Exam 12: Exchange Rate Determination

According to the principle of exchange-rate overshooting, a short-run depreciation of a currency is likely to be greater than a long-run depreciation of that currency.

Low real interest rates in the United States tend to

If investors anticipate that the exchange value of the euro will appreciate against the dollar in the future, then the current exchange value of the euro will appreciate against the dollar.

If Americans develop stronger preferences for Canadian natural gas, then the likely result is that

​ Figure 12.1 The Market for Francs -Refer to Figure 12.1.Should real interest rates in the United States rise relative to real interest rates in Switzerland, there would occur a(n)

The theory of purchasing power parity states that changes in the nominal exchange rate arise from differences in ______ among countries.

Given a system of floating exchange rates, stronger U.S.preferences for imports would trigger

Assume the initial yen/dollar exchange rate to be 100 yen per dollar.If the U.S.inflation rate is 2 percent, and the Japanese inflation rate is 7 percent, then the exchange rate should move to 105 yen per dollar according to the purchasing-power-parity theory.

The international exchange value of the U.S.dollar is determined by

A decrease in the U.S.demand for automobile imports will cause the supply curve of dollars to ______ and result in a(n) ___________.

Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.

High real interest rates in the United States tend to

Exhibit 11.1 Assume the following: (1) the interest rate on six-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50, while the six-month forward price of the pound is $1.485. -Refer to Figure 12.2.If the Federal Reserve adopts a restrictive monetary policy that leads to relatively high interest rates in the United States, then the demand for francs would decrease, the supply of francs would increase, and the dollar's exchange value would appreciate.

If investors anticipate that the exchange value of the euro will depreciate against the dollar in the future, then the current exchange value of the euro will appreciate against the dollar.

If economic growth perks up in the United States so that investors think they can realize larger profits from American assets, then the

Under floating exchange rates, short-run exchange rates are primarily determined by national differences in real interest rates and shifting expectations of future exchange rates.

If Mexico applies tariffs to imports of manufactured goods, then Mexico's demand for foreign exchange will rise, and the peso will depreciate under a system of floating exchange rates.

The asset market theory of exchange rate determination suggests that the most important factor influencing the demand for domestic and foreign securities is

Suppose Mexico and the United States were the only two countries in the world.There exists an excess supply of pesos on the foreign exchange market.This suggests that

Exhibit 11.1 Assume the following: (1) the interest rate on six-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50, while the six-month forward price of the pound is $1.485. -Refer to Figure 12.2.If Swiss manufacturing costs increase relative to those of the United States, then there would occur an increase in the supply of francs and an appreciation in the dollar's exchange value.