international finance

If the purchasing power of the U.S. dollar ______ relative to other currencies, it is known as a depreciation of the U.S. dollar.

decreases

The amount by which a country's imports of goods and services (M) are greater than its exports of goods and services (X) is called a trade

deficit

An increase in interest rates by one country's central bank can result in large increases in ______ for the country's currency.

demand

You are going on a trip to the United Kingdom in a few months and need British pounds to use during your travels. This represents the ______

demand for british pounds

An increase in inflation in the foreign economy will cause foreign currency:

demand to decrease foreign currency supply to increase and resulting in depreciation of the foreign currency.

An increase in inflation in the U.S. will cause foreign currency:

demand to increase foreign currency supply to decrease and result in appreciation of the foreign currency.

Net exports is the difference between _____ and _____

exports imports

A lower exchange rate means that people who hold euros receive:

fewer dollars for each euro exchanged making goods priced in dollars more expensive to them.

______ exchange rates are notoriously difficult to maintain.

fixed

Suppose you have some bitcoins and U.S. dollars. You want to purchase a product and can pay in bitcoins or U.S. dollars. If the exchange rate for bitcoins is very ______ , you're more likely to use your bitcoins.

high

What is a downside to a country adopting a fixed exchange rate?

It is very difficult to maintain a fixed exchange rate.

Consider the foreign exchange market between the U.S. Dollar (USD) and the Mexican Peso (MXN). What would happen to the exchange rate if the Federal Reserve Bank used expansionary monetary policy to help stimulate the U.S. economy?

The exchange rate would increase.

In the foreign exchange market, the exchange rate is measured as:

U.S. dollar/unit of foreign currency.

Suppose the "foreign exchange market" is described as the market for the euro. Then the exchange rate is the number of:

U.S. dollars it takes to buy a euro or dollars/euro.

A trade surplus is also called:

a current account surplus.

depreciation

a decrease in the value, or price, of one currency relative to another

The demand for foreign currencies is:

a derived demand.

foreign exchange market

a market in which people exchange one currency for another currency

The supply of dollars on the foreign exchange market is the:

amount of dollars that Americans are willing to exchange for foreign currency so that they can purchase foreign goods services and assets.

The amount by which a country's exports of goods and services (X) are greater than its imports of goods and services (M) is called a trade

surplus

If foreign currency trades for fewer dollars, then U.S. firms:

that import their products would benefit.

The origin of the Mexican peso crisis was:

the North American Free Trade Agreement.

During the Mexican peso crisis,:

the United States and the International Monetary Fund lent Mexico $50 billion to stabilize their foreign reserves.

contractionary monetary policy

the actions taken by a country's central bank to contract the money supply and raise interest rates with the objective of decreasing real GDP and controlling inflation. sometimes referred to as tight money

expansionary monetary policy

the actions taken by a country's central bank to expand the money supply and lower interest rates with the objective of increasing real GDP and reducing unemployment. sometimes referred to as easy money

account balance

the difference between total credits and total debts

equilibrium exchange rate

the exchange rate that is determined by the interaction of the demand for and supply of the currency

exchange rate

the rate or price at which on currency can be exchanged for another

Suppose you are working for a small start up as a purchasing agent. You are purchasing a product that requires that you pay in bitcoins. The product costs 1.75 bitcoins. The exchange rate is 0.0035 bitcoins per dollar. What will the product cost you in U.S. dollars?

500

Which of the following describes the balance pf payments identity?

Current Account + Financial Account + Capital Account = $

If the demand for a currency increases under a fixed exchange rate, what must a country do to maintain the fixed rate?

Increase the supply of its currency

Consider the foreign exchange market between the Canadian Dollar (CAD) and the Pound (GBP). What would happen in the exchange market if inflation in Canada (the domestic country) was 3%, and inflation in Great Britain (the foreign country) was 6%?

Supply increases, Demand decreases

balance of payments

a collection of national income accounts that summarize the flow of international trade between one country and all other countries. within each account, exports are recorded as credits and imports are recorded as debits

The U.S. money supply refers to the:

amount of dollar bills in circulation.

credit

an account entry that records the value of a good, service, financial asset, or other asset that is exported from one country to another

debit

an account entry that records the value of a good, service, financial asset, or other asset that is imported from one country to another

financial account

an account within the balance of payments that summarizes international trade in financial assets, such as currencies, stocks, and bonds

current account

an account within the balance of payments that summarizes international trade in goods, services, and income payments

capital account

an account within the balance of payments that summarizes international trade in nonfinancial and nonproduced assets, such as patents and copyrights. the capital account also tracks asset gifts like debt forgiveness

flexible exchange rate

an exchange rate that changes as demand and supply for the currency change

fixed exchange rate

an exchange rate that is set at a specific value and maintained over time

appreciation

an increase in the value, of one currency relative to another

While on a vacation in Europe you use U.S. dollars to buy $500 worth of souvenirs. This transaction is a $500 _______ in the current account

debit

Inflation in the United States holds steady at 2%, while inflation in Great Britain increases to 5%.. This will cause the demand for British pounds to ______, and the supply of British pounds to ______. As a result of these shifts, the exchange rate would ______.

decrease; decrease; fall

Suppose interest rates in the UK rise. This will affect the ______ side of the foreign exchange market and cause exchange rates to ______

demand increase

Suppose income in the U.S. rises. This will affect the _____ side of the foreign exchange market for euros and cause the dollars per euro exchange rate to ______

demand rise

the __________ for the euros is based on the desire to purchase euro-denominated goods. The ______ of euros comes from people who hold euros and want to buy non euro-denominated goods.

demand supply

when the dollar ________ , foreign goods and services become more expensive to U.S. consumers and _______ fall

depreciates imports

In the United States, when we talk about the value of a good or service, we speak in dollars. This means that it is the _________ currency of the United States.

domestic

The currency or money used in the domestic country is called:

domestic currency.

The exchange rate that is determined by the interaction of the demand for and supply of the currency is the ______ exchange rate

equilibrium

one reason the _______ has become so popular is that it allows Europeans to avoid the cost and inconvenience of trading one currency for another.

euro

today the ______ is the second-most-traded currency on the planet, and it didn't even exist two decades ago.

euro

One important determinant of imports and exports is the

exchange rate

An exchange rate that changes as demand and supply for the currency change is a(n) _______ exchange rate

flexible

Most foreign exchange markets are characterized by _______ exchange rates

flexible

For a U.S. citizen, the euro is

foreign

________ currency is the currency or money used in foreign countries.

foreign

The currency or money used for trade within foreign countries is called:

foreign currency.

foreign reserves

government holdings of foreign currencies; generally used to settle international transactions and conduct exchange rate policy

This will cause the demand for British pounds to ______, and the supply of British pounds to ______. As a result of these shifts, the exchange rate would ______.

increase; decrease; fall

Two determinants that shift both demand and supply for a foreign currency at the same time are:

interest rates and inflation rates.

If foreign currency trades for fewer dollars, then vacations in other countries have become ______ expensive; international tourists are ______ likely to come to the U.S. and spend their money.

less less

the ___________ expensive bitcoins become (in terms of U.S. dollars) the more they will buy.

more

If foreign currency trades for fewer dollars, then vacations in the United States have become ______ expensive; international tourists are _______ likely to come to the U.S. and spend their money.

more less

Expansionary fiscal policy is _______ effective in an economy that is open to international trade and finance and has _______ exchange rates

more flexible

Exports minus imports equals ______ exports

net

Kisho works for a technology company in Japan. His company is sending him on a business trip to the United States to recruit new workers. Does this describe the supply or demand for yen (Japanese currency)?

supply

Suppose interest rates in the U.S. fall. This will affect the ______ side of the foreign exchange market and cause exchange rates to ______

supply increase

domestic currency

the currency or money used in the domestic country

foreign currency

the currency or money used in the domestic country

Use the graph above to answer the question. Suppose there is a decrease in income in the United States. What will happen to the exchange market for the Indian rupee?

Demand decreases

If the supply of Euros decreases, what will happen to the exchange rate between Euros and US Dollars?

Exchange rate increases

Consider the foreign exchange market between the U.S. Dollar (USD) and the Japanese Yen (JPY). Under a fixed exchange rate system, what action would the Japanese Central bank have to take if the demand for Japanese products increased?

Expansionary Monetary Policy

A higher exchange rate means that people who hold euros receive:

more dollars for each euro exchanged making goods priced in dollars less expensive to them.

A higher exchange rate means that people who hold euros receive ______ dollars for each euro exchanged, making goods priced in dollars ______ expensive to them

more less