Exam 12: Exchange Rate Determination

If German tastes for Microsoft software become stronger

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

If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain,then in the presence of purchasing-power parity the exchange rate should be:

Figure 12.3Market 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?

Concerning exchange-rate determination,"market fundamentals" include all of the following except:

In recent decades,the safe-haven effect has applied to the United States,with a long history of stable government,relatively stable economy,and large and efficient financial markets.

If real interest rates decline in the United States relative to real interest rates abroad,the dollar's exchange value will appreciate under a floating exchange-rate system.

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.

If Mexico's labor productivity rises relative to Europe's labor productivity:

The demand in the United States for yen will increase if,other things remaining equal:

The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates. Figure 12.2.The Market for Swiss Francs -Refer to Figure 12.2.If the rate of inflation in the United States is higher than the rate of inflation in Switzerland,the demand for francs decreases,the supply of francs increases,and the dollar's exchange value appreciates.

Concerning exchange rate forecasting,____ is a common sense approach based on a wide array of political and economic data.

The high foreign exchange value of the U.S.dollar in the early 1980s can best be explained by:

The volatility of exchange rates is reinforced by the phenomenon of overshooting,in which exchange rates depreciate or appreciate more in the long run than in the short run.

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

According to the law of one price,identical goods should cost the same in all nations,assuming there are no shipping costs nor trade barriers.

Hyundai Inc is a South Korean company that manufactures automobiles.If Hyundai purchases sheet steel from U.S.Steel Inc.,

The purchasing- power-parity theory predicts that if the U.S.inflation rate exceeds the Japanese inflation rate by 4 percent,the dollar's exchange value will appreciate by 4 percent against the yen.

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

Concerning exchange rate forecasting,____ relies on econometric models which are based on macroeconomic variables likely to affect currency values.