Question 1

Which of the following was the reserve currency under the gold exchange standard?

Accepted Answer

A)  U.S. dollar 
B)  Euro 
C)  Great Britain pound 
D)  Australian dollar 
E)  Deutsche mark 
A)  U.S. dollar 
B)  Euro 
C)  Great Britain pound 
D)  Australian dollar 
E)  Deutsche mark

Question 2

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:?D₁ and D₂: Demand for Brazilian reals?S₁ and S₂: Supply of Brazilian reals
  
-Refer to Figure 21.1. The demand curves shown for Brazilian reals are based on:

Accepted Answer

A)  the supply of Brazilian reals in the market. 
B)  the demand for Mexican pesos. 
C)  Brazilian demand for Brazilian products. 
D)  Brazilian demand for Mexican products. 
E)  Mexican demand for Brazilian products. 
A)  the supply of Brazilian reals in the market. 
B)  the demand for Mexican pesos. 
C)  Brazilian demand for Brazilian products. 
D)  Brazilian demand for Mexican products. 
E)  Mexican demand for Brazilian products.

Question 3

The dollar return on a foreign investment is less than the interest rate on the foreign asset, if the foreign currency depreciates against the U.S. dollar between the purchase date and the maturity date.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the official gold value of the Brazilian real changes from 457 reals per ounce to 528 reals per ounce. We can then say that:

Accepted Answer

A)  the Brazilian real has been devalued. 
B)  the Brazilian economy is expected to experience rapid inflation. 
C)  gold has been devalued. 
D)  the Brazilian real has appreciated in value. 
E)  gold is now cheaper to purchase in Brazil than it was before. 
A)  the Brazilian real has been devalued. 
B)  the Brazilian economy is expected to experience rapid inflation. 
C)  gold has been devalued. 
D)  the Brazilian real has appreciated in value. 
E)  gold is now cheaper to purchase in Brazil than it was before.

Question 5

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2
  
-Refer to Figure 21.2. Suppose the British central bank is committed to maintaining an exchange rate of £1 = $1.50, but there is a permanent shift in supply from S₁ to S₃. According to the Bretton Woods agreement:

Accepted Answer

A)  the pound should be devalued. 
B)  the dollar should be devalued. 
C)  the British central bank should buy pounds in exchange for dollars. 
D)  the British central bank should encourage speculation. 
E)  the Fed should intervene to maintain the exchange rate of £1 = $1. 
A)  the pound should be devalued. 
B)  the dollar should be devalued. 
C)  the British central bank should buy pounds in exchange for dollars. 
D)  the British central bank should encourage speculation. 
E)  the Fed should intervene to maintain the exchange rate of £1 = $1.

Question 6

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Accepted Answer

A) True 
 B)False

Question 7

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 8

When the exchange rate moves from $1 = CAD₁.5 to $1 = CAD₁.66, it implies:

Accepted Answer

A)  the U.S. dollar has depreciated in relation to the Canadian dollar. 
B)  U.S. imports of Canadian goods will rise. 
C)  the dollar price of the Canadian dollar has risen. 
D)  the Canadian dollar has appreciated in relation to the U.S. dollar. 
E)  Canadian imports of U.S. goods will rise. 
A)  the U.S. dollar has depreciated in relation to the Canadian dollar. 
B)  U.S. imports of Canadian goods will rise. 
C)  the dollar price of the Canadian dollar has risen. 
D)  the Canadian dollar has appreciated in relation to the U.S. dollar. 
E)  Canadian imports of U.S. goods will rise.

Question 9

An Australian investor buys a U.S. Treasury bond that has a price of $10,000, pays 5 percent interest, and matures in a year. Between the purchase date and the maturity date, the exchange rate changes from $1 = AUD 5.0 to $1= AUD 5.2. What will be the Australian investor's rate of return from the U.S. bond?

Accepted Answer

A)  4 percent 
B)  7 percent 
C)  9.2 percent 
D)  12 percent 
E)  25 percent 
A)  4 percent 
B)  7 percent 
C)  9.2 percent 
D)  12 percent 
E)  25 percent

Question 10

When a U.S. importer needs $22,000 to settle an invoice for 25,520 Swiss francs, the exchange rate must be:

Accepted Answer

A)  1 Swiss franc = $1.16. 
B)  1 Swiss franc = $0.16. 
C)  1 Swiss franc = $0.84. 
D)  $1 = 1.16 Swiss franc. 
E)  $1 = 1.84 Swiss franc. 
A)  1 Swiss franc = $1.16. 
B)  1 Swiss franc = $0.16. 
C)  1 Swiss franc = $0.84. 
D)  $1 = 1.16 Swiss franc. 
E)  $1 = 1.84 Swiss franc.

Question 11

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:?D₁ and D₂: Demand for Brazilian reals?S₁ and S₂: Supply of Brazilian reals
  
-Refer to Figure 21.1. If the initial equilibrium exchange rate is 6 pesos per real, then other things equal, a decrease in the number of Brazilian tourists to Mexico would:

Accepted Answer

A)  increase the demand for Brazilian reals from D₂ to D₁ and increase the exchange rate to 8 pesos per real. 
B)  decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 8 pesos per real. 
C)  decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 10 pesos per real. 
D)  decrease the demand for Brazilian reals from D₁ to D₂ and increase the exchange rate to 8 pesos per real. 
E)  decrease the supply of Brazilian reals from S₁ to S₂ and increase the demand for Brazilian reals from D₂ to D₁, thereby changing the exchanging rate to 10 pesos per real. 
A)  increase the demand for Brazilian reals from D₂ to D₁ and increase the exchange rate to 8 pesos per real. 
B)  decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 8 pesos per real. 
C)  decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 10 pesos per real. 
D)  decrease the demand for Brazilian reals from D₁ to D₂ and increase the exchange rate to 8 pesos per real. 
E)  decrease the supply of Brazilian reals from S₁ to S₂ and increase the demand for Brazilian reals from D₂ to D₁, thereby changing the exchanging rate to 10 pesos per real.

Question 12

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2
  
-Refer to Figure 21.2. Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60. If supply decreases from S₁ to S₂, the bank must:

Accepted Answer

A)  buy 25 pounds to shift the supply curve from S₂ to S₁. 
B)  buy 50 pounds to shift the supply curve from S₂ to S₁. 
C)  sell 75 pounds to shift the supply curve from S₂ to S₁. 
D)  buy 75 pounds to shift the supply curve from S₂ to S₁. 
E)  sell 10 pounds to shift the supply curve from S₂ to S₁. 
A)  buy 25 pounds to shift the supply curve from S₂ to S₁. 
B)  buy 50 pounds to shift the supply curve from S₂ to S₁. 
C)  sell 75 pounds to shift the supply curve from S₂ to S₁. 
D)  buy 75 pounds to shift the supply curve from S₂ to S₁. 
E)  sell 10 pounds to shift the supply curve from S₂ to S₁.

Question 13

Assume a U.S. firm invests $1,500 to buy a one-year U.K. bond. What is the dollar value of the proceeds if the dollar return on the U.K. bond is 20 percent at maturity?

Accepted Answer

A)  $1,800 
B)  $1,500 
C)  $1,200 
D)  $1,000 
E)  $500 
A)  $1,800 
B)  $1,500 
C)  $1,200 
D)  $1,000 
E)  $500

Question 14

If you receive a dollar return of 6 percent on a one-year Korean bond that yields 10 percent annually, this means that between the purchase date and the time of maturity:

Accepted Answer

A)  the Korean won (KRW) has depreciated 4 percent against the U.S. dollar. 
B)  the dollar price of the Korean won (KRW) has risen by 10 percent. 
C)  the percentage change in the dollar per Korean won exchange rate is 6 percent. 
D)  the dollar proceeds from the Korean bond are 4 percent higher than the initial dollar investment. 
E)  the dollar has depreciated 16 percent against the Korean won. 
A)  the Korean won (KRW) has depreciated 4 percent against the U.S. dollar. 
B)  the dollar price of the Korean won (KRW) has risen by 10 percent. 
C)  the percentage change in the dollar per Korean won exchange rate is 6 percent. 
D)  the dollar proceeds from the Korean bond are 4 percent higher than the initial dollar investment. 
E)  the dollar has depreciated 16 percent against the Korean won.

Question 15

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2
  
-Refer to Figure 21.2. Suppose S₁ is the initial supply curve and the British demand for U.S. manufactured computers decreases. Then, with flexible exchange rates:

Accepted Answer

A)  the price per British pound decreases by $0.10 and the quantity of British pounds increases by 50. 
B)  the price per British pound decreases by $0.10 and the quantity of British pounds decreases by 50. 
C)  the price per British pound increases by $0.15 and the quantity of British pounds decreases by 50. 
D)  the price per British pound increases by $0.15 and the quantity of British pounds decreases by 75. 
E)  the price per British pound and the quantity of British pounds remain unchanged. 
A)  the price per British pound decreases by $0.10 and the quantity of British pounds increases by 50. 
B)  the price per British pound decreases by $0.10 and the quantity of British pounds decreases by 50. 
C)  the price per British pound increases by $0.15 and the quantity of British pounds decreases by 50. 
D)  the price per British pound increases by $0.15 and the quantity of British pounds decreases by 75. 
E)  the price per British pound and the quantity of British pounds remain unchanged.

Question 16

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2
  
-Refer to Figure 21.2. An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

Accepted Answer

A)  the demand for British pounds has decreased. 
B)  the supply of British pounds has decreased. 
C)  increased demand for dollars has caused the dollar to depreciate and the pound to appreciate. 
D)  increased demand for dollars has caused the dollar to appreciate and the pound to depreciate. 
E)  the equilibrium exchange rate is $1.60 per British pound. 
A)  the demand for British pounds has decreased. 
B)  the supply of British pounds has decreased. 
C)  increased demand for dollars has caused the dollar to depreciate and the pound to appreciate. 
D)  increased demand for dollars has caused the dollar to appreciate and the pound to depreciate. 
E)  the equilibrium exchange rate is $1.60 per British pound.

Question 17

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Accepted Answer

A) True 
 B)False

Question 18

Suppose a U.S. investor buys a Canadian government bond with a face value of Canadian dollar (CAD) 100 and an annual yield of 8.8 percent. Which of the following statements is true?

Accepted Answer

A)  At maturity, the dollar return from the Canadian bond will be $108.8, regardless of what happens to the exchange rate. 
B)  The Canadian bond will yield the same dollar return from the time of purchase to the time of maturity. 
C)  An American will make a profit on the Canadian bond only when the CAD-denominated return is higher on the Canadian bond than the dollar-denominated return on a comparable U.S. bond. 
D)  The dollar return on the Canadian bond depends on the dollar price of the Canadian dollar at the time of maturity. 
E)  The decision to buy the Canadian bond should be based solely on the CAD interest return and not on changes in the exchange rate. 
A)  At maturity, the dollar return from the Canadian bond will be $108.8, regardless of what happens to the exchange rate. 
B)  The Canadian bond will yield the same dollar return from the time of purchase to the time of maturity. 
C)  An American will make a profit on the Canadian bond only when the CAD-denominated return is higher on the Canadian bond than the dollar-denominated return on a comparable U.S. bond. 
D)  The dollar return on the Canadian bond depends on the dollar price of the Canadian dollar at the time of maturity. 
E)  The decision to buy the Canadian bond should be based solely on the CAD interest return and not on changes in the exchange rate.

Question 19

Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Accepted Answer

A) True 
 B)False

Question 20

Countries that maintain a constant gold value for their currencies are said to be on a gold standard.

Accepted Answer

A) True 
 B)False

Which of the following was the reserve currency under the gold exchange standard?

The dollar return on a foreign investment is less than the interest rate on the foreign asset, if the foreign currency depreciates against the U.S. dollar between the purchase date and the maturity date.

Suppose the official gold value of the Brazilian real changes from 457 reals per ounce to 528 reals per ounce. We can then say that:

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

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

When the exchange rate moves from $1 = CAD₁.5 to $1 = CAD₁.66, it implies:

When a U.S. importer needs $22,000 to settle an invoice for 25,520 Swiss francs, the exchange rate must be:

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2 -Refer to Figure 21.2. Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60. If supply decreases from S₁ to S₂, the bank must:

Assume a U.S. firm invests $1,500 to buy a one-year U.K. bond. What is the dollar value of the proceeds if the dollar return on the U.K. bond is 20 percent at maturity?

If you receive a dollar return of 6 percent on a one-year Korean bond that yields 10 percent annually, this means that between the purchase date and the time of maturity:

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2 -Refer to Figure 21.2. Suppose S₁ is the initial supply curve and the British demand for U.S. manufactured computers decreases. Then, with flexible exchange rates:

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2 -Refer to Figure 21.2. An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Suppose a U.S. investor buys a Canadian government bond with a face value of Canadian dollar (CAD) 100 and an annual yield of 8.8 percent. Which of the following statements is true?

Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Countries that maintain a constant gold value for their currencies are said to be on a gold standard.

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

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

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

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Money and Banking

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

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Exam 21: Exchapterange Rates and Financial Links Between Countries

Which of the following was the reserve currency under the gold exchange standard?

The dollar return on a foreign investment is less than the interest rate on the foreign asset, if the foreign currency depreciates against the U.S. dollar between the purchase date and the maturity date.

Suppose the official gold value of the Brazilian real changes from 457 reals per ounce to 528 reals per ounce. We can then say that:

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

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

When the exchange rate moves from $1 = CAD₁.5 to $1 = CAD₁.66, it implies:

When a U.S. importer needs $22,000 to settle an invoice for 25,520 Swiss francs, the exchange rate must be:

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2 -Refer to Figure 21.2. Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60. If supply decreases from S₁ to S₂, the bank must:

Assume a U.S. firm invests $1,500 to buy a one-year U.K. bond. What is the dollar value of the proceeds if the dollar return on the U.K. bond is 20 percent at maturity?

If you receive a dollar return of 6 percent on a one-year Korean bond that yields 10 percent annually, this means that between the purchase date and the time of maturity:

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2 -Refer to Figure 21.2. Suppose S₁ is the initial supply curve and the British demand for U.S. manufactured computers decreases. Then, with flexible exchange rates:

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.?Figure 21.2 -Refer to Figure 21.2. An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Suppose a U.S. investor buys a Canadian government bond with a face value of Canadian dollar (CAD) 100 and an annual yield of 8.8 percent. Which of the following statements is true?

Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Countries that maintain a constant gold value for their currencies are said to be on a gold standard.

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange 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

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