Sample Test #3 (9)

The data in the table above are the U.S. balance of payments. The current account balance is

$140 billion

If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African rands per dollar, then the real exchange rate is

6 South African goods per U.S. good.

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 9 yuan, the price of this airplane to China Airlines is

855 million yuan

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 10 yuan, the price of this airplane to China Airlines is

950 million yuan

Using the table above, if the current market value of the dollar is 125 francs

B) all three investors hold francs.

The term "foreign currency" refers to foreign

I, II, AND III

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the

U.S. dollar depreciates by 2 percent a year

If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was a

a flexible exchange rate

Using the table above, if the current market value of the dollar is 70 francs

all three investors hold dollars.

According to purchasing power parity, a rise in inflation in the United States relative to the rest of the world will lead to

an exchange rate depreciation

Which of the following will lead to an appreciation of the U.S. dollar against the British pound?

an increase in British demand for U.S. imports

Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. Today is it 11 pesos per dollar. Here, the dollar ________ against the peso, and the peso ________ against the dollar

appreciated, depreciated

Suppose the peso-dollar foreign exchange rate changes from 50 pesos per dollar to 30 pesos per dollar. Then the peso has ________ against the dollar and the dollar has ________ against the peso.

appreciated; depreciated

The demand curve for U.S. dollars slopes downward because as the dollar ________ U.S. goods become ________ expensive to foreign residents, so they purchase fewer U.S. goods, and the quantity of dollars demanded decreases.

appreciates; more

In the foreign exchange market, the supply curve for dollars slopes upwards because

as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports.

Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can

buy dollars

Suppose Mitsubishi Bank (a Japanese bank) expects the exchange rate to be 125 yen per U.S. dollar at the end of the year. If today's exchange rate is 120 yen per U.S. dollar, Mitsubishi bank

buys U.S. dollars today because it expects profit from buying U.S. dollars and holding them.

In the figure above, suppose the demand for dollars temporarily decreases so that the demand curve shifts to D2. To maintain the target exchange rate, the Fed

can buy dollars

In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D1. To maintain the target exchange rate, the Fed

can sell dollars

Which of the following exchange rate policies uses a target exchange rate, but allows the target to change?

crawling peg

If the world real interest rate falls, then a country that is an international lender

decreases the amount of its lending.

In the foreign exchange market, an increase in the world demand for U.S. exports shifts the

demand curve for U.S. dollars rightward

When a good is imported into the United States, a ________is created.

demand for foreign currencies and a supply of dollars

When people who are holding the money of some other country want to exchange it for U.S. dollars, they ________ U.S. dollars and ________ that other country's money.

demand; supply

Suppose a British bank offers a 3 percent interest rate while a U.S. bank offers a 7 percent interest rate. People must expect the U.S. dollar will

depreciate 4 percent.

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has ________ and the yen has ________.

depreciated, appreciated

A small country is an international borrower and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international borrowing ________.

does not change; decreases

A small country is an international lender and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international lending ________.

does not change; increases

A factor determining the supply of U.S. dollars in the foreign exchange market is the

expected future exchange rate.

The lower the exchange rate today, ceteris paribus, the

greater is the expected profit from buying U.S. dollars today and holding them.

If the Fed wants to depreciate the dollar against the yen, the Fed will

increase the supply of dollars by buying yen

In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in the United States. This change ________ the supply of dollars and the market moves to a point such as ________.

increases; C

With everything else the same, in the foreign exchange market the

larger the value of U.S. exports, the greater is the quantity of dollars demanded.

When the U.S. exchange rate falls, U.S. goods become ________ to foreign residents and U.S. exports ________.

less expensive, increase

When the U.S. exchange rate rises, foreign goods become ________ and U.S. imports ________.

less expensive; increase

Airbus is a European jet airline producer. Indian Airlines wants to buy 23 Airbus planes from Airbus, due to increased demand for world travel. As a result

only the demand curve for European euros shifts rightward

In the figure above, the shift in the demand curve for U.S. dollars from D0 to D1 could occur when

people expect that the dollar will appreciate

In the figure above, the shift in the demand curve for U.S. dollars from D0 to D2 could occur when

people expect that the dollar will depreciate

In the above figure, suppose the economy is initially at point A. The interest rate in Japan rises relative to the interest rate in the United States. As a result, there will be a change from point A to a point such as ________.

point E

Arbitrage in the foreign exchange market, international loans markets, and goods markets results in

purchasing power parity, interest rate parity and law of one price

The higher the exchange rate today, the

smaller is the expected profit from buying U.S. dollars today and holding them.

The demand for Mexican tomatoes by an American food grocery chain creates a

supply of US dollars

The table above gives some of the entries in the national income and product accounts. The government sector has a ________, and the private sector has a ________.

surplus of $50 billion; surplus of $25 billion

If the People's Bank of China adopted a flexible exchange rate policy

the U.S. dollar would depreciate

In the figure above, the shift in the supply curve for U.S. dollars from S0 to S1 could occur when

the U.S. interest rate differential increases.

If the European Central Bank increases interest rates

the demand curve for European euros shifts rightward and the supply curve of European euros shifts leftward.

If the Federal Reserve increases interest rates

the demand curve for U.S. dollars shifts rightward and the supply curve of U.S. dollars shifts leftward

In the figure above, the shift in the supply curve for U.S. dollars from S0 to S2 could occur when

the expected future exchange rate falls

In the figure above, the shift in the supply curve for U.S. dollars from S0 to S1 could occur when

the expected future exchange rate rises

A country's balance of payments accounts records

the international trading, borrowing, and lending positions of a country over a period of time.