Exam 12: Exchange-Rate Determination

Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to:

The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates. Figure 12.2. The Market for Swiss Francs -Refer to Figure 12.2. As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States, U.S. residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.

The relationship between the exchange rate and the prices of tradable goods is known as the:

Long-run determinants of exchange rate include labor productivity levels, inflation rates, consumer preferences for goods and services, and trade barriers.

Assume a system of floating exchange rates. Due to a high savings rate, suppose the level of savings in Japan is in excess of domestic investment needs. If Japanese residents invest abroad, the yen's exchange value will ____ and the Japanese trade balance will move toward ____.

Figure 12.3 Market for British Pounds -Consider Figure 12.3. The market is initially governed by demand curve D₀ and supply curve S₀. Suppose US consumers develop stronger preferences for UK made goods, which supply and demand curves depict the new situation?

The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates. Figure 12.2. The Market for Swiss Francs -Refer to Figure 12.2. If the United States decreases tariffs on imports from Switzerland, there would occur a decrease in the demand for francs and a decrease in the dollar price of the franc.

Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values.

In a free market, what determines exchange rates in the long run and the short run?

Long-run exchange rate movements are governed by all of the following except:

Concerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and economic data.

Which example of market expectations causes the dollar to $\underline { \text { depreciate } }$ against the yen--expectations that the U.S. economy will have:

In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost:

If you were considering hiring a forecasting firm to predict future spot rates of the yen, you would hope that the firm could predict better what would be implied by the yen's forward rate.

Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in:

The U.S. demand for pesos would shift to the right if there occurred a (an):

According to the principle of exchange-rate overshooting, a short-run depreciation of a currency is likely to be greater than a long-run depreciation of that currency.

The Canadian dollar would depreciate on the foreign exchange market if:

The asset market theory of exchange rate determination suggests that the most important factor influencing the demand for domestic and foreign securities is:

The purchasing-power-parity theory is used to predict exchange-rate movements in the short run.