Quiz - CH 20

left; depreciate

A decrease in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant.

decrease; depreciate

A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant.

right; appreciate

A decrease in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant.

1

According to PPP, the real exchange rate between two countries will always equal _____.

20

According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 5 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is ______ pesos per real.

Appreciate; Lower

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, 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

An increase in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant.

increase; appreciate

An increase in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant.

dollar; foreign

As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant.

Domestic Foreign

Everything else held constant, if a factor increases the demand for ________ goods relative to ________ goods, the domestic currency will appreciate.

Exports; Imports

Everything else held constant, increased demand for a country's ________ causes its currency to appreciate in the long run, while increased demand for ________ causes its currency to depreciate.

Appreciate; Depreciate

Everything else held constant, increased demand for a country's exports causes its currency to ________ in the long run, while increased demand for imports causes its currency to ________.

more; less

Everything else held constant, when a country's currency appreciates, the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive.

less; more

Everything else held constant, when a country's currency depreciates, its goods abroad become ________ expensive while foreign goods in that country become ________ expensive.

real

Evidence from the United States during the period 1973-2002 indicates that the value of the dollar and the measure of the ________ interest rate rose and fell together.

Foreign Exchange

Exchange rates are determined in the _______ market.

Appreciate

Higher tariffs and quotas cause a country's currency to ________ in the long run, everything else held constant.

2; 1.33

If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S. dollar depreciates from £_____ per dollar to £_____ per dollar.

100¥; 50¥

If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen, the U.S. dollar depreciates from ________ per dollar to ________ per dollar.

The Japanese yen will depreciate relative to the U.S. dollar

If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, then, in the long run ________, everything else held constant.

0.80; 0.67

If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per dollar, then the franc depreciates from ________ U.S. dollars per franc to ________ U.S. dollars per franc.

Swiss chocolate will become more expensive in the United States

If the dollar depreciates relative to the Swiss franc _____.

Forward

In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro, the price is the ______ exchange rate.

Forward

In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro, the price is the _______ exchange rate.

Depreciate; Appreciate

In the long run, a rise in a country's price level (relative to the foreign price level) causes its currency to ________, while a fall in the country's relative price level causes its currency to ________.

Depreciate

Lower tariffs and quotas cause a country's currency to ________ in the long run, everything else held constant.

1.33

On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars.

0.87

On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 1.15 Swiss francs. Therefore, one Swiss franc would have purchased about ________ U.S. dollars.

0.02

On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 49.0 Indian rupees. Thus, one Indian rupee would have purchased about ________ U.S. dollars.

increase; appreciate

Suppose that the European Central Bank enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

increase; appreciate

Suppose that the Federal Reserve conducts an open market sale. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar will ________.

Decrease; depreciate

Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

decrease; depreciate

Suppose that the latest Consumer Price Index (CPI) release shows a higher inflation rate in the U.S. than was expected. Everything else held constant, the release of the CPI report would immediately cause the demand for U.S. assets to ________ and the U.S. dollar would ________.

decrease; depreciate

Suppose the Federal Reserve releases a policy statement today which leads people to believe that the Fed will be enacting expansionary monetary policy in the near future. Everything else held constant, the release of this statement would immediately cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

Theory of purchasing power parity

The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

The price of one currency relative to another

The exchange rate is ______.

The law of one price

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.

Appreciate

The theory of PPP suggests that if one country's price level falls relative to another's, its currency should _______.

Decpreciate

The theory of PPP suggests that if one country's price level rises relative to another's, its currency should ______.

Some goods are not traded between countries

The theory of purchasing power parity cannot fully explain exchange rate movements because ______.

The price levels of the two countries

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in ______.

Spot

Today 1 euro can be purchased for $1.10. This is the ______ exchange rate.

spot

Today 1 euro can be purchased for $1.10. This is the ______ exchange rate.

dollar; foreign

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

higher; lower

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

Depreciates

When domestic interest rates rise due to an expected increase in inflation, the domestic currency ____________.

appreciates

When domestic interest rates rise due to an increase in domestic real interest rates, the domestic currency ____________.

Depreciated; American wheat sold in Britain becomes more

When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive.

Depreciated; Appreciated

When the exchange rate for the Mexican peso changes from 9 pesos to the U.S. dollar to 10 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.

Depreciated; Appreciated

When the value of the British pound changes from $1.50 to $1.25, then the pound has ________ and the U.S. dollar has ________.

Depreciated; Appreciated

When the value of the dollar changes from £0.5 to £0.75, then the British pound has ________ and the U.S. dollar has ________.

Appreciated; Depreciated

When the value of the dollar changes from £0.75 to £0.5, then the British pound has ________ and the U.S. dollar has ________.

An increase; appreciate

________ in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant.

An increase; right

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate, everything else held constant.

An increase; appreciate

________ in the domestic interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant.

A decrease; depreciate

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant.

An increase; depreciate

________ in the foreign interest rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant.

A decrease; appreciate

________ in the foreign interest rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant.