Exam 20: The Foreign Exchange Market

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

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

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

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

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

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.

________ in the foreign interest rate causes the demand for domestic assets to increase 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 ________ demand for dollar assets, everything else held constant.

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 ________.

The exchange rate is

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

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

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

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 ________.

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

If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate, for Manuel the Mexican the expected rate of return on euro-denominated assets is

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

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

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