Exam 17: The Foreign Exchange Market

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 ________.

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

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

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.

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.

________ 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.

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

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

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

Suppose that the European Central Bank conducts a main refinancing sale.Everything else held constant,this would cause the demand for U.S.assets to ________ and the U.S.dollar will ________.

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

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 ________.

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 4 Brazilian reals per pound,then the exchange rate between the Colombian peso and the Brazilian real is:

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.

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

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

Explain and show graphically the effect of an increase in the expected inflation rate on the equilibrium exchange rate,everything else held constant.

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

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

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.