Exam 5: The Global Financial System and Exchange Rates

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Table 5.2 Scenari Current interest rate-Canada Current interest rate-Japan Current exchange rate Expected exchange rate in year 2\% 4\% ¥100=\ 1 ¥103=\ 1 3\% 6\% ¥100=\ 1 ¥102=\ 1 5\% 2\% ¥100=\ 1 ¥97=\ 1 4\% 7\% ¥100=\ 1 ¥106=\ 1 Suppose that you intend to invest $10 000 in one-year government bonds. You are looking for the highest return on your investment and do not care whether you invest in Canada or Japan, but as a Canadian resident, you want your investment return to be in Canadian dollars. Table 5.2 lists four scenarios, each showing the current interest rate for one-year government bonds in Canada and Japan, the current exchange rate between the dollar and the yen, and the expected exchange rate in one year. Other than the interest rates, you assume the bonds from each country to be identical. -Refer to Figure 5.2If you choose to invest in Japanese bonds,your investment return from Scenario D will be

When Canada sends money to Japan to help earthquake survivors,in which account is this transaction recorded?

Suppose a Big Mac costs $4.20 in Canada and 9.55 zlotys in Poland.If the exchange rate is 2.77 zlotys per dollar,purchasing power parity predicts that

If the dollar appreciates relative to the Swiss franc,

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Table 5.2 Scenari Current interest rate-Canada Current interest rate-Japan Current exchange rate Expected exchange rate in year 2\% 4\% ¥100=\ 1 ¥103=\ 1 3\% 6\% ¥100=\ 1 ¥102=\ 1 5\% 2\% ¥100=\ 1 ¥97=\ 1 4\% 7\% ¥100=\ 1 ¥106=\ 1 Suppose that you intend to invest $10 000 in one-year government bonds. You are looking for the highest return on your investment and do not care whether you invest in Canada or Japan, but as a Canadian resident, you want your investment return to be in Canadian dollars. Table 5.2 lists four scenarios, each showing the current interest rate for one-year government bonds in Canada and Japan, the current exchange rate between the dollar and the yen, and the expected exchange rate in one year. Other than the interest rates, you assume the bonds from each country to be identical. -Refer to Figure 5.2f you choose to invest in Japanese bonds,your investment return from Scenario B will be

If the nominal exchange rate between the dollar and the Thai baht (baht per dollar)is lower than the relative purchasing power between the two countries,which of the following would be true?

Figure 5.3 -Refer to Figure 5.3.All else equal,an increase in net exports accompanied by a decrease in expected future profits would cause which of the following shifts?

If the theory of purchasing power parity is correct,which of the following statements should be true in the long run?

One disadvantage of a fixed exchange rate system compared to a floating or managed float exchange rate system is

Which of the following is an example of foreign direct investment in the United Kingdom?

Purchasing power parity does a ________ job in explaining movements in nominal exchange rates in the short run and does a ________ job in explaining movements in nominal exchange rates in the long run.

One advantage of a floating exchange rate system compared to a fixed or managed float exchange rate system is

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Table 5.1 -Refer to Figure 5.1..Using the data in the table calculate the following: a. The balance on the current account b. The balance on the financial account c. The statistical discrepancy d. The balance of payments

Figure 5.4 Suppose the world consists of two large open economies, Canada and the rest of the world. The figures above represent loanable funds graphs for these two economies. -Refer to Figure 5.4.The international capital market will be in equilibrium when the real interest rate in Canada is ________ and the real interest rate in the rest of the world is ________.

Figure 5.3 -Refer to Figure 5.3.All else equal,a decrease in the desire of households to consume today accompanied by an increase in corporate taxes would cause which of the following shifts?

Which of the following best represents total saving?

All else equal,an increase in the government's budget deficit accompanied by a decrease in corporate taxes would definitely result in

Figure 5.1 -Refer to Figure 5.1.A shift from S₁ to S₂ will result from all of the following except

Figure 5.1 -Refer to Figure 5.1.All else equal,a decrease in the government's budget deficit will cause

A depreciation of the Mexican peso relative to the dollar would ________ Mexican firms that are exporting goods to Canada and would ________ Mexican firms that have borrowed in Canadian dollars.