Exam 21: Exchapterange Rates and Financial Links Between Countries

What is a currency board?

Assume that a British investor buys a one-year U.S. Treasury bill that pays 6 percent annual interest. Given a yield of 4 percent on a comparable British Treasury bill, the U.S. dollar must depreciate 2 percent against the British pound during the year for interest rate parity to hold.

Because of their greediness, speculators are considered bad for exchange-rate markets.

Carlos Silva, a Colombian singer, goes on tour to the United States for one month, following high American demand for his live shows. Assuming that all the show's expenses are paid by the U.S. promoters, other things equal, the U.S. tour will bring about:

A reserve currency is a currency that is:

If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan, then it implies that:

The euro floats against other currencies, but the member nations of the euro have no separate national money. For this reason, Spain, that uses the euro as its currency is listed under the managed float arrangement.

The exchange-rate arrangement that emerged from the Bretton Woods conference is often called a managed float standard.

Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce. We can then say that:

Assume that a one-year Malaysian bond yields 10 percent interest and that the dollar return on maturity is 5 percent. If the exchange rate at maturity is $1 = MYR 4.00 (Malaysian ringgit), what was the exchange rate at the time the bond was purchased?

Suppose a hefty rise in the demand for Mexican pesos create a chronic shortage of this currency in the foreign exchange market. Which of the following steps should be adopted by the Mexican government to eliminate this shortage?

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

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. Assume that the initial equilibrium exchange rate is 6 pesos per real. Other things remaining equal, an increase in the number of Brazilian tourists to Mexico is most likely to:

Assume that a country's government influences the exchange rate through active central bank intervention, with no pre-announced path. This policy is known as a(n):

The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):

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

Assume a one year U.S. bond pays 4.0% interest and a similar U.K. bond pays 5.2% interest. Which of the following changes will establish interest rate parity?

Which of the following can be categorized as a commodity money standard?

Given a one-year Canadian bond with a yield of 8 percent, what will be the U.S. investor's rate of return at maturity if the Canadian dollar appreciates 10 percent against the U.S. dollar?

Suppose you observe that with a given supply curve, the Peruvian demand for Argentinean pesos steadily decreases. This will most likely mean: