Exam 18: The Foreign Exchange Market

________ in the foreign interest rate causes the demand for domestic assets to increase 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 Canadian dollar depreciates from ________ per dollar to ________ per dollar.

________ in the foreign 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 PPP suggests that if one country's price level rises relative to another's, its currency should ________.

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

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

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

One way to understand the short-run behaviour of exchange rates is ________.

Everything else held constant, when the current value of the domestic exchange rate increases, the ________ of domestic assets ________.

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 ________.

On January 25, 2009, one Canadian dollar traded on the foreign exchange market for about 0.75 euros. Therefore, one euro would have purchased about ________ Canadian dollars.

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

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

The Brexit vote in June 2016 resulted in higher expected trade barriers . Therefore, the expected value of the pound would be ________ in the future. The result was the sharp ________ in the equilibrium exchange rate for the British pound.

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

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

________ 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.

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

What is the theory of purchasing power parity? Why cannot it not fully explain exchange rates?

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