Exam 20: The Foreign Exchange Market

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.

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.

________ 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.

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

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

________ 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.

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

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

With a 10 percent interest rate on dollar deposits,and an expected appreciation of 7 percent over the coming year,the expected return on dollar deposits in terms of the foreign currency is

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

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

________ 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.

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

Suppose that the Federal Reserve conducts an open market sale.Everything else held constant,this will cause the demand for U.S.assets to ________ and the U.S.dollar will ________.

________ in the foreign interest 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 terms of ________ percent.

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.

During the beginning on the global financial 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 ________.

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