Question 1

If the exchange rate between Swiss francs and British pounds is five francs per pound, then the number of pounds that can be obtained for 200 francs equals

Accepted Answer

A)  20 pounds. 
B)  40 pounds. 
C)  60 pounds. 
D)  80 pounds. 
A)  20 pounds. 
B)  40 pounds. 
C)  60 pounds. 
D)  80 pounds.

Question 2

Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 3

The nominal interest rate equals the real interest rate minus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 4

In the presence of purchasing-power parity, if one dollar exchanges for two British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost

Accepted Answer

A)  200 pounds. 
B)  400 pounds. 
C)  600 pounds. 
D)  800 pounds. 
A)  200 pounds. 
B)  400 pounds. 
C)  600 pounds. 
D)  800 pounds.

Question 5

Given a floating exchange rate system, an increase in ____ would cause the dollar to appreciate against the euro.

Accepted Answer

A)  U.S. labor costs 
B)  the U.S. money supply 
C)  U.S. prices of goods 
D)  U.S. real interest rates 
A)  U.S. labor costs 
B)  the U.S. money supply 
C)  U.S. prices of goods 
D)  U.S. real interest rates

Question 6

According to the purchasing power parity theory, if the inflation rate in Mexico is greater than the inflation rate in Switzerland, then the nominal exchange value of the peso will appreciate against the franc.

Accepted Answer

A) True 
 B)False

Question 7

A rise in the expected rate of inflation in Canada will cause the exchange value of the Canadian dollar to depreciate.

Accepted Answer

A) True 
 B)False

Question 8

Market expectations include news about market fundamentals, speculative opinion about future exchange rates, and the profitability and riskiness of investments.

Accepted Answer

A) True 
 B)False

Question 9

If American consumers increase their demand for Mercedes Benz automobiles manufactured in Germany, then

Accepted Answer

A)  the U.S. dollar's exchange value appreciates against the euro. 
B)  the U.S. dollar's exchange value remains constant against the euro. 
C)  Americans are willing to pay fewer U.S. dollars for the euro. 
D)  Americans are willing to pay more U.S. dollars for the euro. 
A)  the U.S. dollar's exchange value appreciates against the euro. 
B)  the U.S. dollar's exchange value remains constant against the euro. 
C)  Americans are willing to pay fewer U.S. dollars for the euro. 
D)  Americans are willing to pay more U.S. dollars for the euro.

Question 10

Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?

Accepted Answer

A)  balance-of-payments approach 
B)  purchasing-power-parity approach 
C)  asset-markets approach 
D)  monetary approach 
A)  balance-of-payments approach 
B)  purchasing-power-parity approach 
C)  asset-markets approach 
D)  monetary approach

Question 11

The theory of purchasing power parity broadens the law of one price to a group of goods.

Accepted Answer

A) True 
 B)False

Question 12

Assume that labor productivity growth is slower in the United States than in its trading partners.Given a system of floating exchange rates, the impact of this growth differential for the United States will be

Accepted Answer

A)  increased exports and an appreciation of the dollar. 
B)  increased exports and a depreciation of the dollar. 
C)  increased imports and an appreciation of the dollar. 
D)  increased imports and a depreciation of the dollar. 
A)  increased exports and an appreciation of the dollar. 
B)  increased exports and a depreciation of the dollar. 
C)  increased imports and an appreciation of the dollar. 
D)  increased imports and a depreciation of the dollar.

Question 13

Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to the short run.

Accepted Answer

A) True 
 B)False

Question 14

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then

Accepted Answer

A)  the demand curve for dollars shifts to the left. 
B)  the demand curve for dollars shifts to the right. 
C)  the demand curve for yen shifts to the right. 
D)  the demand curves for both yen and dollars remain constant. 
A)  the demand curve for dollars shifts to the left. 
B)  the demand curve for dollars shifts to the right. 
C)  the demand curve for yen shifts to the right. 
D)  the demand curves for both yen and dollars remain constant.

Question 15

Under floating exchange rates, relatively low domestic interest rates tend to promote the depreciation of a currency's exchange value, while relatively high domestic interest rates lead to currency appreciation.

Accepted Answer

A) True 
 B)False

Question 16

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.As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States, U.S.residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.

Accepted Answer

A) True 
 B)False

Question 17

If the Federal Reserve increases interest rates in the United States relative to interest rates in other countries, then in the foreign exchange market

Accepted Answer

A)  the demand for dollars increases, and the supply of dollars increases. 
B)  the demand for dollars increases, and the supply of dollars decreases. 
C)  the demand for dollars decreases, and the supply of dollars increases. 
D)  the demand for dollars decreases, and the supply of dollars decreases. 
A)  the demand for dollars increases, and the supply of dollars increases. 
B)  the demand for dollars increases, and the supply of dollars decreases. 
C)  the demand for dollars decreases, and the supply of dollars increases. 
D)  the demand for dollars decreases, and the supply of dollars decreases.

Question 18

Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to

Accepted Answer

A)  appreciate against the dollar. 
B)  depreciate against the dollar. 
C)  remain constant against the dollar. 
D)  appreciate, depreciate, or remain constant against the dollar. 
A)  appreciate against the dollar. 
B)  depreciate against the dollar. 
C)  remain constant against the dollar. 
D)  appreciate, depreciate, or remain constant against the dollar.

Question 19

Which of the following will result in a depreciation of the U.S.dollar against the Mexican peso?

Accepted Answer

A)  an increase in the Mexican demand for U.S. imports 
B)  a decrease in the Mexican demand for U.S. imports 
C)  a decrease in the U.S. demand for Mexican imports 
D)  no change in the U.S. demand for Mexican imports 
A)  an increase in the Mexican demand for U.S. imports 
B)  a decrease in the Mexican demand for U.S. imports 
C)  a decrease in the U.S. demand for Mexican imports 
D)  no change in the U.S. demand for Mexican imports

Question 20

For an American investor, the expected rate of return on European securities depends on all of the following factors EXCEPT the

Accepted Answer

A)  rate of return on equivalent American securities. 
B)  current exchange rate between the dollar and the pound. 
C)  exchange rate anticipated to prevail when the securities mature. 
D)  interest rate paid on European securities. 
A)  rate of return on equivalent American securities. 
B)  current exchange rate between the dollar and the pound. 
C)  exchange rate anticipated to prevail when the securities mature. 
D)  interest rate paid on European securities.

If the exchange rate between Swiss francs and British pounds is five francs per pound, then the number of pounds that can be obtained for 200 francs equals

Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.

The nominal interest rate equals the real interest rate minus the inflation rate.

In the presence of purchasing-power parity, if one dollar exchanges for two British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost

Given a floating exchange rate system, an increase in ____ would cause the dollar to appreciate against the euro.

According to the purchasing power parity theory, if the inflation rate in Mexico is greater than the inflation rate in Switzerland, then the nominal exchange value of the peso will appreciate against the franc.

A rise in the expected rate of inflation in Canada will cause the exchange value of the Canadian dollar to depreciate.

Market expectations include news about market fundamentals, speculative opinion about future exchange rates, and the profitability and riskiness of investments.

If American consumers increase their demand for Mercedes Benz automobiles manufactured in Germany, then

Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?

The theory of purchasing power parity broadens the law of one price to a group of goods.

Assume that labor productivity growth is slower in the United States than in its trading partners.Given a system of floating exchange rates, the impact of this growth differential for the United States will be

Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to the short run.

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then

Under floating exchange rates, relatively low domestic interest rates tend to promote the depreciation of a currency's exchange value, while relatively high domestic interest rates lead to currency appreciation.

If the Federal Reserve increases interest rates in the United States relative to interest rates in other countries, then in the foreign exchange market

Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to

Which of the following will result in a depreciation of the U.S.dollar against the Mexican peso?

For an American investor, the expected rate of return on European securities depends on all of the following factors EXCEPT the

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance of Payments

Exchange Rate Systems and Currency Crises

Filters

Exam 12: Exchange Rate Determination

If the exchange rate between Swiss francs and British pounds is five francs per pound, then the number of pounds that can be obtained for 200 francs equals

Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.

The nominal interest rate equals the real interest rate minus the inflation rate.

In the presence of purchasing-power parity, if one dollar exchanges for two British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost

Given a floating exchange rate system, an increase in ____ would cause the dollar to appreciate against the euro.

According to the purchasing power parity theory, if the inflation rate in Mexico is greater than the inflation rate in Switzerland, then the nominal exchange value of the peso will appreciate against the franc.

A rise in the expected rate of inflation in Canada will cause the exchange value of the Canadian dollar to depreciate.

Market expectations include news about market fundamentals, speculative opinion about future exchange rates, and the profitability and riskiness of investments.

If American consumers increase their demand for Mercedes Benz automobiles manufactured in Germany, then

Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?

The theory of purchasing power parity broadens the law of one price to a group of goods.

Assume that labor productivity growth is slower in the United States than in its trading partners.Given a system of floating exchange rates, the impact of this growth differential for the United States will be

Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to the short run.

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then

Under floating exchange rates, relatively low domestic interest rates tend to promote the depreciation of a currency's exchange value, while relatively high domestic interest rates lead to currency appreciation.

If the Federal Reserve increases interest rates in the United States relative to interest rates in other countries, then in the foreign exchange market

Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to

Which of the following will result in a depreciation of the U.S.dollar against the Mexican peso?

For an American investor, the expected rate of return on European securities depends on all of the following factors EXCEPT the

The International Economy and Globalization

Foundations of Modern Trade Theory Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance of Payments

Exchange Rate Systems and Currency Crises

Filters