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Questions and Answers
What does a rise in the exchange rate E indicate against a representative basket of currencies?
What does a rise in the exchange rate E indicate against a representative basket of currencies?
- Depreciation (correct)
- Appreciation
- Devaluation
- Inflation
In a fixed exchange rate regime like the Gold Standard, how was each currency's value defined?
In a fixed exchange rate regime like the Gold Standard, how was each currency's value defined?
- In terms of gold (correct)
- In terms of oil
- In terms of silver
- In terms of copper
What does a fall in the exchange rate E imply against a representative basket of currencies?
What does a fall in the exchange rate E imply against a representative basket of currencies?
- Appreciation (correct)
- Stagflation
- Devaluation
- Depreciation
What is the main effect of fixed exchange rate regimes like the Gold Standard on uncertainty related to exchange rate fluctuations?
What is the main effect of fixed exchange rate regimes like the Gold Standard on uncertainty related to exchange rate fluctuations?
In a floating exchange rate system, what typically defines the value of currencies?
In a floating exchange rate system, what typically defines the value of currencies?
What does a deficit in the current account need to be financed by?
What does a deficit in the current account need to be financed by?
How is the balance-sheet position of an economy referred to?
How is the balance-sheet position of an economy referred to?
What is added to the data as a balancing item when asset transactions do not match current transactions?
What is added to the data as a balancing item when asset transactions do not match current transactions?
How are external deficits typically financed?
How are external deficits typically financed?
What must be done if expenditures exceed receipts according to the accounting procedure described?
What must be done if expenditures exceed receipts according to the accounting procedure described?
Which term refers to changes in asset position in the capital and financial account?
Which term refers to changes in asset position in the capital and financial account?
Why is it important to conduct asset revaluations in the context of net foreign assets?
Why is it important to conduct asset revaluations in the context of net foreign assets?
What does a positive net foreign asset position indicate about a country?
What does a positive net foreign asset position indicate about a country?
In accounting frameworks, what is the connection between the income statement and the balance sheet?
In accounting frameworks, what is the connection between the income statement and the balance sheet?
How are asset revaluations in international investments affected by changes in exchange rates?
How are asset revaluations in international investments affected by changes in exchange rates?
What does a large external deficit indicate about a country's economy?
What does a large external deficit indicate about a country's economy?
If a firm is accumulating liabilities, what factor determines whether this is a cause for concern?
If a firm is accumulating liabilities, what factor determines whether this is a cause for concern?
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Study Notes
- Exchange rates can rise or fall, leading to depreciation or appreciation against a basket of currencies.
- Different exchange rate regimes include Fixed (Gold Standard, Bretton Woods, EMU) and Floating exchange rates.
- The balance of payments (BOP) must balance, where any deficit in the current account must be financed by a capital inflow.
- The net international investment position (NIIP) or net foreign assets (NFA) indicates whether a country is a net creditor or net debtor.
- Asset revaluations are necessary to account for changes in the value of international investments, especially due to changes in asset prices and exchange rates.
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