Question 1

If it takes 113.28 yen to buy $1,it takes $.009624 to buy 1 yen.

Accepted Answer

A) True 
 B)False

Question 2

Concerning the exchange rate index of the U.S.dollar,suppose that the dollar's real exchange rate index falls from 125 to 110.This means that

Accepted Answer

A)  U.S.goods are less competitive on foreign markets 
B)  U.S.goods are more competitive on foreign markets 
C)  the dollar has appreciated against the currencies of its major trading partners 
D)  U.S.price levels are identical to its trading partners 
A)  U.S.goods are less competitive on foreign markets 
B)  U.S.goods are more competitive on foreign markets 
C)  the dollar has appreciated against the currencies of its major trading partners 
D)  U.S.price levels are identical to its trading partners

Question 3

The euro shows a forward discount against the dollar (the forward rate is less than the spot rate) when interest rates in Europe are lower than those in the United States.

Accepted Answer

A) True 
 B)False

Question 4

Answer the next question on the basis of the table below that shows the exchange rate between various currencies and the U.S.dollar
 December 2015 Exchange Rate December 2016 Exchange Rate
Currency (dollars per unit of foreign currency) (dollars per unit of foreign currency)
Mexican peso $0.07 $0.09
Swiss franc $1.10 $1.05
Japanese yen $0.010 $0.012
British pound $1.64 $1.58
-A demand for U.S.dollars would result from

Accepted Answer

A)  An American tourist visiting the British Museum in London 
B)  A Japanese investor purchasing German securities 
C)  Honda,a Japanese auto company,buying land in Alabama 
D)  Airbus,a European firm,selling jetliners to airlines in South Korea 
A)  An American tourist visiting the British Museum in London 
B)  A Japanese investor purchasing German securities 
C)  Honda,a Japanese auto company,buying land in Alabama 
D)  Airbus,a European firm,selling jetliners to airlines in South Korea

Question 5

The supply of foreign currency may be:

Accepted Answer

A)  Upward-sloping 
B)  Backward-sloping 
C)  Vertical 
D)  None of the above 
A)  Upward-sloping 
B)  Backward-sloping 
C)  Vertical 
D)  None of the above

Question 6

Figure 11.1 illustrates the supply and demand schedules for the Swiss franc.Assume that exchange rates are flexible.
Figure 11.1.Supply and Demand Schedules of Francs
  
-Refer to Figure 11.1.Suppose the exchange rate is $.70 per franc.Free-market forces would lead to a (an) ____ of the dollar against the franc and a (an) ____ in U.S.international competitiveness.

Accepted Answer

A)  Depreciation,improvement 
B)  Depreciation,worsening 
C)  Appreciation,improvement 
D)  Appreciation,worsening 
A)  Depreciation,improvement 
B)  Depreciation,worsening 
C)  Appreciation,improvement 
D)  Appreciation,worsening

Question 7

As the dollar depreciates against the peso,U.S.residents tend to import more Mexican goods and thus demand more pesos.

Accepted Answer

A) True 
 B)False

Question 8

The "spread" is a bank's profit margin on foreign exchange trading and equals the difference between the bid rate and the offer rate.

Accepted Answer

A) True 
 B)False

Question 9

Throughout the foreign exchange market,trading in currencies

Accepted Answer

A)  occurs at any hour of the day or night 
B)  occurs at prices established by the U.S.and British governments 
C)  is conducted on centralized trading floors in Paris and Hong Kong 
D)  is restricted to the hours between 1 P.M and 3 P.M.,Eastern Time Zone 
A)  occurs at any hour of the day or night 
B)  occurs at prices established by the U.S.and British governments 
C)  is conducted on centralized trading floors in Paris and Hong Kong 
D)  is restricted to the hours between 1 P.M and 3 P.M.,Eastern Time Zone

Question 10

In the forward market,the exchange rate is agreed on at the time of the currency contract,but payment is not made until the future delivery of the currency actually takes place.

Accepted Answer

A) True 
 B)False

Question 11

Arbitrage results in a riskless profit since a trader purchases a currency at a low price and simultaneously resells it at a higher price.

Accepted Answer

A) True 
 B)False

Question 12

The trade-weighted dollar is the weighted average of the exchange rates between the dollar and the most important industrial-country trading partners of the United States.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 11.1 Assume the following: 
(1) the interest rate on 6-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 6-month forward price of the pound is $1.485.
-Refer to Exhibit 11.1.If U.S.investors cover their exchange rate risk,the extra return for the 6 months on the U.K.treasury bills is:

Accepted Answer

A)  1.0 percent 
B)  1.5 percent 
C)  2.0 percent 
D)  2.5 percent 
A)  1.0 percent 
B)  1.5 percent 
C)  2.0 percent 
D)  2.5 percent

Question 14

Exhibit 11.1 Assume the following: 
(1) the interest rate on 6-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 6-month forward price of the pound is $1.485.
-Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.

Accepted Answer

A)  Rise to $1.52 
B)  Rise to $1.53 
C)  Fall to $1.48 
D)  Fall to $1.47 
A)  Rise to $1.52 
B)  Rise to $1.53 
C)  Fall to $1.48 
D)  Fall to $1.47

Question 15

Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:

Accepted Answer

A)  Reduce the demand for dollars 
B)  Increase the demand for dollars 
C)  Reduce the supply of dollars 
D)  Increase the supply of dollars 
A)  Reduce the demand for dollars 
B)  Increase the demand for dollars 
C)  Reduce the supply of dollars 
D)  Increase the supply of dollars

Question 16

How is the equilibrium rate of exchange determined?

Accepted Answer

The equilibrium rate of exchan

Question 17

If the Swiss demand for dollars is elastic,a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Accepted Answer

A) True 
 B)False

Question 18

When the dollar depreciates

Accepted Answer

A)  U.S.exporters tend to sell more goods in foreign markets 
B)  U.S.consumers travel abroad more cheaply 
C)  More foreign tourists can afford to visit the United States 
D)  both a and c 
A)  U.S.exporters tend to sell more goods in foreign markets 
B)  U.S.consumers travel abroad more cheaply 
C)  More foreign tourists can afford to visit the United States 
D)  both a and c

Question 19

Assume that Boeing anticipates receiving 20 million yen in 3 months from exports of jumbo jets to a Japanese airline.The firm could hedge against the risk of a depreciation of the dollar against the yen by contracting to sell its expected yen proceeds for dollars in the forward market at today's forward rate.

Accepted Answer

A) True 
 B)False

Question 20

A "call" option gives General Motors the right to sell pounds at a specified price,while a put option gives General Motors the right to buy pounds at a specified price.

Accepted Answer

A) True 
 B)False

If it takes 113.28 yen to buy $1,it takes $.009624 to buy 1 yen.

Concerning the exchange rate index of the U.S.dollar,suppose that the dollar's real exchange rate index falls from 125 to 110.This means that

The euro shows a forward discount against the dollar (the forward rate is less than the spot rate) when interest rates in Europe are lower than those in the United States.

The supply of foreign currency may be:

As the dollar depreciates against the peso,U.S.residents tend to import more Mexican goods and thus demand more pesos.

The "spread" is a bank's profit margin on foreign exchange trading and equals the difference between the bid rate and the offer rate.

Throughout the foreign exchange market,trading in currencies

In the forward market,the exchange rate is agreed on at the time of the currency contract,but payment is not made until the future delivery of the currency actually takes place.

Arbitrage results in a riskless profit since a trader purchases a currency at a low price and simultaneously resells it at a higher price.

The trade-weighted dollar is the weighted average of the exchange rates between the dollar and the most important industrial-country trading partners of the United States.

Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:

How is the equilibrium rate of exchange determined?

If the Swiss demand for dollars is elastic,a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

When the dollar depreciates

A "call" option gives General Motors the right to sell pounds at a specified price,while a put option gives General Motors the right to buy pounds at a specified price.

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

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance-of-payments

Exchange Rate Systems and Currency Crises

Macroeconomic Policy in an Open-economy

International Banking: Reserves, Debt, and Risk

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Exam 11: Foreign Exchange

If it takes 113.28 yen to buy $1,it takes $.009624 to buy 1 yen.

Concerning the exchange rate index of the U.S.dollar,suppose that the dollar's real exchange rate index falls from 125 to 110.This means that

The euro shows a forward discount against the dollar (the forward rate is less than the spot rate) when interest rates in Europe are lower than those in the United States.

The supply of foreign currency may be:

As the dollar depreciates against the peso,U.S.residents tend to import more Mexican goods and thus demand more pesos.

The "spread" is a bank's profit margin on foreign exchange trading and equals the difference between the bid rate and the offer rate.

Throughout the foreign exchange market,trading in currencies

In the forward market,the exchange rate is agreed on at the time of the currency contract,but payment is not made until the future delivery of the currency actually takes place.

Arbitrage results in a riskless profit since a trader purchases a currency at a low price and simultaneously resells it at a higher price.

The trade-weighted dollar is the weighted average of the exchange rates between the dollar and the most important industrial-country trading partners of the United States.

Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:

How is the equilibrium rate of exchange determined?

If the Swiss demand for dollars is elastic,a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

When the dollar depreciates

A "call" option gives General Motors the right to sell pounds at a specified price,while a put option gives General Motors the right to buy pounds at a specified price.

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

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance-of-payments

Exchange Rate Systems and Currency Crises

Macroeconomic Policy in an Open-economy

International Banking: Reserves, Debt, and Risk

Filters