Exam 17: The Foreign Exchange Market

Suppose a report was released today that showed the Euro-Zone inflation rate is running above the European Central Bank's inflation rate target.This leads people to expect that the European Central Bank will enact contractionary policy in the near future.Everything else held constant,the release of this report would immediately cause the demand for U.S.assets to ________ and the U.S.dollar will ________.

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.

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

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

According to the interest parity condition,if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent,then the expected ________ of the foreign currency must be ________ percent.

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.

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

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

According to the interest parity condition,if the domestic interest rate is 10 percent and the foreign interest rate is 12 percent,then the expected ________ of the foreign currency must be ________ percent.

With a 10 percent interest rate on dollar deposits,and an expected appreciation of 7 percent over the coming year,the expected return on dollar deposits in terms of the dollar is

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 ________.

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?

If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets,and if the dollar is expected to appreciate at a 4 percent rate,for Francois the Frenchman the expected rate of return on dollar-denominated assets is

In a world with few impediments to capital mobility,the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency,a situation known as the

According to the purchasing power parity theory,a rise in the United States price level of 5 percent,and a rise in the Mexican price level of 6 percent cause

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 ________.

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

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

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

If the real exchange rate between the United States and Japan is ________,then it is cheaper to buy goods in Japan than in the United States.