Question 1

The strong appreciation of the dollar for the last part of the 1990s:

Accepted Answer

A)  was a benefit to all U.S. residents but costly to most foreign producers. 
B)  was a benefit to U.S. exporters, but put a severe strain on U.S. Importers. 
C)  was welcomed by all U.S. manufacturers. 
D)  played a key role in keeping inflation in check even though the economy was growing rapidly. 
A)  was a benefit to all U.S. residents but costly to most foreign producers. 
B)  was a benefit to U.S. exporters, but put a severe strain on U.S. Importers. 
C)  was welcomed by all U.S. manufacturers. 
D)  played a key role in keeping inflation in check even though the economy was growing rapidly.

Question 2

A country that exports less than it imports will:

Accepted Answer

A)  have a current account deficit and a capital account deficit. 
B)  have a current account surplus and a capital account deficit. 
C)  have a current account surplus and a capital account surplus. 
D)  have a current account deficit and a capital account surplus. 
A)  have a current account deficit and a capital account deficit. 
B)  have a current account surplus and a capital account deficit. 
C)  have a current account surplus and a capital account surplus. 
D)  have a current account deficit and a capital account surplus.

Question 3

If Americans develop a greater appreciation for Mexican-made goods, we should observe the following change(s) in the U.S. dollar-peso market:

Accepted Answer

A)  the demand curve for dollars shifts right. 
B)  the supply curve of dollars shifts left. 
C)  the demand curve for pesos shifts right. 
D)  a movement down the supply curve of dollars. 
A)  the demand curve for dollars shifts right. 
B)  the supply curve of dollars shifts left. 
C)  the demand curve for pesos shifts right. 
D)  a movement down the supply curve of dollars.

Question 4

If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/ $ U.S., then the dollar price of the Japanese automobile is:

Accepted Answer

A)  22,727 yen. 
B)  $20,000. 
C)  $25,000. 
D)  $22,727. 
A)  22,727 yen. 
B)  $20,000. 
C)  $25,000. 
D)  $22,727.

Question 5

Considering foreign exchange transactions:

Accepted Answer

A)  the U.S. dollar is exchanged in roughly 50% of all currency transactions. 
B)  all transactions involve the use of the U.S. dollar. 
C)  most of these transactions are handled in New York. 
D)  more transactions are handled in London than anywhere else. 
A)  the U.S. dollar is exchanged in roughly 50% of all currency transactions. 
B)  all transactions involve the use of the U.S. dollar. 
C)  most of these transactions are handled in New York. 
D)  more transactions are handled in London than anywhere else.

Question 6

A country's capital account:

Accepted Answer

A)  is synonymous with the current account. 
B)  will be in a deficit position when the current account is in a deficit. 
C)  will be in a surplus position if the current account is in a deficit position. 
D)  reflects the sum of exports minus imports. 
A)  is synonymous with the current account. 
B)  will be in a deficit position when the current account is in a deficit. 
C)  will be in a surplus position if the current account is in a deficit position. 
D)  reflects the sum of exports minus imports.

Question 7

Considering the foreign exchange market, specifically the market for U.S. dollars and
British pounds, who is supplying dollars in this market?

Accepted Answer

The supply of U.S. dollars on the foreig

Question 8

Considering the law of one price, evidence in the foreign exchange markets over brief intervals shows:

Accepted Answer

A)  the law works most of the time. 
B)  this is the closest thing to a perfect law in economics. 
C)  that the law fails most of the time. 
D)  the law only works in the very short run. 
A)  the law works most of the time. 
B)  this is the closest thing to a perfect law in economics. 
C)  that the law fails most of the time. 
D)  the law only works in the very short run.

Question 9

An expected appreciation of the dollar, everything else held constant, should cause:

Accepted Answer

A)  the supply of dollars to increase. 
B)  the demand for dollars to increase. 
C)  the demand for dollars to decrease. 
D)  the dollar to depreciate now relative to other currencies. 
A)  the supply of dollars to increase. 
B)  the demand for dollars to increase. 
C)  the demand for dollars to decrease. 
D)  the dollar to depreciate now relative to other currencies.

Question 10

Concrete likely does not follow the law of one price due to:

Accepted Answer

A)  technical differences. 
B)  lack of information regarding prices. 
C)  tariffs. 
D)  high transportation costs. 
A)  technical differences. 
B)  lack of information regarding prices. 
C)  tariffs. 
D)  high transportation costs.

Question 11

A country that exports more than it imports will:

Accepted Answer

A)  have a current account deficit and a capital account deficit. 
B)  have a current account surplus and a capital account surplus. 
C)  have a current account deficit and a capital account surplus. 
D)  have a current account surplus and a capital account deficit. 
A)  have a current account deficit and a capital account deficit. 
B)  have a current account surplus and a capital account surplus. 
C)  have a current account deficit and a capital account surplus. 
D)  have a current account surplus and a capital account deficit.

Question 12

If the euro/U.S.dollar exchange rate is 1.1€/U.S. $ in New York but 1.05€/U.S. $ in London, we should see:

Accepted Answer

A)  people selling U.S. dollars and buying euros in New York and then selling those euros and buying $'s in London. 
B)  people selling euros and buying dollars in New York and then buying euros by selling dollars in London. 
C)  the price differential between the markets increase as people seek to take advantage of the situation. 
D)  the dollar should appreciate in New York relative to the euro. 
A)  people selling U.S. dollars and buying euros in New York and then selling those euros and buying $'s in London. 
B)  people selling euros and buying dollars in New York and then buying euros by selling dollars in London. 
C)  the price differential between the markets increase as people seek to take advantage of the situation. 
D)  the dollar should appreciate in New York relative to the euro.

Question 13

The empirical evidence on purchasing power parity over the long run seems to point out that:

Accepted Answer

A)  the higher a country's inflation rate, the greater is the appreciation in the country's currency. 
B)  the theory of purchasing power parity cannot explain long-run changes in exchange rates. 
C)  the higher a country's inflation rate the greater is the depreciation in the country's currency. 
D)  there isn't any clear link between inflation rates and exchange rates. 
A)  the higher a country's inflation rate, the greater is the appreciation in the country's currency. 
B)  the theory of purchasing power parity cannot explain long-run changes in exchange rates. 
C)  the higher a country's inflation rate the greater is the depreciation in the country's currency. 
D)  there isn't any clear link between inflation rates and exchange rates.

Question 14

Which of the following provides a strong incentive to supply dollars on the foreign exchange market?

Accepted Answer

A)  To purchase goods and services produced abroad 
B)  To get a lower return paid on foreign currencies that is not subject to the risk associated with exchange-rate fluctuations 
C)  To invest in U.S. assets 
D)  To take advantage of higher inflation rates in other countries 
A)  To purchase goods and services produced abroad 
B)  To get a lower return paid on foreign currencies that is not subject to the risk associated with exchange-rate fluctuations 
C)  To invest in U.S. assets 
D)  To take advantage of higher inflation rates in other countries

Question 15

Considering the foreign exchange market, identify four causes for an increase in the supply of dollars.

Accepted Answer

The supply of dollars on the foreign exc

Question 16

If Great Britain experiences higher rates of inflation than the United States over a long period of time, we should expect the British £ (pound) per U.S. $ (dollar) exchange rate to:

Accepted Answer

A)  increase. 
B)  hold constant, there isn't any link between inflation and exchange rates. 
C)  decrease. 
D)  fluctuate in a narrow range set by the Bank of England. 
A)  increase. 
B)  hold constant, there isn't any link between inflation and exchange rates. 
C)  decrease. 
D)  fluctuate in a narrow range set by the Bank of England.

Question 17

An increase in the real interest rate on U.S. bonds, everything else equal, will have the following impact on the foreign exchange market:

Accepted Answer

A)  the demand for dollars will decrease. 
B)  the supply of dollars will increase. 
C)  the dollar will depreciate relative to foreign currencies. 
D)  the demand for dollars will increase. 
A)  the demand for dollars will decrease. 
B)  the supply of dollars will increase. 
C)  the dollar will depreciate relative to foreign currencies. 
D)  the demand for dollars will increase.

Question 18

Considering the foreign exchange market, identify at least four causes for a decrease in the demand for dollars.

Accepted Answer

The demand for dollars on the foreign ex

Question 19

For many years now the United States has been running large current account deficits. What do you know about the capital account for the United States and what you predict for the exchange rate in the future? Explain.

Accepted Answer

The current account deficits imply that

Question 20

The empirical evidence on purchasing power parity seems to point out that:

Accepted Answer

A)  purchasing power parity can explain long run movements in exchange rates but does not hold up to scrutiny for short-run changes. 
B)  purchasing power parity does a good job of explaining short-run movements in exchange rates, but does not hold up to scrutiny over the long run. 
C)  purchasing power parity is a good theory for international trade, but is of little use in explaining exchange rate movements. 
D)  inflation and a country's rate of currency appreciation are positively correlated. 
A)  purchasing power parity can explain long run movements in exchange rates but does not hold up to scrutiny for short-run changes. 
B)  purchasing power parity does a good job of explaining short-run movements in exchange rates, but does not hold up to scrutiny over the long run. 
C)  purchasing power parity is a good theory for international trade, but is of little use in explaining exchange rate movements. 
D)  inflation and a country's rate of currency appreciation are positively correlated.

Exam 10: Foreign Exchange

The strong appreciation of the dollar for the last part of the 1990s:

A country that exports less than it imports will:

If Americans develop a greater appreciation for Mexican-made goods, we should observe the following change(s) in the U.S. dollar-peso market:

If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/ $ U.S., then the dollar price of the Japanese automobile is:

Considering foreign exchange transactions:

A country's capital account:

Considering the foreign exchange market, specifically the market for U.S. dollars and British pounds, who is supplying dollars in this market?

Considering the law of one price, evidence in the foreign exchange markets over brief intervals shows:

An expected appreciation of the dollar, everything else held constant, should cause:

Concrete likely does not follow the law of one price due to:

A country that exports more than it imports will:

If the euro/U.S.dollar exchange rate is 1.1€/U.S. $ in New York but 1.05€/U.S. $ in London, we should see:

The empirical evidence on purchasing power parity over the long run seems to point out that:

Which of the following provides a strong incentive to supply dollars on the foreign exchange market?

Considering the foreign exchange market, identify four causes for an increase in the supply of dollars.

If Great Britain experiences higher rates of inflation than the United States over a long period of time, we should expect the British £ (pound) per U.S. $ (dollar) exchange rate to:

An increase in the real interest rate on U.S. bonds, everything else equal, will have the following impact on the foreign exchange market:

Considering the foreign exchange market, identify at least four causes for a decrease in the demand for dollars.

For many years now the United States has been running large current account deficits. What do you know about the capital account for the United States and what you predict for the exchange rate in the future? Explain.

The empirical evidence on purchasing power parity seems to point out that:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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