econ 101 ch 16

What is the best definition for foreign direct investment?

A foreign direct investment is the purchase of more than ten percent of a firm or the creation of a new enterprise in another country.

Which of the following is the best definition of the term "foreign exchange market"?

A foreign exchange market is the market in which people use one currency to buy another currency.

A stronger euro is less favorable for:

American tourists traveling in France.

What is an "exchange rate"?

An exchange rate is the price of one currency in terms of another set on the foreign exchange markets.

Which of the following terms means using the U.S. dollar as the currency of a country outside the United States?

Dollarizing

In which of these exchange-rate systems does the central bank have the most influence on the value of a nation's currency?

Hard peg

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

Who does not benefit from a stronger U.S dollar?

Steve runs a business whose primary customers are foreigners living abroad.

How might the government of Sweden seek to increase the value of its currency?

Sweden could buy Swedish krona on the foreign exchange market.

Which of the following would be classified as a portfolio investment for a foreigner?

The buying of U.S. government bonds.

What is the goal of Tobin Taxes?

To reduce international capital flows.

Supply for the U.S. dollar comes from __________.

U.S. investors who want to make portfolio investments in other countries

What do the economies of France, Italy and Germany all share?

a common currency

One of the following groups is not participating in the foreign exchange markets. Which one?

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

If rates of return in America looks relatively low, then the demand for the dollar will __________ and the supply of the dollar will __________.

decrease; increase

A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.

exchange rate depreciation

A stronger British pound is beneficial for:

exchange students with a British scholarship studying in Canada.

Who is harmed by a weaker currency?

foreign investors in the home country

When the euro depreciates relative to the dollar __________.

it will taker fewer dollars to buy a euro the dollar appreciates relative to the euro it will take more euro to buy a dollar

Which term means a system of money that belongs to one nation and is used by another nation?

merged currency

A _________ exchange rate policy is one in which the government usually allows the market to set the exchange rate, but in some cases, the central bank will intervene in the market.

soft peg

Which of these currencies constitutes less than 20% of the daily foreign exchange market share?

the Canadian dollar

Relatively high inflation in a nation will cause __________.

the demand for its currency to shift to the left

If 128 Japanese yen purchased $1.10 U.S. in 2005 and 105 Japanese yen purchased $1.10 U.S. in 2007, then:

the dollar depreciated against the yen.

When Maria purchases Yen through ___________________, she will use her United States dollars to pay for them.

the foreign exchange market

The exchange rate of most currencies is determined by __________.

the intersection of the demand and supply of that particular currency in the foreign exchange market

A depreciating United States dollar is ________________ because it's value _____________ in terms of other foreign currencies.

weakening; less