Question 1

Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.

Accepted Answer

A) True 
 B)False

Question 2

One of the advantages of floating exchange rates is that:

Accepted Answer

A)  consumers always know how much imported goods cost. 
B)  businesses always know, in advance, what future exchange rates will be. 
C)  countries are free to pursue their own macroeconomic policies without maintaining exchange rates. 
D)  countries cannot act independently and must thus coordinate their macroeconomic policies. 
E)  the global interest rate tends to decline to the lowest possible level. 
A)  consumers always know how much imported goods cost. 
B)  businesses always know, in advance, what future exchange rates will be. 
C)  countries are free to pursue their own macroeconomic policies without maintaining exchange rates. 
D)  countries cannot act independently and must thus coordinate their macroeconomic policies. 
E)  the global interest rate tends to decline to the lowest possible level.

Question 3

Interest rate parity can be summarized by which of the following equilibrium conditions?

Accepted Answer

A)  The foreign interest rate must equal the domestic interest rate plus the expected inflation. 
B)  The foreign interest rate must equal the domestic interest rate. 
C)  The foreign interest rate must equal the expected change in the exchange rate. 
D)  The domestic interest rate must equal the foreign interest rate plus the expected change in exchange rate. 
E)  The domestic interest rate must equal the foreign interest rate minus any expected inflation. 
A)  The foreign interest rate must equal the domestic interest rate plus the expected inflation. 
B)  The foreign interest rate must equal the domestic interest rate. 
C)  The foreign interest rate must equal the expected change in the exchange rate. 
D)  The domestic interest rate must equal the foreign interest rate plus the expected change in exchange rate. 
E)  The domestic interest rate must equal the foreign interest rate minus any expected inflation.

Question 4

Equilibrium in the foreign exchange market occurs:

Accepted Answer

A)  at the point where the foreign exchange demand and supply curves intersect. 
B)  at the point where the foreign exchange demand and supply curves reach maximum separation. 
C)  when two nations' economic leaders agree on the appropriate exchange rate. 
D)  when two nations' diplomatic leaders agree on an exchange rate that meets both countries' needs. 
E)  only by chance, if at all, because they change very frequently. 
A)  at the point where the foreign exchange demand and supply curves intersect. 
B)  at the point where the foreign exchange demand and supply curves reach maximum separation. 
C)  when two nations' economic leaders agree on the appropriate exchange rate. 
D)  when two nations' diplomatic leaders agree on an exchange rate that meets both countries' needs. 
E)  only by chance, if at all, because they change very frequently.

Question 5

Assume that you have just returned to the United States from a summer vacation in Russia, where you exchanged American dollars for Russian rubles. Your economic actions can be said to have:

Accepted Answer

A)  increased the supply of American dollars in Russia. 
B)  decreased the supply of Russian rubles in America. 
C)  decreased the supply of American dollars in Russia. 
D)  increased the demand for American dollars in America. 
E)  increased the supply of Russian rubles in Russia. 
A)  increased the supply of American dollars in Russia. 
B)  decreased the supply of Russian rubles in America. 
C)  decreased the supply of American dollars in Russia. 
D)  increased the demand for American dollars in America. 
E)  increased the supply of Russian rubles in Russia.

Question 6

When the U.S. dollar depreciates in relation to the Swiss franc:

Accepted Answer

A)  a U.S. importer will need more dollars to pay for an invoice denominated in Swiss francs. 
B)  a Swiss exporter will receive more Swiss francs for an invoice denominated in the exporter's currency. 
C)  Swiss imports of U.S. goods will fall. 
D)  the Swiss franc is now worth less in terms of the U.S. dollar. 
E)  a U.S. exporter will receive fewer dollars for an invoice denominated in Swiss francs. 
A)  a U.S. importer will need more dollars to pay for an invoice denominated in Swiss francs. 
B)  a Swiss exporter will receive more Swiss francs for an invoice denominated in the exporter's currency. 
C)  Swiss imports of U.S. goods will fall. 
D)  the Swiss franc is now worth less in terms of the U.S. dollar. 
E)  a U.S. exporter will receive fewer dollars for an invoice denominated in Swiss francs.

Question 7

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market. Assume that the market operates under a flexible exchange rate regime.
Figure 21.1
  
In the figure:
DS1U1B11S1U1B0 and DS1U1B12S1U1B0: Demand for Brazilian reals
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Supply of Brazilian reals

-Refer to Figure 21.1. Determine the equilibrium exchange rate and equilibrium quantity of Brazilian reals, if D1 and S1 are the relevant demand and supply curves for Brazilian reals in this market.

Accepted Answer

A)  10 pesos per real and a quantity of 150 reals 
B)  6 pesos per real and a quantity of 250 reals 
C)  8 pesos per real and a quantity of 150 reals 
D)  8 pesos per real and a quantity of 250 reals 
E)  6 pesos per real and a quantity of 200 reals 
A)  10 pesos per real and a quantity of 150 reals 
B)  6 pesos per real and a quantity of 250 reals 
C)  8 pesos per real and a quantity of 150 reals 
D)  8 pesos per real and a quantity of 250 reals 
E)  6 pesos per real and a quantity of 200 reals

Question 8

Under the Bretton Woods system, international debts were settled in:

Accepted Answer

A)  gold. 
B)  U.S. dollars. 
C)  British pounds. 
D)  silver. 
E)  German marks. 
A)  gold. 
B)  U.S. dollars. 
C)  British pounds. 
D)  silver. 
E)  German marks.

Question 9

The gold standard fixes the:

Accepted Answer

A)  future price of gold in terms of silver. 
B)  price of gold in terms of international currencies. 
C)  future price of silver in terms of gold. 
D)  money supply in terms of paper currency. 
E)  past exchange rate and the future exchange rate. 
A)  future price of gold in terms of silver. 
B)  price of gold in terms of international currencies. 
C)  future price of silver in terms of gold. 
D)  money supply in terms of paper currency. 
E)  past exchange rate and the future exchange rate.

Question 10

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year. What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

Accepted Answer

A)  1 percent 
B)  5 percent 
C)  10 percent 
D)  20 percent 
E)  0 percent 
A)  1 percent 
B)  5 percent 
C)  10 percent 
D)  20 percent 
E)  0 percent

Question 11

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

Accepted Answer

A) True 
 B)False

Question 12

Under both the gold standard and the gold exchange standard countries bought and sold U.S. dollars to maintain a fixed exchange rate with the dollar.

Accepted Answer

A) True 
 B)False

Question 13

If a bushel of corn sells for $2 in the United States and for 4,000 COP (Colombian peso) in Colombia, and if 1 dollar is worth 2,200 COP, then:

Accepted Answer

A)  the corn is 400 COP more expensive in Colombia. 
B)  the corn is 400 COP cheaper in Colombia. 
C)  the price of a bushel of corn equals $2 in both the United States and Colombia. 
D)  the price of corn is 4,000 COP lower in Colombia than in the United States. 
E)  the price of corn is $0.20 lower in the United States than in Colombia. 
A)  the corn is 400 COP more expensive in Colombia. 
B)  the corn is 400 COP cheaper in Colombia. 
C)  the price of a bushel of corn equals $2 in both the United States and Colombia. 
D)  the price of corn is 4,000 COP lower in Colombia than in the United States. 
E)  the price of corn is $0.20 lower in the United States than in Colombia.

Question 14

When the U.S. dollar depreciates against other currencies:

Accepted Answer

A)  foreign goods become less expensive to U.S. buyers. 
B)  U.S. goods become more expensive to foreign buyers. 
C)  foreign currencies depreciate against the U.S. dollar. 
D)  the volume of U.S. imports decline. 
E)  the volume of U.S. exports decline. 
A)  foreign goods become less expensive to U.S. buyers. 
B)  U.S. goods become more expensive to foreign buyers. 
C)  foreign currencies depreciate against the U.S. dollar. 
D)  the volume of U.S. imports decline. 
E)  the volume of U.S. exports decline.

Question 15

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market. Assume that the market operates under a flexible exchange rate regime.
Figure 21.1
  
In the figure:
DS1U1B11S1U1B0 and DS1U1B12S1U1B0: Demand for Brazilian reals
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Supply of Brazilian reals

-Refer to Figure 21.1. Assume that the initial equilibrium exchange rate is 8 Mexican pesos per Brazilian real and 150 brazilian reals are traded in the market. Suppose, there is an increase in the Brazilian demand for Mexican exports. Other things remaining equal, which of the following can be concluded?

Accepted Answer

A)  The demand curve for Brazilian reals will shift to the the right. 
B)  The supply curve of Brazilian reals will shift to the the right. 
C)  The Mexican pesos will depreciate in value. 
D)  The Brazilian reals will appreciate in value. 
E)  Around 100 Brazilian reals will be traded in the forex market. 
A)  The demand curve for Brazilian reals will shift to the the right. 
B)  The supply curve of Brazilian reals will shift to the the right. 
C)  The Mexican pesos will depreciate in value. 
D)  The Brazilian reals will appreciate in value. 
E)  Around 100 Brazilian reals will be traded in the forex market.

Question 16

An appreciation of the Norwegian kroner in relation to the U.S. dollar is most likely to cause:

Accepted Answer

A)  an increase in the U.S. demand for Norwegian goods. 
B)  an increase in the Norwegian demand for U.S. goods. 
C)  an increase in the supply of U.S. goods to Norway. 
D)  a decrease in the supply of Norwegian goods to the United States. 
E)  no change in the demand or supply of goods for either country. 
A)  an increase in the U.S. demand for Norwegian goods. 
B)  an increase in the Norwegian demand for U.S. goods. 
C)  an increase in the supply of U.S. goods to Norway. 
D)  a decrease in the supply of Norwegian goods to the United States. 
E)  no change in the demand or supply of goods for either country.

Question 17

The primary function of the World Bank is to:

Accepted Answer

A)  lend money to the World Trade Organization. 
B)  provide loans to countries experiencing huge budget deficit. 
C)  finance economic development in poor countries. 
D)  assist countries experiencing balance of payments deficits. 
E)  finance the fiscal stabilization program of the U.S. government. 
A)  lend money to the World Trade Organization. 
B)  provide loans to countries experiencing huge budget deficit. 
C)  finance economic development in poor countries. 
D)  assist countries experiencing balance of payments deficits. 
E)  finance the fiscal stabilization program of the U.S. government.

Question 18

Suppose the yen value of a $100,000 wheat import contract rises from ¥12,000,000 to ¥13,000,000 between the contract and the payment date. This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S. goods.

Accepted Answer

A) True 
 B)False

Question 19

Fixed exchange rates serve as a constraint on inflationary government policies.

Accepted Answer

A) True 
 B)False

Question 20

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

Accepted Answer

A)  dollar exchange standard. 
B)  euro exchange standard. 
C)  gold exchange standard. 
D)  silver exchange standard. 
E)  flexible exchange rate standard. 
A)  dollar exchange standard. 
B)  euro exchange standard. 
C)  gold exchange standard. 
D)  silver exchange standard. 
E)  flexible exchange rate standard.

Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.

One of the advantages of floating exchange rates is that:

Interest rate parity can be summarized by which of the following equilibrium conditions?

Equilibrium in the foreign exchange market occurs:

Assume that you have just returned to the United States from a summer vacation in Russia, where you exchanged American dollars for Russian rubles. Your economic actions can be said to have:

When the U.S. dollar depreciates in relation to the Swiss franc:

Under the Bretton Woods system, international debts were settled in:

The gold standard fixes the:

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year. What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

Under both the gold standard and the gold exchange standard countries bought and sold U.S. dollars to maintain a fixed exchange rate with the dollar.

If a bushel of corn sells for $2 in the United States and for 4,000 COP (Colombian peso) in Colombia, and if 1 dollar is worth 2,200 COP, then:

When the U.S. dollar depreciates against other currencies:

An appreciation of the Norwegian kroner in relation to the U.S. dollar is most likely to cause:

The primary function of the World Bank is to:

Suppose the yen value of a $100,000 wheat import contract rises from ¥12,000,000 to ¥13,000,000 between the contract and the payment date. This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S. goods.

Fixed exchange rates serve as a constraint on inflationary government policies.

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Filters

Exam 21: Exchange Rates and Financial Links Between Countries

Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.

One of the advantages of floating exchange rates is that:

Interest rate parity can be summarized by which of the following equilibrium conditions?

Equilibrium in the foreign exchange market occurs:

Assume that you have just returned to the United States from a summer vacation in Russia, where you exchanged American dollars for Russian rubles. Your economic actions can be said to have:

When the U.S. dollar depreciates in relation to the Swiss franc:

Under the Bretton Woods system, international debts were settled in:

The gold standard fixes the:

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year. What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

Under both the gold standard and the gold exchange standard countries bought and sold U.S. dollars to maintain a fixed exchange rate with the dollar.

If a bushel of corn sells for $2 in the United States and for 4,000 COP (Colombian peso) in Colombia, and if 1 dollar is worth 2,200 COP, then:

When the U.S. dollar depreciates against other currencies:

An appreciation of the Norwegian kroner in relation to the U.S. dollar is most likely to cause:

The primary function of the World Bank is to:

Suppose the yen value of a $100,000 wheat import contract rises from ¥12,000,000 to ¥13,000,000 between the contract and the payment date. This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S. goods.

Fixed exchange rates serve as a constraint on inflationary government policies.

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Filters