Exam 19: The Foreign Exchange Market

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

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

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 ________.

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 ________.

According to the interest parity condition,if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent,then the expected ________ of the foreign currency must be ________ percent.

________ 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.

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

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.

________ in the domestic interest rate causes the demand for domestic assets to decrease 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? 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 ________.

Why are exchange rates so volatile?

If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen,the Canadian dollar depreciates from ________ per dollar to ________ per dollar.

Exchange rates are determined in ________.

________ 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.

When Canadians 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.

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 ________.

Everything else held constant,increased demand for a country's ________ causes its currency to appreciate in the long run,while increased demand for ________ causes its currency to depreciate.

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