Exam 19: The Foreign Exchange Market

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 ________.

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

During the beginning on the subprime 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 ________.

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.

According to the law of one price,if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound,then the exchange rate between the Colombian peso and the Brazilian real is ________.

On January 25,2009,one Canadian dollar traded on the foreign exchange market for about 49.0 Indian rupees.Thus,one Indian rupee would have purchased about ________ Canadian dollars.

In the model of the demand and supply of dollar assets use a graph to explain how a change in the foreign interest rate affects the equilibrium exchange rate.

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate,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 euro-denominated assets is ________.

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

An increase 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.

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

The demand curve for the domestic currency ________.

Suppose that the Bank of Canada enacts expansionary policy.Everything else held constant,this will cause the demand for Canadian assets to ________ and the Canadian dollar to ________.

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

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

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.

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

Lower tariffs and quotas cause a country's currency to ________ in the ________ run,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.