Imagine a world where only Canada and Switzerland exist. If there is a surplus of Swiss francs available in the foreign exchange market, what does this indicate about the current account balances?

Multiple choice question for Exchange-Rate Determination. Select an option, then review the explanation below.

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Canada's current account is running a surplusSwitzerland's current account is experiencing a deficitCanada's current account is balancedSwitzerland's current account is balancedNone of the above

Explanation

An excess supply of Swiss francs means more francs are being sold than bought, indicating Switzerland is spending more abroad than it is earning, which corresponds to a current account deficit for Switzerland.

Practice related questions from the same subject.

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2.If Japan, with its high savings rate, invests capital overseas, how is the Japanese yen likely to be affected, and what impact would this have on Japan's trade balance?
3.If interest rates are the same on similar assets in the U.S. and abroad, and investors expect the U.S. dollar to weaken relative to foreign currencies in the future, where are investment funds most likely to move?
4.If a country's money demand equals its money supply and its balance of payments is initially balanced, which of the following changes would cause the balance of payments to shift into a surplus?
5.Which market expectation would lead to the U.S. dollar strengthening against the Japanese yen?

Imagine a world where only Canada and Switzerland exist. If there is a surplus of Swiss francs available in the foreign exchange market, what does this indicate about the current account balances?

Explanation

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