econ ch 16

15. In 2010, 1 Swiss franc cost .56 British pounds and in 2012 it cost .51 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012? A. 2010: 1.79 francs, 2012: 1.96 francs B. 2010: 1.78 francs, 2012: 1.98 francs C. 2010: 1.71 francs, 2012: 2.00 francs D. 2010: 1.73 francs, 2012: 1.97 francs

A. 2010: 1.79 francs, 2012: 1.96 francs

1. The _____________ is an example of a large-scale common currency. A. euro B. dollar C. pound D. franc

A. euro

24. If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________. A. inflation or recession B. purchases or sales of foreign currencies C. how currency speculators react to rumors D. extreme short-term fluctuations

A. inflation or recession

10. If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then: A. the dollar depreciated against the yen. B. the dollar appreciated against the yen. C. the yen depreciated against the dollar. D. the yen weakened against the dollar.

A. the dollar depreciated against the yen.

19. A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports . A. tight; stimulates; reduces B. loose; stimulates; reduces C. expansionary; reduces; stimulates D. contractionary; reduces; stimulates

A. tight; stimulates; reduces

8. The most commonly traded currency in foreign exchange markets is the: A. euro. B. U.S. dollar. C. Chinese yuan. D. British pound.

B. U.S. dollar.

17. If American Airlines were to purchase Malaysian Airlines, it would likely have ______________________________ in mind. A. beliefs about how exchange rates will move in the near future B. a longer-term horizon C. beliefs about how rates of return will move in the near future D. a shorter-term horizon

B. a longer-term horizon

20. If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will: A. lead to higher imports and lower exports. B. cause the exchange rate for U.S. currency to depreciate. C. lower levels of consumption and investment. D. cause the exchange rate for U.S. currency to appreciate.

B. cause the exchange rate for U.S. currency to depreciate.

23. If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then: A. foreign investment will increase significantly. B. exchange rates will have less reason to vary. C. domestic investments in foreign businesses will decrease. D. government will intervene to peg the nation's currency.

B. exchange rates will have less reason to vary

12. In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93 U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013? A. 2010: 88 yen, 2013: 93 yen B. 2010: 100 yen, 2013: 114 yen C. 2010: 113.6 yen, 2013: 107.5 yen D. 2010: 112.4 yen, 2013: 105.3 yen

C. 2010: 113.6 yen, 2013: 107.5 yen

9. Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets? A. U.S. dollar B. British pound C. Japanese yen D. French franc

C. Japanese yen

22. A central bank must be concerned about whether a large and unexpected __________________ will drive most of the country's existing banks into bankruptcy. A. exchange rate appreciation B. interest rate increase C. exchange rate depreciation D. increase in foreign investments

C. exchange rate depreciation

16. Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future. A. interest rates B. foreign investment tax rates C. exchange rates or rates of return D. bond rates and interest rates

C. exchange rates or rates of return

14. In 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013? A. 2009: .84 dollars, 2013: 1.09 dollars B. 2009: .72 dollars, 2013: 1 dollar C. 2009: .83 dollars, 2013: 1.12 dollars D. 2009: .71 dollars, 2013: 1.11 dollars

D. 2009: .71 dollars, 2013: 1.11 dollars

30. A stronger British pound is beneficial for: A. U.S. exchange students studying in Britain with a U.S. scholarship. B. British firms selling goods and services in Canada. C. British investors who have invested money in Australia. D. exchange students with a British scholarship studying in Canada.

D. exchange students with a British scholarship studying in Canada.

11. If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then; A. the U.S. dollar appreciated against the Canadian dollar. B. the Canadian dollar weakened against the Canadian dollar. C. the U.S. dollar strengthened against the Canadian dollar. D. the Canadian dollar appreciated against the U.S. dollar.

D. the Canadian dollar appreciated against the U.S. dollar.

31. Briefly explain why a central bank will be concerned about the exchange rate.

A central bank will be concerned about the exchange rate for three reasons: (1) Movements in the exchange rate will affect the quantity of aggregate demand in an economy; (2) Frequent substantial fluctuations in the exchange rate can disrupt international trade and cause problems in a nation's banking system; (3) The exchange rate may contribute to an unsustainable balance of trade and large inflows of international financial capital, which can set the economy up for a deep recession if international investors decide to move their money to another country.

13. In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012? A. 2010: .12 U.S. dollars; 2012: .15 U.S. dollars B. 2010: 1.2 U.S. dollars; 2012: 1.5 U.S. dollars C. 2010: .82 U.S. dollars; 2012: .66 U.S. dollars D. 2010: .15 U.S. dollars; 2012: .11 U.S. dollars

A. 2010: .12 U.S. dollars; 2012: .15 U.S. dollars

3. When Mataeo buys Euros through ______, he will use his U.S. dollars to pay for them. A. the foreign exchange market B. the currency exchange market C. a floating exchange market D. foreign currency market

A. the foreign exchange market

28. A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene. A. volatility B. trade-offs C. demand side effects D. exchange rate zones

A. volatility

6. When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market. A. PPP B. soft peg C. hard peg D. currency

B. soft peg

5. _______________ equalizes the prices of internationally traded goods across countries. A. The foreign exchange rate B. A floating exchange rate C. Purchasing power parity D. An international parity rate

C. Purchasing power parity

2. What do the economies of Greece, Ireland and Germany all share? A. they pegged their various currencies B. they unpegged their various currencies C. a common currency D. floating rate currencies

C. a common currency

27. 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. low inflation rates B. high inflation rates C. a self-fulfilling prophecy D. a decrease in the supply side

C. a self-fulfilling prophecy

7. One of the following groups is not participating in the foreign exchange markets. Which one? A. Boston business firms trading goods and services with firms in France B. international investors buying bonds issued by a German car manufacturing firm C. an Iowa travel firm that arranges vacation tours for local seniors to Hawaii D. international investors buying part-ownership of a mining operation in Afghanistan

C. an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

18. From a macroeconomic point of view, increases in _____ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand. A. rates of return; exchange rates B. exchange rates; rates of return C. exports; imports D. imports; exports

C. exports; imports

25. Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate? A. inflation or recession must be ignored in order to focus on its soft peg B. it would appreciate the country's currency and break its hard peg C. it would depreciate the country's exchange rate and break its hard peg D. it will use up all its reserves of international currency to buy its own currency

C. it would depreciate the country's exchange rate and break its hard peg

29. The Canadian dollar will most likely strengthen against the U.S. dollar if: A. U.S. interest rates rise due to exchange rate policies. B. interest rates in Canada fall due to exchange rate policies. C. the Canadian inflation rate becomes extremely low. D. the Canadian dollar is below the PPP exchange rate.

C. the Canadian inflation rate becomes extremely low.

21. Referring to the diagram above, which of the following statements is true? A. Monetary policy that increases the money supply also increases the level of potential GDP . B. Tight monetary policy expands the economy by increasing the level of potential GDP. C. This contractionary monetary policy shift will also affect exchange rates for both imports and exports. D. This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.

D. This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.

4. If the Canadian dollar is strengthening, then: A. it has been unpegged from other currencies. B. Canada has adopted a hard peg policy. C. Canada has purchasing power parity. D. it has appreciated in terms of other currencies.

D. it has appreciated in terms of other currencies.

26. 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. A. pegged exchange rate B. loose exchange rate C. hard peg exchange rate D. soft peg exchange rate

D. soft peg exchange rate