ECON FINAL

If one U.S. dollar is traded on the foreign exchange market for about 49.0 Indian rupees, then one Indian rupee can purchase about ________ U.S. dollars.

0.02

If one U.S. dollar is traded on the foreign exchange market for about 3.33 Romanian new lei, then one Romanian new lei can purchase about ________ U.S. dollars.

0.30

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

According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign currency is expected to depreciate by 2% against domestic currency. Then the foreign asset must offer an interest rate of ________%.

14

With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is

17 percent.

If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. If Et+1 = €1.02/$, then your rate of return in terms of $ is ________%, and your rate of return in terms of € is ________%.

6; 8

________ 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 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 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 shift to the ________ and the domestic currency to appreciate, everything else held constant.

A decrease; right

________ 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 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 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

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.

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

According to the Purchasing Power Parity, if one country's price level rises relative to another's by a certain percentage, then the other country's currency

appreciates by the same percentage.

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

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 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

During the beginning on the global financial crisis in the United States when the effects of the crisis were mostly confined within the United States, the U. S. dollar ________ because demand for U.S. assets ________.

depreciated; decreased

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

domestic; foreign

If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, the expected return on ________-denominated assets in ________ percent.

euro; dollars is 3

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.

The Brexit vote in June 2016 resulted in higher expected trade barriers. The relative expected return on British (pound) assets therefore ________ and so the quantity demanded of pound assets ________ at any given exchange rate, shifting the demand curve for pound assets to the ________.

fell; declined; left

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

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

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

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

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

According to PPP, when the Big Mac has a high price in terms of local currency, then the exchange rate quoted in U.S. dollars per unit of local currency should be ________.

low

The Brexit vote in June 2016 resulted in higher expected trade barriers . Therefore, the expected value of the pound would be ________ in the future. The result was the sharp ________ in the equilibrium exchange rate for the British pound.

lower; fall

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

If 1 euro can be purchased for $1.10 today on the market, this exchange rate is called the

spot exchange rate.

The expected return on dollar deposits in terms of foreign currency can be written as the ________ of the interest rate on dollar deposits and the expected appreciation of the dollar.

sum

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 constant.

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

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

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