Question 1

The interest parity condition is relevant in the

Accepted Answer

A)  short run. 
B)  long run. 
C)  both of the above. 
D)  neither of the above. 
A)  short run. 
B)  long run. 
C)  both of the above. 
D)  neither of the above. A

Question 2

If the United States raised import tariffs on Japanese products, and Japan did not respond, then the dollar would depreciate against the pound, ceteris paribus.

Accepted Answer

A) True 
 B)False  False

Question 3

Exchange rates follow a random walk.

Accepted Answer

A) True 
 B)False  True

Question 4

Changes in expected productivity within a country can impact its exchange rate in the short run.

Accepted Answer

A) True 
 B)False

Question 5

One reason the dollar appreciated against the euro in 2000-2005 was

Accepted Answer

A)  inflation was higher in the United States. 
B)  interest rates were higher in the United States. 
C)  price/earnings ratio were higher in the United States. 
D)  all of the above. 
A)  inflation was higher in the United States. 
B)  interest rates were higher in the United States. 
C)  price/earnings ratio were higher in the United States. 
D)  all of the above.

Question 6

According to the interest parity condition, if the dollar exchange rate in yen is expected to rise, then the U.S. interest rate should be below the Japanese interest rate.

Accepted Answer

A) True 
 B)False

Question 7

Interest rate differences between countries are one reason PPP does not fully explain exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 8

PPP is relevant only in the long run.

Accepted Answer

A) True 
 B)False

Question 9

Your favorite beer in the world is Sapporo. You read that the Japanese yen has appreciated. Ceteris paribus, you are

Accepted Answer

A)  happier. 
B)  sadder. 
C)  indifferent. 
D)  cannot be determined. 
A)  happier. 
B)  sadder. 
C)  indifferent. 
D)  cannot be determined.

Question 10

An increase in expected productivity in a country should cause the supply of that country's currency to shift to the right.

Accepted Answer

A) True 
 B)False

Question 11

If the exchange rate for $1 goes from 1.33 euros to 1.34 euros, the dollar has appreciated.

Accepted Answer

A) True 
 B)False

Question 12

An increase in which of the following factors (from the perspective of the domestic country) would cause a depreciation of the domestic currency in the short run?

Accepted Answer

A)  foreign interest rate 
B)  relative price level 
C)  relative export demand 
D)  all of the above 
A)  foreign interest rate 
B)  relative price level 
C)  relative export demand 
D)  all of the above

Question 13

An increase in which of the following factors (from the perspective of the domestic country) would cause a depreciation of the domestic currency in the long run?

Accepted Answer

A)  domestic interest rate 
B)  relative price level 
C)  relative export demand 
D)  all of the above 
A)  domestic interest rate 
B)  relative price level 
C)  relative export demand 
D)  all of the above

Question 14

Japan decides to replace its yen with a new currency, the zen. Each zen is worth 100 yen. This will stimulate their exports.

Accepted Answer

A) True 
 B)False

Question 15

What is the difference between the spot market and the forward market?

Accepted Answer

The spot market makes currency

Question 16

The law of one price would apply to which of the following goods or services sold in Japan and Australia?

Accepted Answer

A)  office building 
B)  auto repair 
C)  manicure 
D)  none of the above 
A)  office building 
B)  auto repair 
C)  manicure 
D)  none of the above

Question 17

If the foreign interest rate is 15%, the current exchange rate is 10.0 and the expected future exchange rate is 11.0, what is the domestic interest rate according to the interest parity condition?

Accepted Answer

A)  5% 
B)  14% 
C)  25% 
D)  none of the above 
A)  5% 
B)  14% 
C)  25% 
D)  none of the above

Question 18

The advantage of having a strong currency is it

Accepted Answer

A)  makes imports more expensive. 
B)  makes exports more expensive. 
C)  makes interest rates lower. 
D)  none of the above. 
A)  makes imports more expensive. 
B)  makes exports more expensive. 
C)  makes interest rates lower. 
D)  none of the above.

Question 19

The United States often restricts steel imports on "anti-dumping" grounds. Explain the effect on the strength of the dollar, ceteris paribus. Give a reason the ceteris paribus assumption might fail here.

Accepted Answer

The restriction limits import demand and

Question 20

An increase in a country's trade barriers will cause the _____ for its currency to shift to the

Accepted Answer

A)  demand, left. 
B)  demand, right. 
C)  supply, left. 
D)  supply, right. 
A)  demand, left. 
B)  demand, right. 
C)  supply, left. 
D)  supply, right.

Exam 18: Foreign Exchange

The interest parity condition is relevant in the

If the United States raised import tariffs on Japanese products, and Japan did not respond, then the dollar would depreciate against the pound, ceteris paribus.

Exchange rates follow a random walk.

Changes in expected productivity within a country can impact its exchange rate in the short run.

One reason the dollar appreciated against the euro in 2000-2005 was

According to the interest parity condition, if the dollar exchange rate in yen is expected to rise, then the U.S. interest rate should be below the Japanese interest rate.

Interest rate differences between countries are one reason PPP does not fully explain exchange rates in the long run.

PPP is relevant only in the long run.

Your favorite beer in the world is Sapporo. You read that the Japanese yen has appreciated. Ceteris paribus, you are

An increase in expected productivity in a country should cause the supply of that country's currency to shift to the right.

If the exchange rate for $1 goes from 1.33 euros to 1.34 euros, the dollar has appreciated.

An increase in which of the following factors (from the perspective of the domestic country) would cause a depreciation of the domestic currency in the short run?

An increase in which of the following factors (from the perspective of the domestic country) would cause a depreciation of the domestic currency in the long run?

Japan decides to replace its yen with a new currency, the zen. Each zen is worth 100 yen. This will stimulate their exports.

What is the difference between the spot market and the forward market?

The law of one price would apply to which of the following goods or services sold in Japan and Australia?

If the foreign interest rate is 15%, the current exchange rate is 10.0 and the expected future exchange rate is 11.0, what is the domestic interest rate according to the interest parity condition?

The advantage of having a strong currency is it

The United States often restricts steel imports on "anti-dumping" grounds. Explain the effect on the strength of the dollar, ceteris paribus. Give a reason the ceteris paribus assumption might fail here.

An increase in a country's trade barriers will cause the _____ for its currency to shift to the

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