Econ 3229 Quiz 10

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States? A) The demand for dollars will increase. B) The demand for dollars will decrease. C) The dollar will decrease in value. D) The supply of dollars will decrease.

A) The demand for dollars will increase.

What would happen in the foreign exchange market if the European Central Bank raises European interest rates? A) There will be a decline in the value of the dollar. B) U.S. interest rates will decline. C) There will be a decline in the value of the euro. D) There will be an increase in the value of the dollar.

A) There will be a decline in the value of the dollar.

Under a fixed exchange rate regime, a central bank that does not want to acquire international reserves to keep its currency from ________ will decide to ________ its currency. A) appreciating; revalue B) depreciating; devalue C) appreciating; devalue D) depreciating; revalue

A) appreciating; revalue

When a central bank buys foreign assets, A) its assets and liabilities rise by the same amount. B) its assets and liabilities fall by the same amount. C) the composition of its liabilities changes, but its assets are unaffected. D) the composition of its assets changes, but its liabilities are unaffected.

A) its assets and liabilities rise by the same amount.

If the Fed wants to increase the value of the dollar, it will A) buy foreign securities and also buy dollars in international currency markets. B) sell foreign securities and buy dollars in international currency markets. C) buy foreign securities and sell dollars in international currency markets. D) sell foreign securities and also sell dollars in international currency markets.

B) sell foreign securities and buy dollars in international currency markets.

When the Fed sells foreign assets and buy domestic assets at the same time, A) its assets and liabilities fall by the same amount. B) its assets and liabilities rise by the same amount. C) the composition of its assets changes, but its liabilities are unaffected. D) the composition of its liabilities changes, but its assets are unaffected.

C) the composition of its assets changes, but its liabilities are unaffected.

Foreign-exchange market interventions will always A) lead to a decline in the domestic money supply. B) lead to a decline in domestic interest rates relative to foreign interest rates. C) lead to a rise in domestic interest rates relative to foreign interest rates. D) alter a central bank's holdings of international reserves.

D) alter a central bank's holdings of international reserves.

Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ________ of international reserves. A) appreciating; loss B) depreciating; gain C) appreciating; gain D) depreciating; loss

D) depreciating; loss

If the interest rate in the United States rises A) investors decrease their demand for dollars and the U.S. exchange rate depreciates. B) investors decrease their demand for dollars and the U.S. exchange rate appreciates. C) investors increase their demand for dollars and the U.S. exchange rate depreciates. D) investors increase their demand for dollars and the U.S. exchange rate appreciates.

D) investors increase their demand for dollars and the U.S. exchange rate appreciates.

If the Fed sterilizes the purchase of foreign assets, A) its assets and liabilities fall by the same amount. B) the composition of its liabilities changes, but its assets are unaffected. C) its assets and liabilities rise by the same amount. D) the composition of its assets changes, but its liabilities are unaffected.

D) the composition of its assets changes, but its liabilities are unaffected.