Exam 17: The Foreign Exchange Market

In a world with few impediments to capital mobility,the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency,a situation known as the

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

Everything else held constant,when a country's currency appreciates,the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive.

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

According to PPP,when the Big Mac has a high price in terms of local currency,then the exchange rate quoted in U.S. dollars per unit of local currency should be ________.

Higher tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

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

If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar,the real depreciates from ________ per real to ________ per real.

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

If 1 euro can be purchased for $1.10 today on the market,this exchange rate is called the

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

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

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

The Brexit vote in June 2016 resulted in higher expected trade barriers . Therefore,the expected value of the pound would be ________ in the future. The result was the sharp ________ in the equilibrium exchange rate for the British pound.

Everything else held constant,increased demand for a country's exports causes its currency to ________ in the long run,while increased demand for imports causes its currency to ________.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

An increase 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.

If the 2005 inflation rate in Canada is 4 percent,and the inflation rate in Mexico is 2 percent,then the theory of purchasing power parity predicts that,during 2005,the value of the Canadian dollar in terms of Mexican pesos will

The condition that states that the domestic interest rate equals the foreign interest rate minus the expected appreciation of the domestic currency is called

If the real exchange rate between the United States and Japan is ________,then it is cheaper to buy goods in Japan than in the United States.