FIN 3403 ch 20

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

increase; appreciate

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

less; more

According to PPP, when the Big Mac has a high price in terms of local currency, then the exchange rate quoted in U.S. dollars per unit of local currency should be ________.

low

The Brexit vote in June 2016 resulted in higher expected trade barriers . Therefore, the expected value of the pound would be ________ in the future. The result was the sharp ________ in the equilibrium exchange rate for the British pound

lower; fall

Everything else held constant, when the current value of the domestic exchange rate increases, the ________ of domestic assets ________.

quantity supplied; does not change

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico, then, in the long run, ________, everything else held constant

the Mexican peso will appreciate relative to the U.S. dollar

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

the expected return on these assets relative to one another.

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

the price levels of the two countries

The exchange rate is

the price of one currency relative to another

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

£2; £1.33

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

An increase; appreciate

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

An increase; decrease

If the dollar depreciates relative to the Swiss franc

Swiss chocolate will become more expensive in the United States.

Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen

The Brazilian real will depreciate against the U.S. dollar.

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 ________.

appreciate; depreciate

The Brazilian real will depreciate against the U.S. dollar.

appreciate; long

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

appreciated; depreciated

According to the Purchasing Power Parity, if one country's price level rises relative to another's by a certain percentage, then the other country's currency

appreciates by the same percentage

Although foreign exchange market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of

bank deposits denominated in different currencies

The real exchange rate between U.S. dollars and the Japanese yens is the price of U.S. goods relative to the price of Japanese goods denominated in the U.S. dollar. If it is below one, the same basket of goods is ________ in the United States than in Japan, and the purchasing power of the U.S. dollars is ________ than the Japanese yens.

cheaper; lower

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

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 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 ________

decrease; depreciate

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

depreciate

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; appreciate

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________, everything else held constant.

depreciate; lower

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

During the beginning on the global financial crisis in the United States when the effects of the crisis were mostly confined within the United States, the U. S. dollar ________ because demand for U.S. assets ________.

depreciated; decreased

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.

dollar; foreign

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

domestic; foreign

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

expected return

The Brexit vote in June 2016 resulted in higher expected trade barriers. The relative expected return on British (pound) assets therefore ________ and so the quantity demanded of pound assets ________ at any given exchange rate, shifting the demand curve for pound assets to the ________.

fell; declined; left

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

forward exchange rate

An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

forward transaction

A decrease in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, 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

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