BNAD 301 CH20
From 2009 to 2011, the economies of Australia and Switzerland suffered relatively mild effect from the global financial crisis. At the same time, may countries in the euro area were hit hard with high unemployment and burdened with unsustainably high government debts. How should this affect the euro/Swiss franc and euro/Australian dollar exchange rates?
The currencies will appreciate against the euro because the demand for euro-denominated assets will decrease
In March 2009, the federal reserve announced easing program designed to lower intermediate and longer-term interest rates. What effect should this have on the dollar/euro exchange rate?
The euro will appreciate relative to the dollar because demand for assets denominated in US dollars will fall
If the Indian government unexpectedly announces that the tariffs on foreign goods will be lower one year from now, what will happen to the value of the Indian rupee today?
The rupee will depreciate today
If the Canadian dollar to US dollar exchange rate is 1.22 and the British pound to US dollar exchange rate is .61, what must be the Canadian dollar to British pound exchange rate?
The spot exchange rate is (1.22 CAD/($1/.61)
...in the domestic interest rate causes the demand for domestic assets to... and the domestic currency to appreciate, everything else held constant
a increase; increase
If the price level recently increased by 21% in England while falling by 5% in the US, what must be the new exchange rate if PPP holds? Assume that the current exchange rate is .51 pound per dollar.
(21+5)=26% 1.26*.51/1=.64 per US dollar
If the US dollar appreciates form 1.25 Swiss franc per US dollar to 1.5 francs per dollar, then the franc depreciates from ... US dollars per franc to ... US dollars per franc
.80; .67
On January 25, 2009, one dollar traded on the foreign exchange market for about .75 euros. Therefore, one euro would have purchased about ...US dollars
1.33
The New Zealand dollar to US dollar exchange rate is 1.38 and the British pound to US dollar exchange rate is .63. If you find that the British pound to New Zealand dollar were trading at .52, what would be the riskless profit per US dollar invested?
1.38*.52=.71 .72*(1/.63)=1.14 Profit = $1.14-$1=.14
When the value of the British pound changes from $1.25 to $1.50, the pound has ... and the US dollar has ...
Appreciated; depreciated
When the US dollar depreciates, what happens to exports and imports in the US?
As the US dollar depreciates, domestic goods become cheaper and imported goods become more expensive, thus domestic consumers and foreigners will buy more of the US-produced goods. Hence, US exports will increase and US imports will decrease. -
If American auto companies make a breakthrough in automobile technology and are able to produce a car that gets 200 miles to the gallon, what will happen to the US exchange rate?
The US exchange rate will appreciate
If nominal interest rates in America rise but real interest rates fall, predict what will happen to the US exchange rate
The US exchange rate will depreciate
If a strike takes place in France, making it harder to buy French goods, what will happend to the value of the US dollar?
The dollar will appreciate
Higher tariffs and quotas cause a country's currency to ... in the...run, everything else held constant
appreciate; long
Although foreign exchange market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of
bank deposits denominated in different currencies
The theory of PPP suggest that if one country's price level rises relative to another's, its currency should
depreciate
The theory of PP suggests that if one country's price level rises relative to another's, its currency should
depreciate in the long run
Anything that increases the demand for foreign goods relative to domestic goods tends to ... the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is .., everything else held ocnstant
depreciate; lower
When the value of the dollar changes form .5 to .75 then the british pound has .. and the US dollar has ...
depreciated; appreciated
As the relative expected return on dollar assets increases, foreigners will want to hold more ... assets and less... assets, everything else held constant
dollar; foreign
An agreement to exchange dollar bank deposits for euro bank deposits in one month is a
forward transaction
A decrease in the foreign interest rate causes the demand for domestic assets to ... and the domestic currency to... everything else held constant
increase; appreciate
An increase in the domestic interest rate causes the demand for domestic assets to ... and the domestic currency to ... everything else held constant
increase; appreciate
Everything else held constant, when a country's currency appreciates, the country's goods abroad become .. expensive and foreign goods in the country become... expensive
more; less
An increase in the domestic interest rate causes the demand for domestic assets to shift to the ... and the domestic currency to ..., everything else held constant
right; appreciate
According to the purchasing power parity theory, a rise in the US states price level of 5%, and a rise in the Mexican price level of 6% cause
the dollar to appreciate 1% relative to the peso
The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is
the expected return on these assets relative to one another
The starting point for understanding how exchange rates are determined is a simple idea called.., which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it.
the law of one price
