For the Following Questions Assume the Following Facts

question 12

Multiple Choice

For the following questions assume the following facts:
(1) Balance of Payments = 0 prior to the transactions.
(2) Person A (who lives in the United States) purchases an airplane from British Airways for $150,000.
(3) Person A pays with a check from his account at First Union Bank in the United States.
(4) British airways, since it will need dollars in 1 month, deposits the check at the Bank of England.
(5) Bank of England deposits the $150,000 at Commonwealth bank, which is located in the United States.
Due to the transactions above, what are the effects on the reserve at the Fed?

• A) Fact 2 is a decrease of $150,000, fact 5 is a decrease of $150,000, a net effect of -$300,000.
• B) Fact 3 is a decrease of $150,000, fact 5 is an increase of $150,000, a net effect of 0.
• C) Fact 3 is an increase of $150,000, fact 5 is a decrease of $150,000, a net effect of 0.
• D) Both fact 3 and fact 5 result in increases of $150,000, a net effect of +$300,000.
• E) Both fact 3 and fact 5 result in decrease of $150,000, a net effect of -$300,000.

---

Definitions:

Relative Strength

The extent to which a security has outperformed or underperformed either the market as a whole or its particular industry.

Outperformed

Describes when an investment or fund earns a return that exceeds the performance of its benchmark or peer group.

Underperformed

Refers to an investment yielding a lower return than other investments or benchmarks.

Momentum

Momentum in finance refers to the tendency of an asset's price to move in the same direction for periods of time, influenced by investors' expectations and market trends.