Exam 12: Exchange Rate Determination

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

Although the law of one price predicts that identical goods should cost the same in all nations,transportation costs and tariffs tend to prevent this prediction from actually occurring.

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:

Assume a system of floating exchange rates.Due to a high savings rate,suppose the level of savings in Japan is in excess of domestic investment needs.If Japanese residents invest abroad,the yen's exchange value will ____ and the Japanese trade balance will move toward ____.

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.

When the price of foreign currency (i.e.,the exchange rate) is below the equilibrium level:

According to the asset-markets approach,adjustments among financial assets are a key determinant of long-run movements in exchange rates.

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

Assume the initial yen/dollar exchange rate to be 100 yen per dollar.If the U.S.inflation rate is 2 percent and the Japanese inflation rate is 7 percent,the exchange rate should move to 105 yen per dollar according to the purchasing-power-parity theory.

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.

Which of the following is likely to result in long-run depreciation of the U.S.dollar relative to the euro?

Relatively high interest rates in the United States causes the dollar to ____ in the ____.

Low real interest rates in the United States tend to:

A relatively high rate of inflation in the United States will result in

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

The demand curve for euros in the foreign exchange market will increase (shift rightward) if

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

An increase in the British demand for exports of American steel will ______ the demand for U.S.dollars and result in a (an) ______ of the dollar.

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

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