Exam 17: The Foreign Exchange Market

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

If the dollar depreciates relative to the Swiss franc

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate,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?

In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro,the price is the

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 ________.

An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the right 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 ________ percent.

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

If,in retaliation for "unfair" trade practices,Congress imposes a 30 percent tariff on Japanese DVD recorders,but at the same time,U.S.demand for Japanese goods increases,then,in the long run,________,everything else held constant.

Today 1 euro can be purchased for $1.10.This is the

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.

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

The theory of purchasing power parity cannot fully explain exchange rate movements in the short run because

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

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

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

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