Exchange rate questions
$ to the Yen: Prices in Japan and US are rising at the same rate
Remain the same
The maintenance of money's value is said to depend on monetary authroities. What might the monetary authorities do to a currency that can cause its value to drop?
-Increase the money supply w/o a matching increase in demand -Lower the interest rate
$ to the Yen: Real interest rate in US rises relative to real rates in Japan
Appreciate
$ to the Yen: The growth rate of national income is higher in US than in Japan
Appreciate
$ to the Yen: Inflation is higher in US than in Japan
Depreciate
$ to the Yen: The US imposes new restrictions on the ability of foreigners to buy American companies and real estate
Depreciates
How do rates change: MCI sells a new stock issue to Alcatel, the French telecommunications company. Payment in dollars is done immediately.
Dollars appreciate
How do rates change: Korean Airlines buys 5 Boeing 747s. As part of the deal, Boeing arranges a load to KAL for the purchase, the loan is to be paid back over the next 7 years.
Dollars appreciate in the future
T/F: If US interest rates are higher than European interest rates, we can conclude that US $ will depreciate against the Euro
False
T/F: In 2005 one Euro was 1,25 $, in 2009 one Euro was 1,47 $, We can say that the $ has appreciated
False
T/F: A spot rate is the price at which currencies are quoted for delivery at a specified future date.
False (this is the forward rate)
How do rates change: Seagram imports a year supply of French champange. Payment in French francs is done immediately.
Francs appreciate
T/F: A higher demand in US products and services supposes an increase in demand in US currency.
True
T/F: Countries whose central banks are less subject to government intervention tend to have lower and less volatile inflation rates and vice versa.
True
T/F: Currencies values are also affected by expectations about future exchange rates movements, like other financial assets.
True
T/F: If the rate of inflation in US is 5% and in Mexico is 8%. The peso should depreciate 3%
True
T/F: In a freely floating exchange rate regime, there is absence of government intervention.
True
T/F: The demand for euros in the foreign exchange market is equivalent to the supply in dollars, in a two-country model (Europe-USA)
True
T/F: Under a currency board system there is no central bank.
True
