Exam 17: The Foreign Exchange Market

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,the expected return on ________-denominated assets in ________ percent.

The condition that states that the domestic interest rate equals the foreign interest rate minus the expected appreciation of the domestic currency is called

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

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

As the relative expected return on dollar assets increases,foreigners will want to hold more ________ assets and less ________ assets,everything else held constant.

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

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.

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

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.

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

Today 1 euro can be purchased for $1.10.This is the

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

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

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

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.

Exchange rates are determined in

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

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 foreign currency is

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.

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