Econ 2035 lsu Chapter 8 (17)

Everything else held constant, when a country's currency depreciates, its goods abroad become ________ expensive while foreign goods in that country become ________ expensive

less; more

Everything else held constant, when a country's currency appreciates, the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive.

more; less

Everything else held constant, when the current value of the domestic currency increases, the ________ domestic assets ________.

quantity demanded of; decreases

Everything else held constant, when the current value of the domestic exchange rate increases, the ________ of domestic assets ________.

quantity supplied; does not change

A decrease in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant

right; appreciate

An increase in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant

right; appreciate

The theory of purchasing power parity cannot fully explain exchange rate movements because

some goods are not traded between countries

If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, then, in the long run ________, everything else held constant

the Japanese yen will depreciate relative to the U.S. dollar

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

the expected return on these assets relative to one another

The starting point for understanding how exchange rates are determined is a simple idea called ________, which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it.

the law of one price

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets

theory of portfolio choice

If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the real depreciates from ________ per real to ________ per real

$0.67; $0.50

On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 3.33 Romanian new lei. Therefore, one Romanian new lei would have purchased about ________ U.S. dollars.

0.30

On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 1.15 Swiss francs. Therefore, one Swiss franc would have purchased about ________ U.S. dollars.

0.87

On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars

1.33

If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen, the U.S. dollar depreciates from ________ per dollar to ________ per dollar

100¥; 50¥

According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is

25 pesos per real

________ in the foreign interest rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant.

A decrease; appreciate

________ in the foreign interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant

A decrease; appreciate

________ in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate, everything else held constant

A decrease; decrease

________ in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to depreciate, everything else held constant

A decrease; decrease

________ in the domestic interest rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant

A decrease; depreciate

________ in the domestic interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant

A decrease; depreciate

________ in the expected future domestic exchange rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant

A decrease; depreciate

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate, everything else held constant

A decrease; left

________ in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate, everything else held constant

A decrease; right

________ in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant

An increase; appreciate

________ in the domestic interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant

An increase; appreciate

________ in the expected future domestic exchange rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant

An increase; appreciate

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant

An increase; appreciate

________ in the foreign interest rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant

An increase; depreciate

________ in the foreign interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant

An increase; depreciate

________ in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to appreciate, everything else held constant

An increase; increase

________ in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to appreciate, everything else held constant.

An increase; increase

________ in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate, everything else held constant.

An increase; left

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate, everything else held constant

An increase; right

If the dollar depreciates relative to the Swiss franc

Swiss chocolate will become more expensive in the United States

The theory of PPP suggests that if one country's price level falls relative to another's, its currency should

appreciate in the long run.

The theory of PPP suggests that if one country's price level falls relative to another's, its currency should

appreciate.

Everything else held constant, increased demand for a country's exports causes its currency to ________ in the long run, while increased demand for imports causes its currency to ________.

appreciate; depreciate

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, everything else held constant

appreciate; lower

When the exchange rate for the Mexican peso changes from 10 pesos to the U.S dollar to 9 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.

appreciated; depreciated

When the value of the British pound changes from $1.25 to $1.50, the pound has ________ and the U.S. dollar has ________.

appreciated; depreciated

When the value of the dollar changes from £0.75 to £0.5, then the British pound has ________ and the U.S. dollar has ________.

appreciated; depreciated

Although foreign exchange market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of

bank deposits denominated in different currencies

A decrease in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant

decrease; depreciate

A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant

decrease; depreciate

An increase in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant.

decrease; depreciate

Suppose that the European Central Bank conducts a main refinancing sale. Everything else held constant, this would cause the demand for U.S. assets to ________ and the U.S. dollar will ________.

decrease; depreciate

Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

decrease; depreciate

The theory of PPP suggests that if one country's price level rises relative to another's, its currency should

depreciate.

Lower tariffs and quotas cause a country's currency to ________ in the ________ run, everything else held constant

depreciate; long

When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive

depreciated; American wheat sold in Britain becomes more

When the exchange rate for the Mexican peso changes from 9 pesos to the U.S. dollar to 10 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.

depreciated; appreciated

When the value of the British pound changes from $1.50 to $1.25, then the pound has ________ and the U.S. dollar has ________.

depreciated; appreciated

When the value of the dollar changes from £0.5 to £0.75, then the British pound has ________ and the U.S. dollar has ________.

depreciated; appreciated

As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant

dollar; foreign

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets

dollar; foreign

Everything else held constant, if a factor increases the demand for ________ goods relative to ________ goods, the domestic currency will appreciate

domestic; foreign

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another

expected return

Everything else held constant, increased demand for a country's ________ causes its currency to appreciate in the long run, while increased demand for ________ causes its currency to depreciate

exports; imports

If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will

fall by 2 percent

In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro, the price is the

forward exchange rate

An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

forward transaction

If the real exchange rate between the United States and Japan is ________, then it is cheaper to buy goods in Japan than in the United States

greater than 1.0

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets

higher; lower

A decrease in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant

increase; appreciate

Suppose that the European Central Bank enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

increase; appreciate

Suppose that the Federal Reserve conducts an open market sale. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar will

increase; appreciate

On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 49.0 Indian rupees. Thus, one Indian rupee would have purchased about ________ U.S. dollars

0.02

If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per dollar, then the franc depreciates from ________ U.S. dollars per franc to ________ U.S. dollars per franc.

0.80; 0.67

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant

A decrease; depreciate

________ in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to appreciate, everything else held constant.

A decrease; increase

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate, everything else held constant

A decrease; left

________ in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate, everything else held constant

An increase; decrease

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate, everything else held constant

An increase; right

Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen?

The Brazilian real will depreciate against the U.S. dollar

Higher tariffs and quotas cause a country's currency to ________ in the ________ run, everything else held constant

appreciate; long

The theory of PPP suggests that if one country's price level rises relative to another's, its currency should

depreciate in the long run

In the long run, a rise in a country's price level (relative to the foreign price level) causes its currency to ________, while a fall in the country's relative price level causes its currency to ________.

depreciate; appreciate

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets, there is a ________ demand for dollar assets, everything else held constant

dollar; foreign; higher

Everything else held constant, if a factor decreases the demand for ________ goods relative to ________ goods, the domestic currency will depreciate

domestic; foreign

An increase in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant

increase; appreciate

An increase in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant.

increase; appreciate

A decrease in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant.

left; depreciate

A decrease in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant

left; depreciate

An increase in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant

left; depreciate

An increase in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant

right; appreciate

Today 1 euro can be purchased for $1.10. This is the

spot exchange rate

The immediate (two-day) exchange of one currency for another is a

spot transaction

If the Brazilian demand for American exports rises at the same time that U.S. productivity rises relative to Brazilian productivity, then, in the long run, ________, everything else held constan

the Brazilian real will depreciate relative to the U.S. dollar

If, in retaliation for "unfair" trade practices, Congress imposes a 30 percent tariff on Japanese DVD recorders, but at the same time, U.S. demand for Japanese goods increases, then, in the long run, ________, everything else held constant

the Japanese yen could appreciate, depreciate or remain constant relative to the U.S. dollar

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________, everything else held constant

depreciate; lower

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico, then, in the long run, ________, everything else held constant

the Mexican peso will appreciate relative to the U.S. dollar

According to the purchasing power parity theory, a rise in the United States price level of 5 percent, and a rise in the Mexican price level of 6 percent cause

the dollar to appreciate 1 percent relative to the peso

Exchange rates are determined in

the foreign exchange market

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

the price levels of the two countries

The exchange rate is

the price of one currency relative to another

The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries

theory of purchasing power parity

If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S. dollar depreciates from ________ per dollar to ________ per dollar

£2; £1.33