Exam 17: The Foreign Exchange Market

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.

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

________ in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate,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 ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

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

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 ________.

Suppose that the latest Consumer Price Index (CPI)release shows a higher inflation rate in the U.S.than was expected.Everything else held constant,the release of the CPI report would immediately cause the demand for U.S.assets to ________ and the U.S.dollar would ________.

________ 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.

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.

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

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.

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

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 ________.

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.

On January 25,2009,one U.S.dollar traded on the foreign exchange market for about 0.75 euros.Therefore,one euro would have purchased about ________ U.S.dollars.

When the exchange rate for the Mexican peso changes from 9 pesos to the U.S.dollar to 10 pesos to the U.S.dollar,then the Mexican peso has ________ and the U.S.dollar has ________.

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

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.

When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound,then,holding everything else constant,the pound has ________ and ________ expensive.