Chapter 17

What is meant by "hedge"? A. Using a financial transaction as protection against risk. B. Purchases of firms in another country that involve taking a management responsibility. C. When a currency is worth less in terms of other currencies. D. An exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate.

A. Using a financial transaction as protection against risk.

Portfolio investments are often made based on beliefs about how ____________ are likely to move in the near future. A. exchange rates B. foreign investment tax rates C. bond rates and interest rates D. interest rates

A. exchange rates

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ____________ are a subtraction from aggregate demand. A. rates of return; exchange rates B. exports; imports C. imports; exports D. exchange rates; rates of return

B. exports; imports

If the Canadian dollar is strengthening, then: A. Canada has purchasing power parity. B. it has appreciated in terms of other currencies. C. Canada has adopted a hard peg policy. D. it has been unpegged from other currencies.

B. it has appreciated in terms of other currencies.

If a nation merges its currency with another nation to create a single currency, what must it give up? A. the ability to purchase currency in foreign exchange markets B. the ability to determine its own nationally-oriented monetary policy C. the ability to sell currency in foreign exchange markets D. the ability to fight recessions and control inflations

B. the ability to determine its own nationally-oriented monetary policy

A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in ____________, but seeks to avoid extreme short-term fluctuations. A. the long run B. the short run C. the market exchange D. the medium run

B. the short run

A stronger euro is less favorable for: A. Canadian investors with money investments in Germany. B. German tourists traveling abroad. C. American tourists traveling in France. D. Canadian firms selling in Germany.

C. American tourists traveling in France.

Which of the following characteristics relate to "hard peg"? A. An exchange rate policy where the government usually allows the exchange rate to be set by the market, but in some cases the central bank will intervene. B. Using a financial transaction as protection against risk. C. An exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate. D. When a country lets the value of its currency be determined in the exchange rate market.

C. An exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate.

What term is used to describe when a country lets the value of its currency be determined in the exchange rate market? A. Dollarize B. Portfolio investment C. Floating exchange rate D. Foreign direct investment

C. Floating exchange rate

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to: A. purchasing power parity. B. a hard peg policy. C. a floating exchange rate. D. depreciation.

C. a floating exchange rate.

People or firms use one currency to purchase another currency in the ____________. A. international currency exchange B. foreign currency exchange C. foreign exchange market D. international parity market

C. foreign exchange market

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ____________. A. purchases or sales of foreign currencies B. extreme short-term fluctuations C. inflation or recession D. how currency speculators react to rumors

C. inflation or recession

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then; A. the U.S. dollar strengthened against the Canadian dollar. B. the Canadian dollar weakened against the Canadian dollar. C. the Canadian dollar appreciated against the U.S. dollar. D. the U.S. dollar appreciated against the Canadian dollar.

C. the Canadian dollar appreciated against the U.S. dollar.

A depreciating U.S. dollar is ____________ because it is worth ____________ in terms of other currencies. A. beneficial to importers; more B. a problem for exporters; less C. weakening; less D. strengthening; more

C. weakening; less

____________ equalizes the prices of internationally traded goods across countries. A. A floating exchange rate B. An international parity rate C. The foreign exchange rate D. Purchasing power parity

D. Purchasing power parity

If the U.S. dollar weakens, which of the following parties will benefit? A. Australian firms selling in the U.S. B. Japanese investors who have money in the U.S. C. countries exporting to the U.S. D. U.S firms selling in Europe

D. U.S firms selling in Europe

Short run speculation in currencies can create ____________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa. A. high inflation rates B. a decrease in the supply side C. low inflation rates D. a self-fulfilling prophecy

D. a self-fulfilling prophecy

When a government uses a ____________ exchange rate policy, it usually, but not always, allows the exchange rate to be set by the market. A. currency B. purchasing power parity C. hard peg D. soft peg

D. soft peg

Foreign direct investment is the term used to describe purchases of firms in another country that involve ____________. A. internationally traded goods across countries B. using another currency C. the exchange rate market D. taking a management responsibility

D. taking a management responsibility

A ____________ monetary policy can be used to decrease aggregate demand because it ____________ exports and ____________ imports . A. expansionary; reduces; stimulates B. contractionary; reduces; stimulates C. loose; stimulates; reduces D. tight; stimulates; reduces

D. tight; stimulates; reduces