Exam 17: The Foreign Exchange Market

The theory of PPP suggests that if one country's price level rises relative to another's,its currency should

Everything else held constant,if a factor decreases the demand for ________ goods relative to ________ goods,the domestic currency will depreciate.

If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen,the U.S. dollar depreciates from ________ per dollar to ________ per dollar.

If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

When the value of the dollar changes from £0.5 to £0.75,then the British pound has ________ and the U.S. dollar has ________.

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the left and the domestic currency to ________,everything else held constant.

Explain and show graphically the effect of an increase in the expected future exchange rate on the equilibrium exchange rate,everything else held constant.

________ in the domestic interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________,everything else held constant.

According to the interest parity condition,if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent,then the expected ________ of the foreign currency must be ________ percent.

Suppose that the European Central Bank enacts expansionary policy. Everything else held constant,this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

Suppose the Federal Reserve releases a policy statement today which leads people to believe that the Fed will be enacting expansionary monetary policy in the near future. Everything else held constant,the release of this statement would immediately cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound,then,holding everything else constant,the pound has ________ and ________ expensive.

The immediate (two-day)exchange of one currency for another is a

Suppose that the latest Consumer Price Index (CPI)release shows a higher inflation rate in the U.S. than was expected. Everything else held constant,the release of the CPI report would immediately cause the demand for U.S. assets to ________ and the U.S. dollar would ________.

________ in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to appreciate,everything else held constant.

An increase in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Although foreign exchange market trades are said to involve the buying and selling of currencies,most trades involve the buying and selling of

The theory of PPP suggests that if one country's price level falls relative to another's,its currency should

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate,everything else held constant.

A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.