Exam 17: The Foreign Exchange Market

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

As the relative expected return on dollar assets increases,foreigners will want to hold more ________ assets and less ________ assets,everything else held constant.

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

Explain the law of one price and the theory of purchasing power parity. Why doesn't purchasing power parity explain all exchange rate movements in the short run? What factors determine long-run exchange rates?

If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on peso-denominated assets,and if the euro is expected to appreciate at a 4 percent rate,for Francois the Frenchman the expected rate of return on peso-denominated assets is

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

Everything else held constant,when the current value of the domestic currency increases,the ________ domestic assets ________.

According to the purchasing power parity theory,a rise in the United States price level of 5 percent,and a rise in the Mexican price level of 6 percent cause

The Brexit vote in June 2016 resulted in higher expected trade barriers. The relative expected return on British (pound)assets therefore ________ and so the quantity demanded of pound assets ________ at any given exchange rate,shifting the demand curve for pound assets to the ________.

When the value of the British pound changes from $1.25 to $1.50,the pound has ________ and the U.S. dollar has ________.

If the exchange at time t is Eₜ = €1.2/$. 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 your rate of return in terms of € is ________%.

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

During the beginning on the global financial crisis in the United States when the effects of the crisis were mostly confined within the United States,the U. S. dollar ________ because demand for U.S. assets ________.