Exam 12: Exchange Rate Determination

If Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise, and the yen's exchange value will appreciate under a system of floating exchange rates.

According to the theory of purchasing power parity, if the price level in France rises by 6 percent and the price level in the United States rises by 4 percent, then the dollar will

For a country that imposes trade barriers, such as tariffs and quotas, the exchange value of its currency tends to appreciate in the long run.

If it is widely expected that the British economy will experience more rapid inflation than the Australian economy, then the pound will depreciate against the dollar under a system of floating exchange rates.

Exchange rates are volatile in the short run because expectations about the variables that affect exchange rates change frequently.

If wheat costs four dollars per bushel in the United States and two British pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be

If the rate of growth in labor productivity in the United States increases relative to the rate of growth in labor productivity in other countries, then

As the profitability of Japanese assets rises relative to the profitability of Australian assets, Australian residents will make additional investments in Japan; this results in an increased demand for yen and a depreciation of the dollar under a system of floating exchange rates.

In the short run, exchange rates respond to market forces, such as

Suppose that the interest rate in Great Britain increases, while the interest rate in the United States remains constant.As a result,

Due to increased air travel, suppose that Saudi Arabian Airlines purchases forty jetliners from Airbus, a European firm.This results in

The U.S.interest rate minus the foreign interest rate is called the U.S.interest rate differential.The U.S.interest rate differential would increase if

For purchasing-power parity to exist,

If American consumers increase their demand for British goods, then they are willing to pay fewer U.S.dollars per British pound.

Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in

The appreciation in the value of the dollar in the early 1980s is explained by all of the following EXCEPT relatively high inflation rates in the United States.

If the United States experiences an enormous wheat crop failure, then it will have to import more wheat, and the dollar's exchange value will depreciate under a system of floating exchange rates.

Figure 12.3 Market for British Pounds ​ -Consider Figure 12.3.The market is initially governed by demand curve D₀ and supply curve S₀.Suppose the US government raises tariffs for UK made goods, which supply and demand curves depict the new situation?

A forward discount on Mexico's peso serves as a rough benchmark of the expected appreciation in the peso's spot rate.

Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar.One can say that the