Exam 17: The Foreign Exchange Market

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

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

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

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

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

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

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.

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

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,for Francois the Frenchman the expected rate of return on dollar-denominated assets is

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

Suppose that the European Central Bank conducts a main refinancing sale.Everything else held constant,this would cause the demand for U.S.assets to ________ and the U.S.dollar will ________.

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

Everything else held constant,if a factor increases the demand for ________ goods relative to ________ goods,the domestic currency will appreciate.

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

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 Manuel the Mexican the expected rate of return on euro-denominated assets 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 ________.

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

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

If the British pound appreciates from $0.50 per pound to $0.75 per pound,the U.S.dollar depreciates from ________ per dollar to ________ per dollar.

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.