Exam 17: The Foreign Exchange Market

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

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price,everything else held constant.

The real exchange rate between U.S. dollars and the Japanese yens is the price of U.S. goods relative to the price of Japanese goods denominated in the U.S. dollar. If it is below one,the same basket of goods is ________ in the United States than in Japan,and the purchasing power of the U.S. dollars is ________ than the Japanese yens.

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

Suppose that the Federal Reserve conducts an open market sale. Everything else held constant,this will cause the demand for U.S. assets to ________ and the U.S. dollar will ________.

If the exchange at time t is Eₜ = €1/$. You invest $1 in an euro asset at t,which has an interest of 8%. When the asset expires at t+1,you get paid €________. If Eₜ+1 = €1.02/$,then you can buy back $________.

When domestic real interest rates rise,the domestic currency ________.

In the long run,a rise in a country's price level (relative to the foreign price level)causes its currency to ________,while a fall in the country's relative price level causes its currency to ________.

If the dollar depreciates relative to the Swiss franc

If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets,and if the dollar is expected to appreciate at a 4 percent rate,the expected return on ________-denominated assets in terms of ________ percent.

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

An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

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

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

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.

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

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.

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

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