Question 1

A depreciation of the dollar will

Accepted Answer

A) lower the foreign currency price of U.S. goods in foreign markets. 
B) increase the foreign currency price of U.S. goods in foreign markets. 
C) lower the dollar price of foreign goods in the United States 
D) Both b and c 
A) lower the foreign currency price of U.S. goods in foreign markets. 
B) increase the foreign currency price of U.S. goods in foreign markets. 
C) lower the dollar price of foreign goods in the United States 
D) Both b and c

Question 2

-Refer to Figures A, B, C, and D. Which of the figures best illustrates a situation where foreign interest rates rise relative to U.S. rates ceteris paribus?

Accepted Answer

A) Figure A and D 
B) Figure B and C 
C) Figure C 
D) Figure D 
A) Figure A and D 
B) Figure B and C 
C) Figure C 
D) Figure D

Question 3

A train pass costs 250 Japanese yen, and the yen/dollar exchange rate is 100. If the dollar appreciates, increasing the yen/dollar exchange, what will happen to the cost of the train pass to an American traveler using dollars?

Accepted Answer

A) The price of the pass in dollars will increase. 
B) The price of the pass in dollars will decrease. 
C) The price of the pass in dollars will remain the same. 
D) There is no way of knowing with the given information. 
A) The price of the pass in dollars will increase. 
B) The price of the pass in dollars will decrease. 
C) The price of the pass in dollars will remain the same. 
D) There is no way of knowing with the given information.

Question 4

-Refer to Figures A, B, C, and D. Which of the figures best illustrates a situation where foreign income rises ceteris paribus?

Accepted Answer

A) Figure A 
B) Figure B 
C) Figure C 
D) Figure D 
A) Figure A 
B) Figure B 
C) Figure C 
D) Figure D

Question 5

An increase in the U.S. inflation rate relative to Sweden's will

Accepted Answer

A) increase the quantity supplied of money in the foreign exchange market. 
B) decrease the quantity supplied of money in the foreign exchange market. 
C) shift the supply curve of dollars in the foreign exchange market to the right. 
D) shift the supply curve of dollars in the foreign exchange market to the left. 
A) increase the quantity supplied of money in the foreign exchange market. 
B) decrease the quantity supplied of money in the foreign exchange market. 
C) shift the supply curve of dollars in the foreign exchange market to the right. 
D) shift the supply curve of dollars in the foreign exchange market to the left.

Question 6

One reason interactions between the U.S. economy and other countries were at one time overlooked is because

Accepted Answer

A) only a small portion of total transactions in the United States accounted for trade between the United States and other countries. 
B) former Communist countries were extremely secretive and uncooperative in the foreign currency market. 
C) countries could not affect exchange rates. 
D) foreign exchange rates were extremely volatile. 
A) only a small portion of total transactions in the United States accounted for trade between the United States and other countries. 
B) former Communist countries were extremely secretive and uncooperative in the foreign currency market. 
C) countries could not affect exchange rates. 
D) foreign exchange rates were extremely volatile.

Question 7

With greater capital mobility, the real U.S. and foreign interest rates will tend to be equalized if

Accepted Answer

A) the differences between U.S. and foreign inflation rates are zero 
B) the differences between U.S. and foreign inflation rates are positive 
C) after differences in expected inflation and expected changes in exchange rates and the uncertainty of these changes have been taken into account 
D) Both a and b are correct. 
A) the differences between U.S. and foreign inflation rates are zero 
B) the differences between U.S. and foreign inflation rates are positive 
C) after differences in expected inflation and expected changes in exchange rates and the uncertainty of these changes have been taken into account 
D) Both a and b are correct.

Question 8

A change in U.S. interest rates relative to foreign interest rates may be graphically represented as which of the following?

Accepted Answer

A) a movement upward on the supply curve of dollars in the foreign exchange market 
B) a movement upward or downward on the supply curve of dollars in the foreign exchange market 
C) a rightward shift of the revenue curve in the foreign exchange market 
D) a shift of the demand or supply curve of dollars in the foreign exchange market 
A) a movement upward on the supply curve of dollars in the foreign exchange market 
B) a movement upward or downward on the supply curve of dollars in the foreign exchange market 
C) a rightward shift of the revenue curve in the foreign exchange market 
D) a shift of the demand or supply curve of dollars in the foreign exchange market

Question 9

Which of the following will not occur when the dollar price of U.S. goods increases relative to the dollar price of foreign goods?

Accepted Answer

A) the supply curve of dollars into the foreign exchange market will shift to the right. 
B) U.S. consumers will substitute foreign products for domestic goods. 
C) the demand curve of dollars into the foreign exchange market will shift to the right. 
D) imports will increase. 
A) the supply curve of dollars into the foreign exchange market will shift to the right. 
B) U.S. consumers will substitute foreign products for domestic goods. 
C) the demand curve of dollars into the foreign exchange market will shift to the right. 
D) imports will increase.

Question 10

Which of the following is false?

Accepted Answer

A) Exchange rates can and do vary significantly over time. 
B) Changes in productivity, economic growth, market structures, and technologies across countries, can cause exchange rates to vary. 
C) The purchasing power parity theory is always true in the long run after full adjustment of exchange rates has occurred. 
D) Shifts in factor supplies causing commodity price shocks and changes in tastes among countries can also affect exchange rates. 
A) Exchange rates can and do vary significantly over time. 
B) Changes in productivity, economic growth, market structures, and technologies across countries, can cause exchange rates to vary. 
C) The purchasing power parity theory is always true in the long run after full adjustment of exchange rates has occurred. 
D) Shifts in factor supplies causing commodity price shocks and changes in tastes among countries can also affect exchange rates.

Question 11

Assume that one U.S. dollar buys 1.65 Swiss francs and that a chocolate bar costs 1.25 francs in Switzerland. Ignoring all other costs, how much will the chocolate bar cost in U.S. dollars?

Accepted Answer

A) $1.32 
B) $2.08 
C) $.75 
D) $.67 
A) $1.32 
B) $2.08 
C) $.75 
D) $.67

Question 12

Which of the following, ceteris paribus, will cause the dollar to appreciate?

Accepted Answer

A) a decrease in foreign income 
B) an increase in foreign inflation 
C) an increase in domestic income 
D) an increase in domestic inflation 
A) a decrease in foreign income 
B) an increase in foreign inflation 
C) an increase in domestic income 
D) an increase in domestic inflation

Question 13

If $1.00 equals 1.22 euros and $1.00 equals 1.55 British pounds, how many British pounds equal 1 euro?

Accepted Answer

A) 1.27 
B) .645 
C) .819 
D) .787 
A) 1.27 
B) .645 
C) .819 
D) .787

Question 14

Purchases of foreign financial securities by U.S. residents and borrowing by foreigners from U.S. banks and other domestic sources are

Accepted Answer

A) current account inflows. 
B) current account outflows. 
C) capital inflows. 
D) capital outflows. 
A) current account inflows. 
B) current account outflows. 
C) capital inflows. 
D) capital outflows.

Question 15

The trade balance plus net exports of services is called the

Accepted Answer

A) balance of goods and services. 
B) balance on capital account. 
C) balance on current account. 
D) balance of payments. 
A) balance of goods and services. 
B) balance on capital account. 
C) balance on current account. 
D) balance of payments.

Question 16

Why did 12 countries in Europe adopt a single currency, the euro?

Accepted Answer

A) A single currency reduces transactions costs involved with trade in goods, services, and securities. 
B) With the adoption of a single currency, countries would have less autonomy over monetary policy. 
C) A single currency should lead to higher economic growth rates for the countries involved. 
D) Both a and c are correct. 
A) A single currency reduces transactions costs involved with trade in goods, services, and securities. 
B) With the adoption of a single currency, countries would have less autonomy over monetary policy. 
C) A single currency should lead to higher economic growth rates for the countries involved. 
D) Both a and c are correct.

Question 17

A decrease in foreign real incomes may be graphically represented as a

Accepted Answer

A) slide upward on the demand curve for dollars in the foreign exchange market. 
B) slide upward or downward on the demand curve for dollars in the foreign exchange market. 
C) shift upward of the demand curve for dollars in the foreign exchange market. 
D) leftward shift of the demand curve for dollars in the foreign exchange market. 
A) slide upward on the demand curve for dollars in the foreign exchange market. 
B) slide upward or downward on the demand curve for dollars in the foreign exchange market. 
C) shift upward of the demand curve for dollars in the foreign exchange market. 
D) leftward shift of the demand curve for dollars in the foreign exchange market.

Question 18

Under a flexible exchange rate system, __________ is when a currency has increased in value relative to another currency.

Accepted Answer

A) depreciation 
B) appreciation 
C) capital inflow 
D) devaluation 
A) depreciation 
B) appreciation 
C) capital inflow 
D) devaluation

Question 19

-Refer to Figures A, B, C, and D. During the first half of the 1980s, the U.S. Government engaged in expansionary fiscal policy and tight monetary policy. One result was a significant increase in U.S. interest rates relative to the rest of the world. Which of the figures best illustrates this historical experience?

Accepted Answer

A) Figures A and D 
B) Figures B and C 
C) Figure C 
D) Figure D 
A) Figures A and D 
B) Figures B and C 
C) Figure C 
D) Figure D

Question 20

If the Swiss franc/U.S. dollar rate is 1.26 francs, this means that

Accepted Answer

A) one dollar will buy .79 Swiss francs. 
B) one dollar will buy 1.26 Swiss francs. 
C) .79 Swiss francs will buy one dollar. 
D) one dollar will buy .63 Swiss francs. 
A) one dollar will buy .79 Swiss francs. 
B) one dollar will buy 1.26 Swiss francs. 
C) .79 Swiss francs will buy one dollar. 
D) one dollar will buy .63 Swiss francs.

Exam 16: How Exchange Rates Are Determined

A depreciation of the dollar will

-Refer to Figures A, B, C, and D. Which of the figures best illustrates a situation where foreign interest rates rise relative to U.S. rates ceteris paribus?

A train pass costs 250 Japanese yen, and the yen/dollar exchange rate is 100. If the dollar appreciates, increasing the yen/dollar exchange, what will happen to the cost of the train pass to an American traveler using dollars?

-Refer to Figures A, B, C, and D. Which of the figures best illustrates a situation where foreign income rises ceteris paribus?

An increase in the U.S. inflation rate relative to Sweden's will

One reason interactions between the U.S. economy and other countries were at one time overlooked is because

With greater capital mobility, the real U.S. and foreign interest rates will tend to be equalized if

A change in U.S. interest rates relative to foreign interest rates may be graphically represented as which of the following?

Which of the following will not occur when the dollar price of U.S. goods increases relative to the dollar price of foreign goods?

Which of the following is false?

Assume that one U.S. dollar buys 1.65 Swiss francs and that a chocolate bar costs 1.25 francs in Switzerland. Ignoring all other costs, how much will the chocolate bar cost in U.S. dollars?

Which of the following, ceteris paribus, will cause the dollar to appreciate?

If $1.00 equals 1.22 euros and $1.00 equals 1.55 British pounds, how many British pounds equal 1 euro?

Purchases of foreign financial securities by U.S. residents and borrowing by foreigners from U.S. banks and other domestic sources are

The trade balance plus net exports of services is called the

Why did 12 countries in Europe adopt a single currency, the euro?

A decrease in foreign real incomes may be graphically represented as a

Under a flexible exchange rate system, __________ is when a currency has increased in value relative to another currency.

If the Swiss franc/U.S. dollar rate is 1.26 francs, this means that

Introduction and Overview

Money and Its Role in the Economy

The Overseer: the Federal Reserve System

Financial Markets, Instruments, and Market Makers

Interest Rates and Bond Prices

The Structure of Interest Rates

Market Efficiency and the Flow of Funds Among Sectors

An Introduction to Financial Intermediaries and Risk

Commercial Banking Structure, Regulation, and Performance

Financial Innovation

Financial Instability and Strains on the Financial System

Regulation of the Banking System and the Financial Services Industry

The Debt Markets

The Stock Market

Securities Firms, Mutual Funds, and Financial Conglomerates

Forward, Futures, and Options Agreements

The International Financial System

The Fed, Depository Institutions, and the Money Supply Process

The Demand for Real Money Balances and Market Equilibrium

Financial Aspects of the Household, Business, Government, and Rest-Of-The-World Sectors

Aggregate Demand and Aggregate Supply

The Challenges of Monetary Policy

The Process of Monetary Policy Formation

Policy Implementation

Monetary Policy in a Globalized Financial System

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