Question 1

Appreciation of the real exchange rate:

Accepted Answer

A)  makes U.S. exports more expensive to foreigners. 
B)  makes U.S. exports less expensive to foreigners. 
C)  means a basket of U.S. goods would exchange for fewer foreign goods. 
D)  benefits all U.S. producers. 
A)  makes U.S. exports more expensive to foreigners. 
B)  makes U.S. exports less expensive to foreigners. 
C)  means a basket of U.S. goods would exchange for fewer foreign goods. 
D)  benefits all U.S. producers.

Question 2

Which of the following statements is most correct?

Accepted Answer

A)  If the U.S. $ depreciates relative to the yen, then it is likely also depreciating relative to the euro. 
B)  If the U.S. $ is appreciating relative to the euro, the euro is likely depreciating relative to the yen. 
C)  If the U.S. $ is depreciating relative to the euro it is likely depreciating relative to all currencies. 
D)  If the U.S. $ is appreciating relative to the yen, the yen is depreciating relative to the U.S. $. 
A)  If the U.S. $ depreciates relative to the yen, then it is likely also depreciating relative to the euro. 
B)  If the U.S. $ is appreciating relative to the euro, the euro is likely depreciating relative to the yen. 
C)  If the U.S. $ is depreciating relative to the euro it is likely depreciating relative to all currencies. 
D)  If the U.S. $ is appreciating relative to the yen, the yen is depreciating relative to the U.S. $.

Question 3

A foreign exchange intervention is:

Accepted Answer

A)  synonymous with a fixed exchange rate. 
B)  the use of public statements by government officials to influence inflation expectations. 
C)  only used in crisis situations. 
D)  the buying/selling of currencies to affect supply or demand which impacts the exchange rate. 
A)  synonymous with a fixed exchange rate. 
B)  the use of public statements by government officials to influence inflation expectations. 
C)  only used in crisis situations. 
D)  the buying/selling of currencies to affect supply or demand which impacts the exchange rate.

Question 4

The theory of purchasing power parity assumes:

Accepted Answer

A)  the real exchange and nominal exchange rates are fixed. 
B)  the nominal exchange rate is fixed but the real exchange rate is flexible. 
C)  the real exchange rate is fixed but the nominal exchange rate is flexible. 
D)  the real exchange rate varies with the inflation differential. 
A)  the real exchange and nominal exchange rates are fixed. 
B)  the nominal exchange rate is fixed but the real exchange rate is flexible. 
C)  the real exchange rate is fixed but the nominal exchange rate is flexible. 
D)  the real exchange rate varies with the inflation differential.

Question 5

The real exchange rate is defined as:

Accepted Answer

A)  the nominal exchange rate plus the rate of inflation. 
B)  the spot exchange rate. 
C)  the cost of a basket of goods and services in one country compared to the cost of the same basket in another country. 
D)  the exchange rate that would exist if nominal rates were not fixed by governments. 
A)  the nominal exchange rate plus the rate of inflation. 
B)  the spot exchange rate. 
C)  the cost of a basket of goods and services in one country compared to the cost of the same basket in another country. 
D)  the exchange rate that would exist if nominal rates were not fixed by governments.

Question 6

Considering the euro/U.S. dollar exchange rate, as a U.S. dollar increases in value versus the euro (holding other factors constant):

Accepted Answer

A)  we would expect the supply curve of dollars to slope downward. 
B)  foreign goods become relatively less expensive than American goods. 
C)  foreign assets become relatively more expensive than American assets. 
D)  American goods become relatively less expensive than foreign goods. 
A)  we would expect the supply curve of dollars to slope downward. 
B)  foreign goods become relatively less expensive than American goods. 
C)  foreign assets become relatively more expensive than American assets. 
D)  American goods become relatively less expensive than foreign goods.

Question 7

Explain why the law of one price may best be applied to financial assets.

Accepted Answer

Financial assets, for example shares of

Question 8

Assume that currently one U.S. dollar will purchase £0.65. Investors believe that one year from now a U.S. dollar will purchase £0.72. If we consider the U.S. dollar-pound market, where the horizontal axis measure the quantity of pounds, explain what we are likely to see in terms of demand and supply and the exchange rate.

Accepted Answer

In this case, investors expect a deterio

Question 9

Briefly describe the foreign exchange market.

Accepted Answer

The foreign exchange market is enormous

Question 10

From October 1997 to January 1998, the economy of South Korea was in turmoil. One of the problems was:

Accepted Answer

A)  the currency of South Korea appreciated considerably making it very difficult for Korean exporters to sell goods abroad. 
B)  the value of the U.S. $ compared to the Korean won fell by more than half. 
C)  U.S. goods became very cheap to Koreans making it difficult for Korean manufacturers to compete with imports. 
D)  the value of the won fell by more than half compared to the U.S. dollar, making U.S. goods very expensive to Koreans and Korean goods relatively inexpensive for U.S. residents. 
A)  the currency of South Korea appreciated considerably making it very difficult for Korean exporters to sell goods abroad. 
B)  the value of the U.S. $ compared to the Korean won fell by more than half. 
C)  U.S. goods became very cheap to Koreans making it difficult for Korean manufacturers to compete with imports. 
D)  the value of the won fell by more than half compared to the U.S. dollar, making U.S. goods very expensive to Koreans and Korean goods relatively inexpensive for U.S. residents.

Question 11

When a country's current account balance is added to its capital account balance, the sum should be:

Accepted Answer

A)  twice the current account. 
B)  zero. 
C)  positive. 
D)  negative. 
A)  twice the current account. 
B)  zero. 
C)  positive. 
D)  negative.

Question 12

If a dollar will currently purchase 120 Japanese yen but it is expected that one year from now a dollar will purchase 130 yen:

Accepted Answer

A)  the demand for dollars now will increase. 
B)  the demand for dollars now will decrease. 
C)  the dollar is expected to depreciate. 
D)  the yen is expected to appreciate. 
A)  the demand for dollars now will increase. 
B)  the demand for dollars now will decrease. 
C)  the dollar is expected to depreciate. 
D)  the yen is expected to appreciate.

Question 13

One reason the theory of purchasing power parity may not explain price differences between countries is:

Accepted Answer

A)  real exchange rates are almost impossible to calculate. 
B)  inflation rates differ across countries. 
C)  some products do not trade. 
D)  nominal exchange rates are flexible. 
A)  real exchange rates are almost impossible to calculate. 
B)  inflation rates differ across countries. 
C)  some products do not trade. 
D)  nominal exchange rates are flexible.

Question 14

A country that has a capital account deficit:

Accepted Answer

A)  is a net seller of assets. 
B)  is importing more goods and services than it exports. 
C)  also has a current account deficit. 
D)  is a net buyer of assets. 
A)  is a net seller of assets. 
B)  is importing more goods and services than it exports. 
C)  also has a current account deficit. 
D)  is a net buyer of assets.

Appreciation of the real exchange rate:

Which of the following statements is most correct?

A foreign exchange intervention is:

The theory of purchasing power parity assumes:

The real exchange rate is defined as:

Considering the euro/U.S. dollar exchange rate, as a U.S. dollar increases in value versus the euro (holding other factors constant):

Explain why the law of one price may best be applied to financial assets.

Briefly describe the foreign exchange market.

From October 1997 to January 1998, the economy of South Korea was in turmoil. One of the problems was:

When a country's current account balance is added to its capital account balance, the sum should be:

If a dollar will currently purchase 120 Japanese yen but it is expected that one year from now a dollar will purchase 130 yen:

One reason the theory of purchasing power parity may not explain price differences between countries is:

A country that has a capital account deficit:

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

Filters

Exam 10: Foreign Exchange

Appreciation of the real exchange rate:

Which of the following statements is most correct?

A foreign exchange intervention is:

The theory of purchasing power parity assumes:

The real exchange rate is defined as:

Considering the euro/U.S. dollar exchange rate, as a U.S. dollar increases in value versus the euro (holding other factors constant):

Explain why the law of one price may best be applied to financial assets.

Briefly describe the foreign exchange market.

From October 1997 to January 1998, the economy of South Korea was in turmoil. One of the problems was:

When a country's current account balance is added to its capital account balance, the sum should be:

If a dollar will currently purchase 120 Japanese yen but it is expected that one year from now a dollar will purchase 130 yen:

One reason the theory of purchasing power parity may not explain price differences between countries is:

A country that has a capital account deficit:

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

Filters