Exam 4: Exchange Rate Determination

If inflation increases substantially in Australia while U.S.inflation remains unchanged,this is expected to place _______ pressure on the value of the Australian dollar with respect to the U.S.dollar.

The exchange rates of smaller countries are very stable because the market for their currency is very liquid.

The phrase "the dollar was mixed in trading" means that:

Assume that the U.S.experiences a significant decline in income,while Japan's income remains steady.  This event should place _______ pressure on the value of the Japanese yen,other things being equal.(Assume that interest rates and other factors are not affected.)

A large increase in the income level in Mexico along with no growth in the U.S.income level is normally expected to cause (assuming no change in interest rates or other factors)a(n)______ in Mexican demand for U.S.goods,and the Mexican peso should _______.

The real interest rate adjusts the nominal interest rate for:

In general,when speculating on exchange rate movements,the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.

Trade-related foreign exchange transactions are more responsive to news than financial flow transactions.

Assume the following information regarding U.S.and European annualized interest rates: Milly Bank can borrow either $20 million or €20 million.The current spot rate of the euro is $1.13.Furthermore,Milly Bank expects the spot rate of the euro to be $1.10 in 90 days.What is Milly Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days

An increase in U.S.interest rates relative to German interest rates would likely ________ the U.S.demand for euros and _________ the supply of euros for sale.

Any event that increases the U.S.demand for euros should result in a(an)_______ in the value of the euro with respect to _______,other things being equal.

The markets that have a smaller amount of foreign exchange trading for speculatory purposes than for trade purposes will likely experience more volatility than those where trade flows play a larger role.

The value of the Australian dollar (A$)today is $0.73.Yesterday,the value of the Australian dollar was $0.69.The Australian dollar ________ by _______%.

If the U.S.and Japan engage in much financial flows but little trade,_______ directly influences their exchange rate the most.  If the U.S.and Switzerland engage in much trade but little financial flows,_______ directly influences their exchange rate the most.

Forecasting a currency's future value is difficult,because it is difficult to identify how the factors affecting the currency value will change,and how they will interact to impact the currency's value.

Which of the following is not mentioned in the text as a factor affecting exchange rates

If U.S.inflation suddenly increased while European inflation stayed the same,there would be:

Any event that reduces the supply of Swiss francs to be exchanged for U.S.dollars should result in a(an)_______ in the value of the Swiss franc with respect to _______,other things being equal.

Investors from Germany,the United States,and Britain frequently invest in each other based on prevailing interest rates.If British interest rates increase,German investors are likely to buy ________ dollar-denominated securities,and the euro is likely to _________ relative to the dollar.

Since supply and demand for a currency are constant (primarily due to government intervention),currency values seldom fluctuate.