Exam 17: The Foreign Exchange Market

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 rises relative to another's,its currency should

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

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

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

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 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

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.

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

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 ________.

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

________ in the expected future domestic exchange rate causes the demand for domestic assets to decrease and the domestic currency to ________,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.

Exchange rates are determined in

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 ________.

The exchange rate is

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 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

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