Exchange rate Theory in SHORT RUN

The exchange rate between the dollar and the Yuan changes from 6.32 yuan/$ to 6.54 yuan/$. From this we can see that the yuan has weakened against the dollar. A. True B. False

A

The idea of interest rate parity explains tat investors are better off it they move funds from one country to another in order to take advantage of higher rates of return. A. true B. false

B

You sign a contract to export rice to China and will be paid in Yuan. You will supply them with $1.5M in cotton and will be paid based on the exchange rate of 6.89 yuan/USD. How much are you paid in Yuan?

10,335,000

The exchange rate between the dollar and the British Pound changes from .75 Pounds/$ to .86 Pounds/$. From this we can see that the dollar has strengthened against the Pound. A. True B. False

A

You show up with Canadian dollars and want Thai Baht. Based on the exchange rate posted about for buying Baht, you see that 1 Thai Baht is equal to ____ Canadian dollars. (Express in cents and not dollars carrying 3 digits behind the decimal)

3.33

This currency exchange desk in Thailand is posting exchange rates. NOTES are bill, and TC is traveler's checks. Suppose that you show up with 567 Malaysian Ringits (notes). How many Thai Baht will you walk away with?

5,103

An American producer is purchasing $74,600 of airline tires from China. At the exchange rate of 6.91 Yuan/$, the American producer have to pay_____ Yuan.

515,486

You are ready to leave Thailand but have 1764 Thai Baht remaining. You exchange you Baht into dollars. You will receive $_______ (round to nearest cent):

56.79

Assume that investors in Italy expect a return on investment of 5.2% and a currency appreciation rate of 2.1%. However, 1.1% of the appreciation comes immediately, on day 1. The total return on the investment, when we look at the investment ROI and the currency appreciation is______%

6.2

China is paying an American firm 582,000 Yuan for consulting services. When the exchange rate is 6.75 Yuan/$, the American firm is actually earning _____ dollars. Round to the nearest dollar.

86,222

The exchange rate between the dollar and the Thai Baht changes for 31.35 Baht/$ to 30.05 Baht/$. From this we can see that: A. the dollar has weakened against the Baht B. the dollar has strengthened against the Baht

A

As demand for the US dollars increases, it means that the price of the US dollar will increase. Thus, it will take more of other countries currencies to buy a USD. A. True B. False

A

Assume that ROI in the USA is 3.8% and ROL in France is 3.2%. We cannot tell if we are in a state of interest rate parity without knowing the expected appreciation of depreciation in the currencies. A. true B. False

A

Exchange rates in the SHORT RUN are influenced by speculation and will reflect rumors that circulate and either encourage or scare foreign investors. A. True B. False

A

Generally, there is less exchange rate volatility in the long run than there is in the short run. A. True B. False

A

If the demand for the US dollar increases, it mans that it will take more of other currencies to buy a USD. A. True B. False

A

In 2015 you sold chicken feet to China for 768,000 Yuan. This year you sell the same amount of chicken feet and the dollar price of chicken feet have not changes at all. However, you are paid 784,000 Yuan. From this we can determine that the US dollar has_____ against the Yuan A. gotten stronger B. gotten weaker

A

In the last unit, we looked at changes in exchange rates that came from charges in interest rates. In this unit, we are looking at how exchange rates are impacted by changes in expectations. The stories are very similar. A. true B. false

A

Increases in return on investment leads to a strengthening a country's currency. A. true B. false

A

Interest rate parity means that differences in ROI between countries will be offset by the appreciation or depreciation in their currencies. A. true B. false

A

Interest rate parity suggests that investors should think about return on investment and also any rate of return that comes from appreciation of currency. A. true B. false

A

Interest rates determine how attractive a particular country is for investing. A. true B. false

A

Speculation and changes in expectations about currency values can cause a country's exchange rate to change. A. True B. False

A

Suppose that the ROI in the USA is 4.3% and in Mexico it is 3.1%. The ROI from currency appreciation expected for the Mexican Peso over the investment period is 1.4%. None of this currency appreciation is expected to happen "upfront". From this we can see that interest rate parity will be established. A. true B. false

A

The exchange rates between the Thai Baht and USD was 33.6B to the $. Which of the following illustrates a strengthening of the Thai Baht against the dollar? A. 33.1B/$ B. 33.9/$ C. neither of them show a strengthening

A

The value of the US dollar, relative to other currencies, might increase when foreign investors want to invest in American financial instruments and need American dollars to do so. A. True B. False

A

We see that a country's currency depreciates when ROIs fall. A. true B. false

A

When Great Britain voted to leave the European Union, we saw dramatic changes in exchange rates based on speculation and expectation. A. True B. False

A

When demand for a particular country;s currency increases, we know that the price of purchasing that currency will increase. A. True B. False

A

You want to obtain Chinese Yuan very quickly. The exchange rates that you are going to be quoted are the spot rates. A. True B. False

A

Assume that there is parity between countries F and G. Then, interest rates in country F falls relative to G. From this, we would expect: (check all that apply) A. demand for investment in F to fall B. demand for investment n G to rise C. demand for the currency to rise in G D. demand for the currency to fall in F E. currency to appreciate in F and depreciate in G F. currency to appreciate in G and depreciate in F

A,B,C,D,F

The most heavily traded currencies in FOREX include: (check all the apply) A. Canadian dollars B. Japanese Yen C. Australian dollars D. Euro E. British Pound F. Russian Ruble

A,B,D,E

Originally, the exchange rate between the Thai Baht and USD was 32.6B/$. Which of the following new exchange rates illustrates a weakening of the Thai Baht against the dollar? (check all that apply) A. 33.7B/$ B. 31.9B/$ C. 32.9B/$ D. 30.4B/$

A,C

When a country is more attractive for investments, we know that: (check all that apply) A. foreign investors will more financial resources to the country B. foreign investors will more financial resources away from that country C. demand for the country's currency will decrease D. demand for the country's currency will increase E. the price of the country's currency will increase F. the price of that country's current will decrease G. exchange rates will be impacted H. exchange rates will remain constant

A,D,E,G

The US and Argentina are initially in interest rate parity. Then, Argentinians are told to expect that the value of the Argentine Peso to appreciate by 3%. Which of the following are going to happen? (check all that apply) A. the demand for Pesos increases B. the demand for Pesos decreases C. the peso gets less expensive to buy in exchange markets D. the peso gets more expensive to buy in exchange markets E. the peso depreciates in value F. the peso appreciates in value

A,D,F

Suppose that the ROI in the USA was 6%. and in Germany it was 3.5% with a 2.5% expected appreciation of the Euro (used in Germany) over the life of the investment. Then, the German government announces an increase in interest rates which boost ROI to 5% plus the 2.5% expected appreciation in the Euro. Which of the following are TRUE? check all that apply. A. originally, there was interest rate parity between Germany and the US B. Before the announcement, investors would be better off to invest their money in Germany C. the announcement increases the demand of US investment D. the announcement increases the demand for German investment E. the cost of buying the USD will increase F. the cost of buying the euro will increase G. the USD appreciates H. the Euro appreciates I. the appreciation in currency is a form of rate of return since investors will be paid interest rates using the foreign currency

A,D,F,H,I

Assume that we start in a state of interest rate parity between countries A and B. Then, the central bank in country B announces that it will increase its interest rates. From this we know that: (check all that apply) A. investment capital will move from A to B B. investment capital will more from B to A C. demand for A's currency will increase, relative to B D. demand for B's currency will increase relative to A E. the value of A's currency will increase relative to B's currency F. the value of both A and B's currency will increase G. the value of B's currency will increase relative to B's currency

A,D,G

A disadvantage of the Forex market is that funds have a low level of liquidity since it takes a few days for conversions to take place. A. True B. False

B

FOREX is open during normal business hours of 8-5 Eastern time. A. True B. False

B

Originally, the exchange rate between the USD and Guatemalan Quetzal was $0.13/Qz but then it changed to $0.12/Qz. We can conclude that there is a strengthening of the Guatemalan Quetzal against the USD. A. True B. False

B

Suppose that Thailand decides to buy up it own currency and remove it from circulation. This makes the currency MORE scarce and the exchange rate will show MORE baht trading for a US dollar. A. True B. False

B

Suppose that higher interest rates in China cause US investors to increase their demand for investments there. But they need Chinese Yuan to pay for these investments. We would expect this to result in an exchange rate where: A. a USD buys more Yuan than before B. a USD buys fewer Yuan than before C. this will not impact the exchange rate between USD and Yuan

B

The exchange rate between the US dollar and Singapore dollar was 1.35 Singapore dollars/USD but then changed to 1.27 Singapore dollars/USD. This shows a weakening of the Singapore dollar against the USD. A. True B. False

B

The exchange rate between the USD and Guatemalan Quetzal was $.132/Qz but then changes to $.141/Qz. This shows a weakening of the Guatemalan Quetzal against the USD. A. True B. False

B

We generally see more exchange rate volatility in the long run than in the short run. A. true B. false

B

When American investors increase the demand for Euros, they are selling off USD. That means USD become more scarce and their value increases. A. True B. False

B

When signing a contract that ill not be executed for many months, you should think about the spot rate instead of the expected exchange rate. A. True B. False

B

When we think about what drive exchange rates in the short run, we are telling a story based on macroeconomics. A. True B. False

B

When we think about what drives exchange rates in the short run, we are telling a story based on______ A. macroeconomics B. microeconomics

B

You are negotiation a contract for money that will be paid to you by a firm in Chile in 12 months. You want to minimize any risk or uncertainty. As such, you negotiate a future exchange rate. The is an example of uncovered interest parity. A. true B. false

B

Malaysia currently has higher rates of return on investment than many other nations. As a result, US investors move financial resources to Malaysia. Which of the following are going to happen? (check all that apply) A. the demand for Malaysian Ringits decreases B. the demand for Malaysian Ringits increase C. Malaysian Ringits get cheaper to buy in exchange markets D. Malaysian Ringits get cheaper to buy in exchange markets E. the exchange rate, expressed as Malaysian Ringits per USD will be higher than before F. the exchange rate, expressed as Malaysian Ringits per USD will be lower than before G. The value of the Ringit has appreciated against the USD H. the value of the Ringit has depreciated against the USD

B,C,F,G

Suppose that countries C and D have interest rate parity between them. But the country C ends up with higher interest rates than before. Parity is re-established by: A. the demand for investment in D decreases, demand for D's currency increases, investors pay more to get the currency, and this increases their ROI B. the demand for investment in D increase demand for D's currency increases, investors pay less to get the currency, and this decreases their ROI C. the demand for investment in C increase, demand for C's currency increases, investors pay more to get the currency, and this decreases their ROI D. the demand for invest meant in C increase, demand for C's currency increases, investors have to less to get the currency, and this increases the ROI

C

Suppose that the ROI in the USA was 6% and in Germany is was 3.5% with a 2.5% expected appreciation of the Euro (used in Germany) over the life of the investment. Then, the German government announces an increase in interest rates with boost ROI to 5% plus the 2.5% expected appreciation in the Euro. Now, suppose the 1.5% of this currency appreciation happens IMMEDIATELY and therefore investors do not benefit from it. From this we know that: A. the net benefit is still skewed in favor of investment in Germany B. the net benefit is still skewed in favor of investment in USA C. interest rate parity is established

C

The exchange rate between the US dollar and the Chinese Yuan is 6.8 Yuan/$. So, a Yuan is worth _____ dollars. A. almost 11 cents B. a little over 12 cents C. almost 15 cents D. over 17 cents E. almost 19 cents

C

The Forex market is the biggest exchange in the world. Estimates suggest, at the time of recording the lecture, Forex had a daily trade volume in the range of ______ dollars. A. 5-6 million B. 5-6 billion C. 500-600 billion D. 5-6 trillion E. 50-60 trillion

D