Q3. Assume that Canada and Britain have flexible exchange rates. If the price level is stable in Canada, but Britain experiences rapid inflation, what could we expect?

Multiple Choice

a. That the dollar would depreciate.

b. That the pound will appreciate.

c. That the pound will depreciate.

d. That foreign reserves of Canada will fall.

e. That foreign reserves of Britain will fall.

Q4. Which of the following is an argument in favour of fixed exchange rates?

Multiple Choice

a. They add a degree of certainty to international trade.

b. They prevent instability in the export and import industries.

c. They discourage currency speculation.

d. They appeal to people who tend to equate the exchange rate with national prestige.

e. They enhance the effectiveness of monetary policy.

Q5.When will the supply of Canadian dollars on world markets increase?

Multiple Choice

a. When Canadians travel abroad.

b. When an American corporation invests in Canada.

c. When a Canadian resident receives interest payments on a foreign investment.

d. When a Canadian exporter sells products abroad.

e. When a retired American, living on Prince Edward Island, receives a pension cheque from the U.S.