Ch 16 Macroeconomics

One of the following groups is not participating in the foreign exchange markets. Which one?

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

Which of the following denotes a common misunderstanding about exchange rates?

an appreciating currency must be better than a depreciating currency

If the U.S. government uses an expansionary monetary policy to reduce interest rates, it will

cause the exchange rate for U.S. currency to depreciate.

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.

inflation or recession

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

interest rates; right

Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?

it would depreciate the country's exchange rate and break its hard peg

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and .87 U.S. dollars in 2010, then

the dollar strengthened against the peso

A depreciating U.S. dollar is ________________ because it is worth _________ in terms of other currencies.

weakening; less

Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets?

French franc

What is meant by foreign direct investment?

Purchases of firms in another country that involve taking a management responsibility.

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

What is meant by "hedge"?

Using a financial transaction as protection against risk.

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to

a floating exchange rate.

If American Airlines were to purchase Malaysian Airlines, it would likely have ______________________________ in mind.

a longer-term horizon

If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then

exchange rates will have less reason to vary.

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

exports; imports

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

swings in exchange rates

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then

the Canadian dollar appreciated against the U.S. dollar

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then

the dollar depreciated against the yen

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with __________________________.

the tools of demand and supply