Exam 16: Open Economy Macroeconomics

Suppose the exchange rate between the U.S. dollar and the euro is $1 = €1.2. A currency trader thinks that the euro will equal $1 in the near future. What profitable trade can be done? Is there any risk in this trade?

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Question 1

Correct Answer:

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If the euro is expected to appreciate, then the dollar is expected to depreciate. The trader could purchase euros and then resell them. For example, if the trader has $10,000, he can purchase €12,000. Once €1 equals $1, the trader can use the euros to purchase $12,000 and have a profit of $2,000. This trade is risky because the market is unpredictable (if the euro depreciates, the trader would lose money).

Suppose a country is undergoing political, economic, and social turmoil. Many foreign businesses no longer wish to buy either goods or financial securities in this country. The country's currency would be expected to

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Question 2

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An investment by a Malaysian company in a wine production plant in California is included in the _____ account.

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Question 3

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Most OPEC nations peg their currencies to the U.S. dollar to attract foreign investment.

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Question 4

Assume that capital is not perfectly mobile and substitutable and that the interest rate in the United States is currently 5%, which includes a 1% risk premium associated with continued high budget deficits. Investors expect the euro to rise against the dollar by 2% and thus demand a _ in the _.

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Question 5

If the exchange rate changes from US$1 = €1.2 to US$1 = €1.4, then the U.S. dollar _ and the euro _.

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Question 6

If 1 dinar will buy 25 cents, how many dinar will one U.S. dollar buy?

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Question 7

Which factor may adversely affect the ability of purchasing power parity to hold?

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Question 8

If the dollar depreciated and the United States purchased foreign inputs for products made in the United States, then which situation would NOT occur?

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Question 9

The capital account includes payments for imports and exports of goods and services.

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Question 10

Outline the process by which a contractionary monetary policy affects the capital account and exchange rate under a flexible exchange rate system.

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Question 11

(Table) The balance on income is

(Multiple Choice)

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Question 12

Which country uses the U.S. dollar as its currency?

(Multiple Choice)

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Question 13

In 2018, U.S. imports totaled about

(Multiple Choice)

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Question 14

If there is an increase in demand for U.S. goods, the U.S. dollar will _. If there is increased inflation in the United States, the U.S. dollar will _.

(Multiple Choice)

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Question 15

A fixed exchange rate is one in which the currency markets determine the exchange rate.

(True/False)

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Question 16

Suppose the exchange rate is US$1 = ¥100. This means that

(Multiple Choice)

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Question 17

If a U.S. firm borrows from an American bank and then converts that money to euros to buy French wine, it will be accounted for as a(n) _____ account.

(Multiple Choice)

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Question 18

In the exchange market between the U.S. dollar and the yen, a person who has a demand for dollars also

(Multiple Choice)

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Question 19

An example of an item included in the current account is

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Question 20

Showing 1 - 20 of 265

Suppose the exchange rate between the U.S. dollar and the euro is $1 = €1.2. A currency trader thinks that the euro will equal $1 in the near future. What profitable trade can be done? Is there any risk in this trade?

Suppose a country is undergoing political, economic, and social turmoil. Many foreign businesses no longer wish to buy either goods or financial securities in this country. The country's currency would be expected to

An investment by a Malaysian company in a wine production plant in California is included in the _____ account.

Most OPEC nations peg their currencies to the U.S. dollar to attract foreign investment.

Assume that capital is not perfectly mobile and substitutable and that the interest rate in the United States is currently 5%, which includes a 1% risk premium associated with continued high budget deficits. Investors expect the euro to rise against the dollar by 2% and thus demand a _ in the _.

If the exchange rate changes from US$1 = €1.2 to US$1 = €1.4, then the U.S. dollar _ and the euro _.

If 1 dinar will buy 25 cents, how many dinar will one U.S. dollar buy?

Which factor may adversely affect the ability of purchasing power parity to hold?

If the dollar depreciated and the United States purchased foreign inputs for products made in the United States, then which situation would NOT occur?

The capital account includes payments for imports and exports of goods and services.

Outline the process by which a contractionary monetary policy affects the capital account and exchange rate under a flexible exchange rate system.

(Table) The balance on income is

Which country uses the U.S. dollar as its currency?

In 2018, U.S. imports totaled about

If there is an increase in demand for U.S. goods, the U.S. dollar will _. If there is increased inflation in the United States, the U.S. dollar will _.

A fixed exchange rate is one in which the currency markets determine the exchange rate.

Suppose the exchange rate is US$1 = ¥100. This means that

If a U.S. firm borrows from an American bank and then converts that money to euros to buy French wine, it will be accounted for as a(n) _____ account.

In the exchange market between the U.S. dollar and the yen, a person who has a demand for dollars also

An example of an item included in the current account is

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

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Exam 16: Open Economy Macroeconomics

Suppose the exchange rate between the U.S. dollar and the euro is $1 = €1.2. A currency trader thinks that the euro will equal $1 in the near future. What profitable trade can be done? Is there any risk in this trade?

Suppose a country is undergoing political, economic, and social turmoil. Many foreign businesses no longer wish to buy either goods or financial securities in this country. The country's currency would be expected to

An investment by a Malaysian company in a wine production plant in California is included in the _____ account.

Most OPEC nations peg their currencies to the U.S. dollar to attract foreign investment.

If the exchange rate changes from US$1 = €1.2 to US$1 = €1.4, then the U.S. dollar _____ and the euro _____.

If 1 dinar will buy 25 cents, how many dinar will one U.S. dollar buy?

Which factor may adversely affect the ability of purchasing power parity to hold?

If the dollar depreciated and the United States purchased foreign inputs for products made in the United States, then which situation would NOT occur?

The capital account includes payments for imports and exports of goods and services.

Outline the process by which a contractionary monetary policy affects the capital account and exchange rate under a flexible exchange rate system.

(Table) The balance on income is

Which country uses the U.S. dollar as its currency?

In 2018, U.S. imports totaled about

If there is an increase in demand for U.S. goods, the U.S. dollar will _____. If there is increased inflation in the United States, the U.S. dollar will _____.

A fixed exchange rate is one in which the currency markets determine the exchange rate.

Suppose the exchange rate is US$1 = ¥100. This means that

If a U.S. firm borrows from an American bank and then converts that money to euros to buy French wine, it will be accounted for as a(n) _____ account.

In the exchange market between the U.S. dollar and the yen, a person who has a demand for dollars also

An example of an item included in the current account is

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Monetary Policy

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Filters

If the exchange rate changes from US$1 = €1.2 to US$1 = €1.4, then the U.S. dollar _ and the euro _.

If there is an increase in demand for U.S. goods, the U.S. dollar will _. If there is increased inflation in the United States, the U.S. dollar will _.