Exam 17: The Foreign Exchange Market

When a country's goods and services are expensive relative to other countries',we say that its currency is ________ in terms of purchasing power parity.

If one U.S. dollar is traded on the foreign exchange market for about 49.0 Indian rupees,then one Indian rupee can purchase about ________ U.S. dollars.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

When the effects of the global financial crisis started to spread more quickly throughout the rest of the world,the U.S. dollar ________ because demand for U.S. assets ________.

If the U.S. dollar appreciates from 1.25 Swiss franc per U.S. dollar to 1.5 francs per dollar,then the franc depreciates from ________ U.S. dollars per franc to ________ U.S. dollars per franc.

According to the interest parity condition,if the U.S. interest rate is 2 percent and the Japanese interest rate is 4%,and the current exchange rate is 100 yens per dollar. Then the market expects the future exchange rate to be ________ yens per dollar.

According to the Purchasing Power Parity,if one country's price level rises relative to another's by a certain percentage,then the other country's currency

According to PPP,the real exchange rate between two countries will always equal

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

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

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 decrease and the domestic currency to ________,everything else held constant.

Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States,3% for Canada;4% for Mexico,and 5% for Brazil. According to the purchasing power parity and everything else held constant,which of the following would we expect to happen?

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

With a 10 percent interest rate on dollar deposits,and an expected appreciation of 7 percent over the coming year,the expected return on dollar deposits in terms of the dollar is

If the Brazilian demand for American exports rises at the same time that U.S. productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

Everything else held constant,when a country's currency depreciates,its goods abroad become ________ expensive while foreign goods in that country become ________ expensive.

The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

________ in the domestic interest rate causes the demand for domestic assets to increase 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 currency is expected to depreciate by 2% against domestic currency. Then the foreign asset must offer an interest rate of ________%.