Econ 335 final exam ch. 12
Low real interest rates in the United States tend to: a. Decrease the demand for dollars, causing the dollar to depreciate b. Decrease the demand for dollars, causing the dollar to appreciate c. Increase the demand for dollars, causing the dollar to depreciate d. Increase the demand for dollars, causing the dollar to appreciate
a. Decrease the demand for dollars, causing the dollar to depreciate
With floating exchange rates, easy credit and low short term interest rates lead to a. Exchange rate depreciation in the short run b. Exchange rate appreciation in the short run c. Exchange rate depreciation in the long run d. Exchange rate appreciation in the long run
a. Exchange rate depreciation in the short run
The asset market theory of exchange rate determination suggests that the most important factor influencing the demand for domestic and foreign securities is: a. Expected return on these assets relative to one another b. Ability of these assets to easily be converted into cash c. Riskiness of these assets relative to one another d. Level of government restrictions on trade and investment flows
a. Expected return on these assets relative to one another
Which example of market expectations causes the dollar to depreciate against the yen--expectations that the U.S. economy will have: a. Faster economic growth than Japan b. Higher future interest rates than Japan c. Less rapid money supply growth than Japan d. Lower inflation rates than Japan
a. Faster economic growth than Japan
Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values. a. Fundamental analysis b. Technical analysis c. Judgmental analysis d. Sunspot analysis
a. Fundamental analysis
An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response. a. Overshoot b. Undershoot c. Depreciate d. Appreciate
a. Overshoot
The quantity of Canadian dollars supplied to the foreign exchange market would increase if, other things remaining equal: a. Preferences for imports rise in Canada b. Labor productivity increases in Canada c. Prices of goods and services decrease in Canada d. Import tariffs rise in Canada
a. Preferences for imports rise in Canada
The relationship between the exchange rate and the prices of tradable goods is known as the: a. Purchasing-power-parity theory b. Asset-markets theory c. Monetary theory d. Balance-of-payments theory
a. Purchasing-power-parity theory
For an American investor, the expected rate of return on European securities depends on all of the following factors except the: a. Rate of return on equivalent American securities b. The current exchange rate between the dollar and the pound c. Exchange rate anticipated to prevail when the securities mature d. Interest rate paid on European securities
a. Rate of return on equivalent American securities
Under a system of floating exchange rates, a Japanese trade surplus against Canada would result in a (an): a. Rise in the dollar price of the yen b. Fall in the dollar price of the yen c. Rise in the yen price of the dollar d. Unchanged dollar/yen exchange rate
a. Rise in the dollar price of the yen
For the United States, suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause investment funds to flow from: a. The United States to Japan, causing the dollar to depreciate b. The United States to Japan, causing the dollar to appreciate c. Japan to the United States, causing the yen to depreciate d. Japan to the United States, causing the yen to appreciate
a. The United States to Japan, causing the dollar to depreciate
If Canada runs a trade surplus with Mexico and exchange rates are floating: a. The peso will depreciate relative to the dollar b. The dollar will depreciate relative to the peso c. The prices of all foreign goods will fall for Canadians d. The prices of all foreign goods will rise for Canadians
a. The peso will depreciate relative to the dollar
When deciding between U.S. and British government securities, an American investor typically considers: a. U.S. and British interest rates and anticipated changes in the exchange rate b. Budget deficits of the U.S. government and British government c. Shifts in the demand for U.S. goods and British goods d. U.S. and British inflation rates and anticipated changes in the exchange rate
a. U.S. and British interest rates and anticipated changes in the exchange rate
Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar. One can say that the: a. Yen has appreciated against the dollar and the dollar has depreciated against the yen b. Yen has depreciated against the dollar and the dollar has appreciated against the yen c. Yen has appreciated against the dollar and the dollar has appreciated against the yen d. Yen has depreciated against the dollar and the dollar has depreciated against the yen
a. Yen has appreciated against the dollar and the dollar has depreciated against the yen
Suppose that $1 will buy 0.8 Swiss francs in 2015 and 0.9 francs in 2016. This change would have occurred as a result of a. an increase in the demand for dollars in the foreign exchange market b. a decrease in the demand for dollars in the foreign exchange market c. an increase in the supply of dollars in the foreign exchange market d. no change in the supply of dollars in the foreign exchange market
a. an increase in the demand for dollars in the foreign exchange market
An increase in the British demand for exports of American steel will ______ the demand for U.S. dollars and result in a (an) ______ of the dollar. a. increase; appreciation b. increase; depreciation c. decease; appreciation d. decrease; depreciation
a. increase; appreciation
political and economic data and the interpretation of these data in terms of the timing, direction, and magnitude of exchange rate changes. a. judgmental forecasts b. technical forecasts c. fundamental forecasts d. econometric forecasts
a. judgmental forecasts
Hyundai Inc is a South Korean company that manufactures automobiles. If Hyundai purchases sheet steel from U.S. Steel Inc., a. the demand for dollars increases and the dollar appreciates against the won b. the demand for dollars increases and the dollar depreciates against the won c. the demand for dollars decreases and the dollar appreciates against the won d. the demand for dollars decreases and the dollar depreciates against the won
a. the demand for dollars increases and the dollar appreciates against the won
If the United States reduces its tariffs on the import of natural gas a. the dollar's exchange value depreciates b. the dollar's exchange value appreciates c. natural gas becomes more expensive for Americans d. natural gas prices do not change for Americans
a. the dollar's exchange value depreciates
If Americans develop stronger preferences for Canadian natural gas, the likely result is a. the exchange value of the U.S. dollar will fall relative to the exchange value of the Canadian dollar b. the exchange value of the U.S. dollar will rise relative to the exchange value of the Canadian dollar c. the price of Canadian natural gas will decline when measured in terms of the Canadian dollar d. the price of Canadian natural gas will remain constant when measured in terms of the Canadian dollar
a. the exchange value of the U.S. dollar will fall relative to the exchange value of the Canadian dollar
Given floating exchange rates, a simultaneous decrease in the Canadian demand for British products and increase in the British desire to invest in Canadian government securities would cause a (an): a. Appreciation of the pound against the dollar b. Depreciation of the pound against the dollar c. Unchanged pound/dollar exchange rate d. None of the above
b. Depreciation of the pound against the dollar
In the short run, exchange rates respond to market forces such as: a. Inflation rates b. Expectations of future exchange rates c. Investment profitability d. Government trade policy
b. Expectations of future exchange rates
Which example of market expectations causes the dollar to appreciate against the yen--expectations that the U.S. economy will have: a. Faster economic growth than Japan b. Higher future interest rates than Japan c. More rapid money supply growth than Japan d. Higher inflation rates than Japan
b. Higher future interest rates than Japan
That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the: a. Monetary approach to exchange-rate determination b. Law of one price c. Fundamentalist approach to exchange-rate determination d. Exchange-rate-overshooting principle
b. Law of one price
Suppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that: a. Mexico's current account is in surplus b. Mexico's current account is in deficit c. The U.S. current account is in deficit d. The U.S. current account is in equilibrium
b. Mexico's current account is in deficit
Suppose that trade barriers and transportation costs are nonexistent. If the exchange rate is 0.9 Swiss francs per dollar, then according to the law of one price, a refrigerator that costs $1,000 in the United States will cost a. 1,900 francs in Switzerland b. 900 francs in Switzerland c. 1,300 francs in Switzerland d. 1,000 francs in Switzerland
b. 900 francs in Switzerland
British investors will expect that the U.S. dollar will appreciate against the pound in the future if there are expectations that a. the U.S. price level will increase relative to the British price level b. U.S. labor productivity will increase relative to British labor productivity c. the U.S. demand for British imports will increase d. U.S. tariffs on British imports will decline
b. U.S. labor productivity will increase relative to British labor productivity
Which of the following will result in a depreciation of the U.S. dollar against the Mexican peso? a. an increase in the Mexican demand for U.S. imports b. a decrease in the Mexican demand for U.S. imports c. a decrease in the U.S. demand for Mexican imports d. no change in the U.S. demand for Mexican imports
b. a decrease in the Mexican demand for U.S. imports
A relatively high rate of inflation in the United States will result in a. an appreciation of the dollar against foreign currencies in the long run b. a depreciation of the dollar against foreign currencies in the long run c. an appreciation of the dollar against foreign currencies in the short run d. a depreciation of the dollar against foreign currencies in the short run
b. a depreciation of the dollar against foreign currencies in the long run
Which of the following would cause the demand curve for pounds to shift to the left? a. a decrease in Britain's rate of inflation relative to U.S. inflation b. an increase in U.S. interest rates relative to British interest rates c. a rise in British labor productivity relative to U.S. labor productivity d. improving American tastes for British goods
b. an increase in U.S. interest rates relative to British interest rates
Due to increased air travel, suppose that Saudi Arabian Airlines purchases 40 jetliners from Airbus, a European firm. This results in a. a decrease in the demand curve (leftward shift) for euro b. an increase in the demand curve (rightward shift) for euro c. a decrease in the supply curve (leftward shift) of euro d. an increase in the supply curve (rightward shift) of euro
b. an increase in the demand curve (rightward shift) for euro
Suppose that Barclays Bank of the United Kingdom expects the exchange rate to be $1.40 per pound at the end of the year. If today's exchange rate is $1.50 per pound, Barclays will a. sell dollars today since it anticipates losses from buying dollars and holding them b. buy dollars today since it anticipates profits from buying dollars and holding them c. not buy dollars nor sell dollars because no profits can be realized d. none of the above
b. buy dollars today since it anticipates profits from buying dollars and holding them
If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, a. the demand curve for dollars shifts to the left b. the demand curve for dollars shifts to the right c. the demand curve for yen shifts to the right d. the demand curves for both yen and dollars remain constant
b. the demand curve for dollars shifts to the right
If the Federal Reserve increases interest rates in the United States relative to interest rates in other countries, then in the foreign exchange market a. the demand for dollars increases and the supply of dollars increases b. the demand for dollars increases and the supply of dollars decreases c. the demand for dollars decreases and the supply of dollars increases d. the demand for dollars decreases and the supply of dollars decreases
b. the demand for dollars increases and the supply of dollars decreases
If the U.S. interest rate rises relative to the foreign interest rate, then in the foreign exchange market a. the demand for dollars increases and the supply of dollars increases b. the demand for dollars increases and the supply of dollars decreases c. the demand for dollars decreases and the supply of dollars increases d. the demand for dollars decreases and the supply of dollars decreases
b. the demand for dollars increases and the supply of dollars decreases
In the foreign exchange market, the exchange value of the U.S. dollar will depreciate if a. the demand for the dollar increases (shifts to the right) b. the demand for the dollar decreases (shifts to the left) c. the supply curve of the dollar decreases (shifts to the left) d. the supply curve of the dollar remains constant
b. the demand for the dollar decreases (shifts to the left)
In the long run, exchange rates are primarily determined by: a. Agreements among governments of the world's industrial countries b. Relative interest rates in developing countries and industrial countries c. Economic fundamentals such as relative productivity levels d. The rate at which country's currencies exchange for gold
c. Economic fundamentals such as relative productivity levels
Exchange rate determination in the short run is underlied by which of the following assumptions: a. Tariffs and quotas affect trade patterns only in the short run b. Prices of goods and services affect trade patterns only in the short run c. Expected returns on financial assets affect investment flows in the short run d. Preferences for goods and services affect trade flows only in the short run
c. Expected returns on financial assets affect investment flows in the short run
For the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from: a. The United States to Japan, causing the dollar to depreciate b. The United States to Japan, causing the dollar to appreciate c. Japan to the United States, causing the yen to depreciate d. Japan to the United States, causing the yen to appreciate
c. Japan to the United States, causing the yen to depreciate
Concerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and economic data. a. Econometric analysis b. Technical analysis c. Judgmental analysis d. Sunspot analysis
c. Judgmental analysis
Concerning exchange-rate determination, "market fundamentals" include all of the following except: a. Monetary policy and fiscal policy b. Profitability and riskiness of investments c. Speculative opinion about future exchange rates d. Productivity changes affecting production costs
c. Speculative opinion about future exchange rates
Concerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements. a. Econometric analysis b. Judgmental analysis c. Technical analysis d. Sunspot analysis
c. Technical analysis
The international exchange value of the U.S. dollar is determined by: a. The rate of inflation in the United States b. The number of dollars printed by the U.S. government c. The international demand and supply for dollars d. The monetary value of gold held at Fort Knox, Kentucky
c. The international demand and supply for dollars
According to the purchasing-power-parity theory, the U.S. dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of: a. U.S. interest rates over foreign interest rates b. Foreign interest rates over U.S. interest rates c. U.S. inflation over foreign inflation d. Foreign inflation over U.S. inflation
c. U.S. inflation over foreign inflation
The supply curve of dollars decreases (shifts to the left) in the foreign exchange market. This could be the result of a. the current exchange rate of the dollar rising (appreciating) b. the current exchange rate of the dollar falling (depreciating) c. an increase in the U.S. inflation rate relative to the inflation rate in other countries d. a decrease in the U.S. inflation rate relative to the inflation rate in other countries
c. an increase in the U.S. inflation rate relative to the inflation rate in other countries
According to the theory of purchasing power parity, if the price level in France rises by 6 percent and the price level in the United States rises by 4 percent, then the dollar will a. appreciate by 2 percent against the euro in the short run b. depreciate by 2 percent against the euro in the short run c. appreciate by 2 percent against the euro in the long run d. depreciate by 2 percent against the euro in the long run
c. appreciate by 2 percent against the euro in the long run
A decrease in the U.S. demand for automobile imports will cause the supply curve of dollars to ______ and result in a (an) a. increase; appreciation of the dollar b. increase; depreciation of the dollar c. decrease; appreciation of the dollar d. decrease; depreciation of the dollar
c. decrease; appreciation of the dollar
When evaluating the financial investments in the home country and a foreign country, investors generally consider a. labor productivity levels and rates of technological development b. budget surpluses or deficits of the home country and foreign country c. domestic and foreign interest rates and expected fluctuations in the exchange rate d. domestic and foreign price levels and the expected fluctuations in the exchange rate
c. domestic and foreign interest rates and expected fluctuations in the exchange rate
The theory of purchasing power parity states that changes in the nominal exchange rate arise from differences in ______ among countries a. nominal interest rates b. real interest rates c. inflation rates d. productivity rates
c. inflation rates
When The Economist magazine runs articles using the Big Mac hamburger to value exchange rates, it is using the principle of a. exchange arbitrage b. market expectations c. purchasing power parity d. interest rate parity
c. purchasing power parity
Suppose that the exchange value of the dollar equals 2 British pounds. If in San Francisco a computer costs $1,000 and in London it costs 2,000 pounds, then a. British consumers will buy computers in San Francisco b. Americans will buy computers in London c. purchasing power parity prevails d. purchasing power parity does not prevail
c. purchasing power parity prevails
Suppose that the interest rate in Great Britain increases while the interest rate in the United States remains constant. As a result, a. the demand curve for pounds decreases and the pound depreciates against the dollar b. the demand curve for pounds increases and the pound depreciates against the dollar c. the demand curve for pounds increases and the pound appreciates against the dollar d. the demand curve for pounds decreases and the pound appreciates against the dollar
c. the demand curve for pounds increases and the pound appreciates against the dollar
If the Federal Reserve decreases interest rates in the United States relative to interest rates in other countries, then in the foreign exchange market a. the demand for dollars increases and the supply of dollars increases b. the demand for dollars increases and the supply of dollars decreases c. the demand for dollars decreases and the supply of dollars increases d. the demand for dollars decreases and the supply of dollars decreases
c. the demand for dollars decreases and the supply of dollars increases
If the U.S. inflation rate rises to the foreign inflation rate, then in the foreign exchange market a. the demand for dollars increases and the supply of dollars increases b. the demand for dollars increases and the supply of dollars decreases c. the demand for dollars decreases and the supply of dollars increases d. the demand for dollars decreases and the supply of dollars decreases
c. the demand for dollars decreases and the supply of dollars increases
Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger: a. An increase in the demand for imports and an increase in the demand for foreign currency b. An increase in the demand for imports and a decrease in the demand for foreign currency c. A decrease in the demand for imports and an increase in the demand for foreign currency d. A decrease in the demand for imports and a decrease in the demand for foreign currency
d. A decrease in the demand for imports and a decrease in the demand for foreign currency
The supply of francs, would shift to the right for all of the following reasons except: a. An increase in Swiss real income b. An increase in Swiss prices c. An increase in the Swiss population d. An increase in Swiss interest rates
d. An increase in Swiss interest rates
Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to: a. Appreciate against the dollar b. Depreciate against the dollar c. Remain constant against the dollar d. Appreciate, depreciate, or remain constant against the dollar
d. Appreciate, depreciate, or remain constant against the dollar
Given a system of floating exchange rates, assume that Boeing Inc. of the United States places a large order, payable in yen, with a Japanese contractor for jet engine parts. The immediate effect of this transaction will be a shift in the: a. Supply curve of yen to the left which causes the dollar to appreciate against the yen b. Supply curve of yen to the right which causes the dollar to depreciate against the yen c. Demand curve for yen to the left which causes the dollar to appreciate against the yen d. Demand curve for yen to the right which causes the dollar to depreciate against the yen
d. Demand curve for yen to the right which causes the dollar to depreciate against the yen
Assume a system of floating exchange rates. Due to a high savings rate, suppose the level of savings in Japan is in excess of domestic investment needs. If Japanese residents invest abroad, the yen's exchange value will ____ and the Japanese trade balance will move toward ____. a. Appreciate, deficit b. Appreciate, surplus c. Depreciate, deficit d. Depreciate, surplus
d. Depreciate, surplus
With floating exchange rates, relatively high productivity growth for a nation leads to a. Exchange rate depreciation in the short run b. Exchange rate appreciation in the short run c. Exchange rate depreciation in the long run d. Exchange rate appreciation in the long run
d. Exchange rate appreciation in the long run
The U.S. demand for pesos would shift to the right if there occurred a (an): a. Change in preferences toward U.S. manufactured goods b. Increase in the dollar/peso exchange rate c. Decrease in the U.S. population d. Increase in the U.S. price level
d. Increase in the U.S. price level
High real interest rates in the United States tend to: a. Decrease the demand for dollars, causing the dollar to depreciate b. Decrease the demand for dollars, causing the dollar to appreciate c. Increase the demand for dollars, causing the dollar to depreciate d. Increase the demand for dollars, causing the dollar to appreciate
d. Increase the demand for dollars, causing the dollar to appreciate
Assume that labor productivity growth is slower in the United States than in its trading partners. Given a system of floating exchange rates, the impact of this growth differential for the United States will be: a. Increased exports and an appreciation of the dollar b. Increased exports and a depreciation of the dollar c. Increased imports and an appreciation of the dollar d. Increased imports and a depreciation of the dollar
d. Increased imports and a depreciation of the dollar
Long-run exchange rate movements are governed by all of the following except: a. National productivity levels b. Consumer tastes and preferences c. Rates of inflation d. Interest rate levels
d. Interest rate levels
All of the following are important long-run determinants of exchange rates except a. Consumer tastes b. Trade policy c. Labor productivity d. Interest rates
d. Interest rates
Long-run determinants of the dollar's exchange value include all of the following except: a. Preferences of Americans for foreign produced goods b. U.S. tariffs placed on imports of foreign produced goods c. Productivity of the American worker d. Interest rates in U.S. financial markets
d. Interest rates in U.S. financial markets
The demand in the United States for yen will increase if, other things remaining equal: a. Labor costs rise in Japan b. Income rises in Japan c. Prices rise in Japan d. Interest rates rise in Japan
d. Interest rates rise in Japan
The appreciation in the value of the dollar in the early 1980s is explained by all of the following except: a. The United States being considered a safe haven by foreign investors b. Relatively high real interest rates in the United States c. Confidence of foreign investors in the U.S. economy d. Relatively high inflation rates in the United States
d. Relatively high inflation rates in the United States
A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is: a. Large trade surpluses for the United States b. Relatively high inflation rates in the United States c. Lack of investor confidence in the U.S. monetary policy d. Relatively high interest rates in the United States
d. Relatively high interest rates in the United States
Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro? a. Relatively low interest rates in the United States b. Relatively high labor productivity in the United States c. Tariffs levied by the United States on steel imports from Europe d. Stronger American preferences for goods produced in Europe
d. Stronger American preferences for goods produced in Europe
The U.S. interest rate minus the foreign interest rate is called the U.S. interest rate differential. The U.S. interest rate differential would increase if a. the U.S. interest rate decreases and the foreign interest rate remains constant b. the U.S. interest rate decreases and the foreign interest rate increases c. the U.S. interest rate increases and the foreign interest rate increases d. the U.S. interest rate increases and the foreign interest rate decreases
d. the U.S. interest rate increases and the foreign interest rate decreases
If the rate of growth in labor productivity in the United States increases relative to the rate of growth in labor productivity in other countries a. the dollar's exchange value depreciates against other currencies b. the dollar's exchange value remains constant against other currencies c. Americans are willing to pay more U.S. dollars per unit of foreign currency d. Americans are willing to pay fewer U.S. dollars per unit of foreign currency
d. Americans are willing to pay fewer U.S. dollars per unit of foreign currency
If American consumers increase their demand for Mercedes Benz automobiles, manufactured in Germany a. the U.S. dollar's exchange value appreciates against the euro b. the U.S. dollar's exchange value remains constant against the euro c. Americans are willing to pay fewer U.S. dollars for the euro d. Americans are willing to pay more U.S. dollars for the euro
d. Americans are willing to pay more U.S. dollars for the euro
Suppose that the exchange value of the dollar currently equals 100 yen. As a result of changing economic conditions, suppose that people anticipate that the dollar will be worth 120 yen in three months. This expectation results in a. an increase in the value of U.S. exports to Japan b. an increase in the demand for the yen c. a decrease in the demand for dollars d. an increase in the demand for dollars
d. an increase in the demand for dollars
The law of one price would least likely apply to a. steel b. oil c. corn d. computers
d. computers
Which of the following does not explain long-run movements in exchange rates? a. productivity differences among nations b. price level differences among nations c. barriers to trade (tariffs and quotas) among nations d. interest rate differences among nations
d. interest rate differences among nations
In the long run, exchange rates are mainly determined by a. the difference between short-run interest rates in each county b. the rate at which a country's currency exchanges for silver or gold c. agreements among governments in the major banking countries of the world d. market fundamentals such as productivity levels or price levels in various countries
d. market fundamentals such as productivity levels or price levels in various countries
Factors that will shift the demand curve for pounds include all of the following except a. the expected future exchange rate of the pound b. inflation rates around the world c. interest rates around the world d. the current exchange rate of the pound
d. the current exchange rate of the pound
If economic growth perks up in the United States so that investors think they can realize larger profits from American assets, the a. supply of U.S. dollars will increase in the foreign exchange market b. the demand for U.S. dollars will increase in the foreign exchange market c. the demand for U.S. dollars will decrease in the foreign exchange market d. the demand for U.S. dollars will remain constant in the foreign exchange market
d. the demand for U.S. dollars will remain constant in the foreign exchange market
The demand curve for euros in the foreign exchange market will increase (shift rightward) if a. European interest rates fall relative to foreign interest rates b. the current exchange value of the euro depreciates c. Europe increases tariffs and applies more stringent quotas on imported goods d. the rate of inflation in Europe is less than the rate of inflation throughout the world
d. the rate of inflation in Europe is less than the rate of inflation throughout the world
Given floating exchange rates, assume that the Swiss decrease their import purchases from Italy while at the same time the Italians increase their purchases of Swiss government securities. The first action by itself would lead to a (an) ____ of the franc against the lira while the second action by itself would lead to a (an) ____ of the franc against the lira. a. Appreciation, appreciation b. Depreciation, depreciation c. Appreciation, depreciation d. Depreciation, appreciation
a. Appreciation, appreciation
Assume that interest rates in the United States and Britain are the same. If a U.S. resident anticipates that the exchange value of the dollar is going to appreciate against the pound, she should: a. Borrow needed funds from British banks rather than U.S. banks b. Borrow needed funds from U.S. banks rather than British banks c. Convert U.S. dollars into British pounds d. Any of the above
a. Borrow needed funds from British banks rather than U.S. banks
Given a system of floating exchange rates, if Canada's labor productivity rises relative to the labor productivity of its trading partners: a. Canadian imports will fall and the dollar will appreciate b. Canadian imports will fall and the dollar will depreciate c. Canadian imports will rise and the dollar will appreciate d. Canadian imports will rise and the dollar will depreciate
a. Canadian imports will fall and the dollar will appreciate
The high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by: a. Additional investment funds made available from overseas b. Lack of investor confidence in U.S. fiscal policy c. Market expectations of rising inflation in the United States d. American tourists overseas finding costs increasing
a. Additional investment funds made available from overseas
When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level: a. An excess demand for that currency exists in the foreign exchange market b. An excess supply of that currency exists in the foreign exchange market c. The demand for foreign exchange shifts outward to the right d. The demand for foreign exchange shifts backward to the left
a. An excess demand for that currency exists in the foreign exchange market
When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level: a. An excess supply of that currency exists in the foreign exchange market b. An excess demand for that currency exists in the foreign exchange market c. The supply of foreign exchange shifts outward to the right d. The supply of foreign exchange shifts backward to the left
a. An excess supply of that currency exists in the foreign exchange market
Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in: a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar
Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger: a. An increase in the demand for imports and an increase in the demand for foreign currency b. An increase in the demand for imports and a decrease in the demand for foreign currency c. A decrease in the demand for imports and an increase in the demand for foreign currency d. A decrease in the demand for imports and a decrease in the demand for foreign currency
a. An increase in the demand for imports and an increase in the demand for foreign currency
Increased tariffs on U.S. steel imports cause the dollar to ____ in the ____. a. Appreciate, long run b. Depreciate, long run c. Appreciate, short run d. Depreciate, short run
a. Appreciate, long run
In the foreign exchange market, a decrease in the world demand for Japanese exports a. shifts the demand curve for yen leftward that causes the yen to depreciate b. shifts the demand curve for yen leftward that causes the yen to appreciate c. shifts the demand curve for yen rightward that causes the yen to depreciate d. shifts the demand curve for yen rightward that causes the yen to appreciate
a. shifts the demand curve for yen leftward that causes the yen to depreciate
A shift in the U.S. supply curve of dollars in the foreign exchange market could be caused by all of the following except a change in a. the current exchange rate of the dollar b. the expected future exchange rate of the dollar c. the rate of inflation in the United States d. productivity of the U.S. labor force
a. the current exchange rate of the dollar
If the interest rate in Japan increases while the interest rate in the United States remains constant, a. the demand curve for dollars shifts to the left b. the demand curve for dollars shifts to the right c. the demand curve for yen shifts to the left d. the demand curves for both yen and dollars remain constant
a. the demand curve for dollars shifts to the left
If German tastes for Microsoft software become stronger a. the demand curve for dollars shifts to the right b. the demand curve for dollars shifts to the left c. the demand curve for euro shifts to the right d. the demand curve for both euros and dollars remain constant
a. the demand curve for dollars shifts to the right
During the Great Recession of 2008-2009, the dollar increasingly was viewed as a safe-haven currency as investors fled to it when they worried about the stability of the global economy. As investors fled to the dollar a. the demand for dollars increased and the dollar's exchange value appreciated b. the demand for dollars increased and the dollar's exchange value depreciated c. the demand for dollars decreased and the dollar's exchange value appreciated d. the demand for dollars decreased the the dollar's exchange value depreciated
a. the demand for dollars increased and the dollar's exchange value appreciated
If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals: a. 20 pounds b. 40 pounds c. 60 pounds d. 80 pounds
b. 40 pounds
Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing power parity, if the price of traded goods falls by 5 percent in the United States and rises by 5 percent in Japan, the exchange rate will become: a. 72 yen per dollar b. 81 yen per dollar c. 99 yen per dollar d. 108 yen per dollar
b. 81 yen per dollar
Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 10 percent in the United States and remains constant in Japan, the exchange rate will become a. 72 yen per dollar b. 81 yen per dollar c. 99 yen per dollar d. 108 yen per dollar
b. 81 yen per dollar
Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to: a. Appreciate by 8 percent against the yen b. Depreciate by 8 percent against the yen c. Remain at its existing exchange rate d. None of the above
b. Depreciate by 8 percent against the yen
Lower tariffs on U.S. agricultural imports cause the dollar to ____ in the ____. a. Appreciate, long run b. Depreciate, long run c. Appreciate, short run d. Depreciate, short run
b. Depreciate, long run
If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be: a. $.50 per pound b. $1.00 per pound c. $2.00 per pound d. $8.00 per pound
c. $2.00 per pound
Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 5 percent in the United States and 15 percent in Japan, the exchange rate will become: a. 72 yen per dollar b. 81 yen per dollar c. 99 yen per dollar d. 108 yen per dollar
c. 99 yen per dollar
Relatively high interest rates in the United States causes the dollar to ____ in the ____. a. Appreciate, long run b. Depreciate, long run c. Appreciate, short run d. Depreciate, short run
c. Appreciate, short run
Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile? a. Balance-of-payments approach b. Purchasing-power-parity approach c. Asset-markets approach d. Monetary approach
c. Asset-markets approach
The Canadian dollar would depreciate on the foreign exchange market if: a. Canadian consumer tastes change in favor of goods produced domestically b. The profitability of assets in Canada rises relative to the profitability of assets abroad c. Canada experiences a disastrous wheat-crop failure, leading to imports of more wheat d. Canada realizes technological improvements in the production of manufactured goods, leading to relatively low costs for Canada
c. Canada experiences a disastrous wheat-crop failure, leading to imports of more wheat
For purchasing-power parity to exist: a. Flows of currency in the trade account must be offset by flows of currency in the capital account b. The nominal interest rate must be equal to the real interest rate in all countries c. Converting a sum of funds from one currency to another does not alter its purchasing power d. A country's trade account must always be in balance
c. Converting a sum of funds from one currency to another does not alter its purchasing power
In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost: a. 200 pounds b. 400 pounds c. 600 pounds d. 800 pounds
d. 800 pounds
Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in: a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
The purchasing-power parity theory suffers from the problem a. Of choosing the appropriate price index b. That it overlooks the influence of capital flows c. That government policy may modify exchange rates d. All of the above
d. All of the above
Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso? a. Relatively high interest rates in Mexico b. Relatively high labor productivity in Mexico c. Tariffs applied by Mexico on computer imports from the United States d. Stronger Mexican preferences for goods produced in the United States
d. Stronger Mexican preferences for goods produced in the United States
If Mexico's labor productivity rises relative to Europe's labor productivity: a. The peso tends to depreciate against the euro in the short run b. The peso tends to appreciate against the euro in the short run c. The peso tends to depreciate against the euro in the long run d. The peso tends to appreciate against the euro in the long run
d. The peso tends to appreciate against the euro in the long run
Given a floating exchange rate system an increase in ____ would cause the dollar to appreciate against the euro. a. U.S. labor costs b. The U.S. money supply c. U.S. prices of goods d. U.S. real interest rates
d. U.S. real interest rates