Exam 18: The Foreign Exchange Market

________ 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 Canada and Japan is ________, then it is cheaper to buy goods in Japan than in Canada.

Suppose the Bank of Canada releases a policy statement today which leads people to believe that the Bank 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 Canadian assets to ________ and the Canadian dollar to ________.

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

Why are exchange rates so volatile?

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

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

Suppose that the European Central Bank enacts expansionary policy. Everything else held constant, this will cause the demand for Canadian assets to ________ and the Canadian dollar to ________.

The starting point for understanding how exchange rates are determined is a simple idea called ________, which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it.

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

If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen, the Canadian dollar depreciates from ________ per dollar to ________ per dollar.

When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive.

In the model of the demand and supply of dollar assets use a graph to explain how a change in the foreign interest rate affects the equilibrium exchange rate.

Suppose that the Bank of Canada sells bonds to the chartered banks. Everything else held constant, this will cause the demand for Canadian assets to ________ and the Canadian dollar will ________.

Explain how trade barriers affect the exchange rates in the long-run.

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

________ 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.

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.

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