CEA International Trade and Finance 2

Question 1

The J-curve effect in international trade suggests that after a currency depreciation, the trade balance initially:

Accepted Answer

Worsens before eventually improving

Answer

The J-curve occurs because import/export volumes adjust slowly, so the trade balance worsens in the short run before improving as quantities respond.

Question 2

Which condition must hold for a currency depreciation to improve the trade balance in the long run?

Accepted Answer

The Marshall-Lerner condition must be satisfied

Answer

The Marshall-Lerner condition states that the sum of the price elasticities of demand for exports and imports must exceed one for depreciation to improve the trade balance.

Question 3

A country running a persistent current account surplus is best described as:

Accepted Answer

A net lender to the rest of the world

Answer

A current account surplus means the country exports more than it imports, making it a net lender (capital outflow) to the rest of the world.

Question 4

Covered interest rate parity links which variables?

Accepted Answer

Forward exchange rates, spot rates, and interest rate differentials

Answer

Covered interest parity states that the forward premium or discount on a currency equals the interest rate differential between two countries.

Question 5

A tariff-rate quota (TRQ) allows imports:

Accepted Answer

At a low tariff up to a threshold, then a higher tariff above it

Answer

A TRQ charges a lower (or zero) tariff on imports up to a specified quantity and a higher tariff on any imports exceeding that threshold.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA International Trade and Finance 2