Q1. Which of the following statements is true?

Multiple Choice

a. Inflows of foreign investment are necessary to prevent future balance of payments deficits.

b. A current account surplus is always the result of a capital account deficit.

c. A current account surplus is always the result of a trade account surplus.

d. A capital account surplus may cause outflows of foreign investment income in the future.

Q2. What is arbitrage?

Multiple Choice

a. The cost of shipping and insuring exported goods.

b. The buying of a currency at one price and its immediate sale at another price.

c. The cost of holding goods whose price is expected to increase in the future.

d. Speculation on the future price of a currency.

Q3. 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.

Q4. Which of the following would result from an increase in Canada's GDP?

Multiple Choice

a. Canadian exports would rise and the Canadian dollar would depreciate.

b. Both Canadian exports and imports would rise and there would be no change in the value of the Canadian dollar.

c. Canadian exports would rise, but imports would decrease and there would be no change in the value of the Canadian dollar.

d. Canadian imports would rise and the Canadian dollar would depreciate.