Economics 102 Chapter 9

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. dollar

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

The term "foreign currency" refers to foreign I. coins II. notes III. bank deposits

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

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 it is 11 pesos. 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 of 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 they quantity of dollars demanded decreases

appreciates; more

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

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 exchanged 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

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 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

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

flexible 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 agains the yen, the Fed will

increase the supply of dollars by buying yen

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

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 U.S. dollars

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

the U.S. dollar would depreciate

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

the demand curve for European euros and the supply curve for Indian rupees both shift rightward

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

A country's balance of payments accounts records

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