Homework 9

If the United States sells beef to Japan, the U.S. beef producer is paid with

dollars.

The law of demand in the foreign exchange market refers to the relationship between the

exchange rate and the quantity of U.S. dollars demanded.

When Safeway supermarkets in the United States buys strawberries from Mexico

it uses pesos to pay Mexican farmers.

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

If nothing else changes, the ________ the current exchange rate, the ________ is the expected profit from holding dollars, all other things remaining the same.

lower; larger

Which of the following statements is CORRECT? The exchange rate is a price. The exchange rate is different from other prices because it is NOT determined by supply and demand.

only I

The exchange rate is the

price of one country's currency expressed in terms of another country's currency.

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. good.

With everything else the same, which of the following would increase the demand for U.S. dollars in the foreign exchange market? a rise in the U.S. interest rate a fall in interest rates in foreign countries III. a rise in the expected future exchange rate

I, II, III

A change in which of the following changes the supply of dollars and shifts the supply curve of dollars? an increase in the exchange rate a change in interest rates III. a decrease in the expected future exchange rate

II and III

The demand for dollars in the foreign exchange market will increase (so that the demand curve shifts rightward) if

None of the above answers is correct.

Given the U.S. price level P, the foreign country price level P*, and the nominal exchange rate ER expressed in foreign currency per U.S. dollar, the real exchange rate RER is given by

RER = ER × (P/P*).

The U.S. interest rate minus the foreign interest rate is called the ________.

U.S. interest rate differential

Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the

demand curve for U.S. Dollars shifts rightward.

If the dollar's value changes from 120 yen per dollar to 110 yen per dollar, the dollar has

depreciated

The demand for dollars in the foreign exchange market will decrease and hence the demand curve for dollars will shift leftward if

the U.S. interest rate differential decreases.

If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with

yuan, the Chinese currency.

The Federal Reserve can influence the exchange rate by

Both answers A and B are correct.

Suppose the exchange rate of the U.S. dollar was 1.50 British pounds = $1.00 (U.S.) on Wednesday, and on the following Monday the exchange rate was $0.75 (U.S.) = 1.00 British pound. Which of the following best describes what happened between Wednesday and the following Monday?

Both answers B and C are correct.

How does a country maintain a fixed exchange rate?

By intervening in the foreign exchange markets and buying or selling currency as needed to achieve the desired exchange rate.

Which of the following creates a demand for U.S. dollars?

Toyota, a Japanese firm, purchasing land in Texas

A decrease in the value of a currency in terms of other currencies is known as

a depreciation.

If there is an increase in the expected future U.S. exchange rate, there is

a rightward shift of the demand curve for dollars.