Exam 18: The Foreign Exchange Market

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

Explain the interest parity condition.

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

If the Brazilian demand for Canadian exports rises at the same time that Canadian productivity rises relative to Brazilian productivity, then, in the long run, ________, everything else held constant.

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

If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the real depreciates from ________ per real to ________ per real.

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

According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is ________.

On January 25, 2009, one Canadian dollar traded on the foreign exchange market for about 3.33 Romanian new lei. Therefore, one Romanian new lei would have purchased about ________ Canadian dollars.

Suppose that the European Central Bank conducts a main refinancing sale. Everything else held constant, this would cause the demand for Canadian assets to ________ and the Canadian dollar will ________.

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

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

The expected return on dollar deposits in terms of foreign currency can be written as the ________ of the interest rate on dollar deposits and the expected appreciation of the dollar.

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

The immediate (two-day) exchange of one currency for another is a ________.

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

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

An increase in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, 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 dollar is ________.

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