Exam 12: Exchange Rate Determination

Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent, while tight monetary policy in Switzerland leads to interest rates rising to 8 percent.With floating exchange rates, the dollar would appreciate against the franc.

Concerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements.

Econometric models are best suited for forecasting long-run exchange rates rather than short-run exchange rates.

Which of the following does NOT explain long-run movements in exchange rates?

A country having stronger preferences for imports than its trading partners have for its exports finds its demand for foreign exchange rising more rapidly than its supply of foreign exchange.

British investors will expect that the U.S.dollar will appreciate against the pound in the future if there are expectations that

Given a system of floating exchange rates, if Canada's labor productivity rises relative to the labor productivity of its trading partners, then

In the short run, exchange rates are determined by the rate at which a country's currency exchanges for silver and gold.

Assume that the United States faces an 8 percent inflation rate, while no (zero) inflation exists in Japan.According to the purchasing-power parity theory, the dollar would be expected to

If the interest rate in Japan increases, investors increase their demand for yen, and the yen's exchange value appreciates.

Suppose that the exchange value of the dollar equals two British pounds.If in San Francisco a computer costs $1,000 and in London it costs 2,000 pounds, then

According to exchange-rate overshooting, an appreciation of the Australian dollar is likely to be greater over a long time period than over a short time period.

When deciding between U.S.and British government securities, an American investor typically considers

​ Figure 12.1 The Market for Francs -Refer to Figure 12.1.Should the U.S.price level rise relative to the Swiss price level, there would occur a(n)

An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response.

According to the "Big Mac" index, if a Big Mac costs $2.28 in the United States and 48 baht in Thailand (equivalent to $1.91), then the baht is an undervalued currency.

The quantity of Canadian dollars supplied to the foreign exchange market would increase if, other things remaining equal

During the Great Recession of 2008-2009, the dollar increasingly was viewed as a safe-haven currency, as investors fled to it when they worried about the stability of the global economy.As investors fled to the dollar,

Assume that interest rates in the United States and Britain are the same.If a U.S.resident anticipates that the exchange value of the dollar is going to appreciate against the pound, she should