Chapter 16
A stronger euro is less favorable for
American tourists traveling in France.
The ___________ is an example of a large-scale common currency.
euro
A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.
exchange rate depreciation
Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future.
exchange rates or rates of return
People or firms use one currency to purchase another currency at the _______________________.
foreign exchange market
If the Canadian dollar is strengthening then
it has appreciated in terms of other currencies.
Suppose the diagram above refers to a situation where investors in the US are looking to Japan as a place where they should invest for a future high rate of return, while Japanese investors are looking to lower their investments in the US. The combined effect will
shift the supply curve out, the demand curve shifts in and the value of the dollar decreases.
When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market.
soft peg
A __________________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate.
soft peg exchange rate
Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.
taking a management responsibility
Referring to the diagram above, which of the following statements is true?
This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.
If the U.S. dollar weakens, which of the following parties will benefit?
U.S firms selling in Europe
Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.
a self-fulfilling prophecy
Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.
aggregate demand
The _____________________________ is the largest market in the world economy.
foreign exchange market
If a nation merges its currency with another nation to create a single currency, what must it give up?
the ability to determine its own nationally-oriented monetary policy
If inflation in Japan is higher than in the US then
the dollar appreciates and the yen depreciates.
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
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
When Mataeo buys Euros through _________________________, he will use his U.S. dollars to pay for them.
the foreign exchange market
A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in _________________, but seeks to avoid extreme short-term fluctuations.
the short run
If Japan places tariffs on US imports then
the yen appreciates and the dollar depreciates.
If US tourists love Japan then
the yen appreciates and the dollar depreciates.
If interest rates are higher in Japan than in the US then
the yen appreciates and the dollar depreciates.
If the US government cuts income taxes then
the yen appreciates and the dollar depreciates.