Question 1

The most important participants in foreign exchange markets are ________.

Accepted Answer

Commercial banks

Question 2

An increase in the U.S.demand for the Mexican peso

Accepted Answer

A) causes an increase in the U.S.dollar price of a Mexican peso. 
B) causes the Mexican peso to appreciate. 
C) causes the U.S.dollar to depreciate. 
D) causes Mexican goods to be relatively more expensive. 
E) All of the above. 
A) causes an increase in the U.S.dollar price of a Mexican peso. 
B) causes the Mexican peso to appreciate. 
C) causes the U.S.dollar to depreciate. 
D) causes Mexican goods to be relatively more expensive. 
E) All of the above. E

Question 3

If inflation in the rest of the world is lower than inflation in Brazil,Brazil's currency (the real)would tend to appreciate.

Accepted Answer

A) True 
 B)False  False

Question 4

A forward exchange market contract obligates the owner to make a trade at a specified exchange rate a fixed number of days in the future.

Accepted Answer

A) True 
 B)False

Question 5

If the forward rate is greater than the spot rate,what are markets signaling about their expectations for the future spot rates for the home currency?

Accepted Answer

The home currency is

Question 6

Most currency trades in London do not involve the British pound.

Accepted Answer

A) True 
 B)False

Question 7

In order to protect against foreign exchange risk,firms can use

Accepted Answer

A) the spot market for foreign exchange. 
B) interest rate arbitrage. 
C) purchasing power parity. 
D) the forward market for foreign exchange. 
E) the J-curve. 
A) the spot market for foreign exchange. 
B) interest rate arbitrage. 
C) purchasing power parity. 
D) the forward market for foreign exchange. 
E) the J-curve.

Question 8

All else equal,if Canada raises its interest rates,

Accepted Answer

A) the dollar depreciates. 
B) the U.S.demand for Canadian dollars increases. 
C) the Canadian supply of Canadian dollars increases. 
D) Both A and B. 
E) Both A and C. 
A) the dollar depreciates. 
B) the U.S.demand for Canadian dollars increases. 
C) the Canadian supply of Canadian dollars increases. 
D) Both A and B. 
E) Both A and C.

Question 9

Covered interest arbitrage involves both

Accepted Answer

A) the purchase of a foreign asset and a forward contract in the market for foreign exchange. 
B) the purchase of a domestic asset and a spot contract in the market for foreign exchange. 
C) the sale of a foreign asset and the purchase of a forward contract in the market for foreign exchange. 
D) the sale of domestic stocks and the purchase of foreign bonds. 
E) None of the above. 
A) the purchase of a foreign asset and a forward contract in the market for foreign exchange. 
B) the purchase of a domestic asset and a spot contract in the market for foreign exchange. 
C) the sale of a foreign asset and the purchase of a forward contract in the market for foreign exchange. 
D) the sale of domestic stocks and the purchase of foreign bonds. 
E) None of the above.

Question 10

What are the differences and similarities between a depreciation and devaluation of a currency?

Accepted Answer

A depreciation of a currency takes place

Question 11

A country that experiences higher real interest rates than other countries would expect its currency to depreciate.

Accepted Answer

A) True 
 B)False

Question 12

An American firm that buys foreign exchange because its managers expect the dollar to depreciate is

Accepted Answer

A) increasing the supply of foreign exchange. 
B) increasing the demand for foreign exchange. 
C) speculating. 
D) Both A and B. 
E) Both B and C. 
A) increasing the supply of foreign exchange. 
B) increasing the demand for foreign exchange. 
C) speculating. 
D) Both A and B. 
E) Both B and C.

Question 13

If Juana contracts to buy U.S.office equipment in U.S.dollars and her domestic currency depreciates against the U.S.dollar between the time the contract is signed and the bill is paid,she will wind up paying less for the equipment because she stayed in the spot market.

Accepted Answer

A) True 
 B)False

Question 14

Under a gold standard,countries should

Accepted Answer

A) keep the supply of their domestic money constant. 
B) keep the supply of their domestic money fixed in proportion to their gold holdings. 
C) keep the supply of foreign exchange less than their domestic money supply. 
D) restrict the demand for foreign goods. 
E) outlaw speculation. 
A) keep the supply of their domestic money constant. 
B) keep the supply of their domestic money fixed in proportion to their gold holdings. 
C) keep the supply of foreign exchange less than their domestic money supply. 
D) restrict the demand for foreign goods. 
E) outlaw speculation.

Question 15

Suppose that the nominal exchange rate between the U.S.dollar and the Canadian dollar is 0.75 U.S.dollars per Canadian dollar.If Canada's rate of inflation is 0 percent and the U.S.rate is 10 percent,then the real exchange rate for the U.S.dollar will

Accepted Answer

A) appreciate by about 9 percent. 
B) appreciate by 10 percent. 
C) depreciate by about 9 percent. 
D) depreciate by 10 percent. 
E) None of the above. 
A) appreciate by about 9 percent. 
B) appreciate by 10 percent. 
C) depreciate by about 9 percent. 
D) depreciate by 10 percent. 
E) None of the above.

Question 16

Would each of the following groups be happy or unhappy if the Mexican peso appreciates against the U.S.dollar? Answer the question for each of the following:
(a) The U.S.pension funds holding Mexican government bonds
(b) U.S.tourists planning a trip to Mexico
(c) Mexican exporting manufacturers
(d) A Mexican firm trying to buy properties overseas

Accepted Answer

(a) Happy.The Mexican bonds are a safe h

Question 17

If the Japanese central bank sells yen and buys U.S.dollars,the U.S.dollar will appreciate.

Accepted Answer

A) True 
 B)False

Question 18

Currently the NAFTA nations do not meet the conditions for an optimal currency area.What are the two main reasons why?

Accepted Answer

Historically Mexico's business

Question 19

Which of the following institutions is the most important participant in foreign currency markets?

Accepted Answer

A) A retail customer 
B) A commercial bank 
C) A foreign exchange broker 
D) A central bank 
E) None of the above. 
A) A retail customer 
B) A commercial bank 
C) A foreign exchange broker 
D) A central bank 
E) None of the above.

Question 20

If more European and Japanese firms want to build factories and expand their offshore investments in the United States,the supply of U.S.dollars on foreign exchange markets will increase as a result of this investment activity.

Accepted Answer

A) True 
 B)False

The most important participants in foreign exchange markets are ________.

An increase in the U.S.demand for the Mexican peso

If inflation in the rest of the world is lower than inflation in Brazil,Brazil's currency (the real)would tend to appreciate.

A forward exchange market contract obligates the owner to make a trade at a specified exchange rate a fixed number of days in the future.

If the forward rate is greater than the spot rate,what are markets signaling about their expectations for the future spot rates for the home currency?

Most currency trades in London do not involve the British pound.

In order to protect against foreign exchange risk,firms can use

All else equal,if Canada raises its interest rates,

Covered interest arbitrage involves both

What are the differences and similarities between a depreciation and devaluation of a currency?

A country that experiences higher real interest rates than other countries would expect its currency to depreciate.

An American firm that buys foreign exchange because its managers expect the dollar to depreciate is

If Juana contracts to buy U.S.office equipment in U.S.dollars and her domestic currency depreciates against the U.S.dollar between the time the contract is signed and the bill is paid,she will wind up paying less for the equipment because she stayed in the spot market.

Under a gold standard,countries should

Suppose that the nominal exchange rate between the U.S.dollar and the Canadian dollar is 0.75 U.S.dollars per Canadian dollar.If Canada's rate of inflation is 0 percent and the U.S.rate is 10 percent,then the real exchange rate for the U.S.dollar will

If the Japanese central bank sells yen and buys U.S.dollars,the U.S.dollar will appreciate.

Currently the NAFTA nations do not meet the conditions for an optimal currency area.What are the two main reasons why?

Which of the following institutions is the most important participant in foreign currency markets?

If more European and Japanese firms want to build factories and expand their offshore investments in the United States,the supply of U.S.dollars on foreign exchange markets will increase as a result of this investment activity.

The United States in a Global Economy

International Economic Institutions Since World War Ii

Comparative Advantage and the Gains From Trade

Comparative Advantage and Factor Endowments

Beyond Comparative Advantage

The Theory of Tariffs and Quotas

Commercial Policy

International Trade and Labor and Environmental Standards

Trade and the Balance of Payments

An Introduction to Open Economy Macroeconomics

International Financial Crises

The United States in the World Economy

The European Union: Many Markets Into One

Trade and Policy Reform in Latin America

Export-Oriented Growth in East Asia

The Bric Countries in the World Economy

Filters

Exam 10: Exchange Rates and Exchange Rate Systems

The most important participants in foreign exchange markets are ________.

An increase in the U.S.demand for the Mexican peso

If inflation in the rest of the world is lower than inflation in Brazil,Brazil's currency (the real)would tend to appreciate.

A forward exchange market contract obligates the owner to make a trade at a specified exchange rate a fixed number of days in the future.

If the forward rate is greater than the spot rate,what are markets signaling about their expectations for the future spot rates for the home currency?

Most currency trades in London do not involve the British pound.

In order to protect against foreign exchange risk,firms can use

All else equal,if Canada raises its interest rates,

Covered interest arbitrage involves both

What are the differences and similarities between a depreciation and devaluation of a currency?

A country that experiences higher real interest rates than other countries would expect its currency to depreciate.

An American firm that buys foreign exchange because its managers expect the dollar to depreciate is

If Juana contracts to buy U.S.office equipment in U.S.dollars and her domestic currency depreciates against the U.S.dollar between the time the contract is signed and the bill is paid,she will wind up paying less for the equipment because she stayed in the spot market.

Under a gold standard,countries should

Suppose that the nominal exchange rate between the U.S.dollar and the Canadian dollar is 0.75 U.S.dollars per Canadian dollar.If Canada's rate of inflation is 0 percent and the U.S.rate is 10 percent,then the real exchange rate for the U.S.dollar will

If the Japanese central bank sells yen and buys U.S.dollars,the U.S.dollar will appreciate.

Currently the NAFTA nations do not meet the conditions for an optimal currency area.What are the two main reasons why?

Which of the following institutions is the most important participant in foreign currency markets?

If more European and Japanese firms want to build factories and expand their offshore investments in the United States,the supply of U.S.dollars on foreign exchange markets will increase as a result of this investment activity.

The United States in a Global Economy

International Economic Institutions Since World War Ii

Comparative Advantage and the Gains From Trade

Comparative Advantage and Factor Endowments

Beyond Comparative Advantage

The Theory of Tariffs and Quotas

Commercial Policy

International Trade and Labor and Environmental Standards

Trade and the Balance of Payments

An Introduction to Open Economy Macroeconomics

International Financial Crises

The United States in the World Economy

The European Union: Many Markets Into One

Trade and Policy Reform in Latin America

Export-Oriented Growth in East Asia

The Bric Countries in the World Economy

Filters