econ 102 chapter 25

103)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. B) a fixed exchange rate. C) a crawling peg. D) a nominally fixed exchange rate. E) none of the above.

A

104)China has used a fixed yuan exchange rate and a crawling peg exchange rate. In both cases, China pegs its currency to the A) U.S. dollar. B) Japanese yen. C) euro. D) Mexican peso. E) Russian ruble.

A

106)If a country's currency appreciates and its official holdings of foreign currency increase. The central bank is ________ foreign currency to limit the appreciation, and the official settlements account balance is ________. A) buying; negative B) selling negative C) buying; positive D) selling; positive E) buying; zero

A

107)One consequence of China operating a crawling peg is that China ________. A) is accumulating U.S. dollar reserves B) will eventually run out of foreign reserves, and the yuan will depreciate C) will eventually run out of foreign reserves, and the yuan will appreciate D) will become more competitive in the long run E) none of the above

A

95)Which of the following exchange rate policies uses a target exchange rate, but allows the target to change? A) crawling peg B) flexible exchange rate C) fixed exchange rate D) moving target E) none of the above Topic: Exchange Rate Policy

A

96)Suppose the Bank of Canada follows a fixed exchange rate of $1 U.S. per Canadian dollar. If the demand for Canadian dollars temporarily increases, to maintain the target exchange rate, the Bank can A) sell Canadian dollars. B) buy Canadian dollars. C) violate interest rate parity. D) violate purchasing power parity. E) enforce interest rate parity. Topic: Exchange Rate Policy

A

21)If the exchange rate is too high in the foreign exchange market, A) there is a surplus and the exchange rate will rise. B) there is a surplus and the exchange rate will fall. C) exports are cheap, and the demand curve for Canadian dollars will shift rightward. D) there is a shortage and the exchange rate will fall. E) there is a shortage and the exchange rate will rise. Topic: The Foreign Exchange Market

B

25)The law of supply of foreign exchange tells us that other things remaining the same, A) the lower the exchange rate, the greater is the quantity of Canadian dollars supplied. B) the higher the exchange rate, the greater is the quantity of Canadian dollars supplied. C) the higher the exchange rate, the greater is the supply of Canadian dollars D) the lower the exchange rate, the greater is the supply of Canadian dollars. E) the lower the exchange rate, the smaller is the supply of Canadian dollars. Topic: The Foreign Exchange Market 5

B

97)Suppose the Bank of Canada follows a fixed -exchange rate of 0.50 U.K. pounds per Canadian dollar . If the demand for dollars temporarily decreases, to maintain the target exchange rate, the Bank can A) sell dollars. B) buy dollars. C) increase Canadian exports. D) increase Canadian imports. E) violate purchasing power parity. Topic: Exchange Rate Policy

B

98)If the Bank of Canada sets a target exchange rate that is higher than the current exchange rate, then A) the Bank must sell dollars. B) the Bank must buy dollars. C) the Bank can do nothing in the short run. D) will print more dollars for foreign distribution. E) None of the above. Topic: Exchange Rate Policy 18

B

105)If a country's central bank does not intervene in the foreign exchange market, the country has A) a crawling peg exchange rate policy. B) a fixed exchange rate policy. C) a flexible exchange rate policy. D) no exchange rate policy. E) a responsible exchange rate policy.

C

26)The higher the exchange rate, all other things remaining the same, the A) smaller is the supply of Canadian imports. B) smaller is the volume of Canadian imports. C) greater is the volume of Canadian imports. D) greater is the supply of Canadian imports. E) greater is the demand for Canadian exports. Topic: The Foreign Exchange Market

C

23)Which of the following factors influence the demand for Canadian dollars? A) The exchange rate and the world demand for Canadian exports. B) Interest rates in Canada and other countries, and the expected future exchange rate. C) The world demand for Canadian exports and Canadian demand for imports. D) Both A and B. E) Both B and C. Topic: The Foreign Exchange Market

D

24)The law of demand for foreign exchange tells us that other things remaining the same, A) the higher the exchange rate, the greater is the quantity of Canadian dollars demanded. B) the higher the exchange rate, the greater is the demand for Canadian dollars. C) the higher the exchange rate, the greater is the supply of Canadian dollars. D) the higher the exchange rate, the smaller is the quantity of Canadian dollars demanded. E) the lower the exchange rate, the greater is the supply of Canadian dollars. Topic: The Foreign Exchange Market

D

27)At the equilibrium exchange rate ________. A) the demand for dollars equals the supply of dollars B) a shortage may exist but a surplus may not exist C) a surplus may exist but a shortage may not exist D) the quantity of dollars demanded equals the quantity of dollars supplied E) the Canadian dollar is trading for 90 U.S. cents per Canadian dollar Topic: The Foreign Exchange Market

D

99)If the exchange rate is higher than the Bank of Canada's target exchange rate, the Bank A) implements purchasing power parity. B) implements interest rate parity. C) buys dollars. D) sells dollars. E) none of the above.

D

22)The lower the exchange rate, the A) larger is the quantity of Canadian dollars supplied in the foreign exchange market. B) larger is the quantity of Canadian dollars demanded in the foreign exchange market. C) smaller is the quantity of Canadian dollars supplied in the foreign exchange market. D) smaller is the quantity of Canadian dollars demanded in the foreign exchange market. E) B and C. Topic: The Foreign Exchange Market

E