Chapter 16: Exchange Rates and International Capital Flows

A stronger euro is less favorable for:

American tourists traveling in France.

Which of the following is an example of a pegged currency?

Chinese yuan

The most commonly traded currency in foreign exchange markets is the:

The U.S. Dollar

If the U.S. dollar weakens, which of the following parties will benefit?

U.S firms selling in Europe

What do the economies of Greece, Ireland and Germany all share?

a common currency

Which of the following denotes a common misunderstanding about exchange rates?

an appreciating currency must be better than a depreciating currency

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

If the Canadian dollar is strengthening, then:

it has appreciated in terms of other currencies.

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

When Mataeo buys Euros through _________________________, he will use his U.S. dollars to pay for them.

the foreign exchange market

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________.

the tools of demand and supply

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

a floating exchange rate

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 an example of a large-scale common currency

euro

People or firms use one currency to purchase another currency at the

foreign exchange market

The _____________________________ is the largest market in the world economy.

foreign exchange market

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

swings in exchange rates

Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.

taking a management responsibility

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies

weakening; less