Exam 28: Exchange Rates and the Open Economy

When the Fed eases U.S. monetary policy, domestic interest rates ________, making U.S. assets relatively less attractive to foreign investors, and ________ the equilibrium exchange rate.

If monetary policy must be used to set the market equilibrium value of the exchange rate equal to the official value, it:

As the dollar exchange rate, e, increases, the quantity of dollars supplied in the foreign exchange market ________, and the quantity of dollars demanded in the foreign exchange market ________.

Holding all else constant, an increase in the real interest rate on Mexican assets will ________ the supply for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

All else being equal, if Asian restaurants switch from serving French champagne to serving California wines, then the market equilibrium value of the exchange rate for the U.S. dollar will:

If two nominal exchange rates are given as 4 shekel/dollar and 0.711 dinar/dollar, so 1 dollar can buy either 4 shekels or 0.711 dinars, then each Jordanian dinar is worth ________ Israeli shekels, and each shekel is worth ________ dinars.

A country's nominal exchange rate, e, is defined as the number of units of:

Holding all else constant, an increase in U.S. real GDP will ________ the supply for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

A currency devaluation is a(n):

Purchasing power parity is the theory that nominal exchange rates are determined:

Proponents of fixed exchange rates argue that the predictability of the fixed exchange rate:

Holding all else constant, a decrease in the real interest rate on U.S. assets will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

If the exchange rate moves from 10 Mexican pesos per U.S. dollar to 12 Mexican pesos per U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.

When the nominal exchange rate changes from 10 pesos per dollar to 8 pesos per dollar, the dollar has:

A country will have a balance-of-payments surplus when its exchange rate:

Holding all else constant, an increase in preferences by Mexicans for U.S. goods will ________ the demand for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.

The PPP theory is most useful in predicting:

Based on this figure, if an exchange rate of $0.09 dollars per Norwegian krone is maintained, the Norwegian government will gain (in dollar)________ worth of international reserves per period.

Because many European nations have adopted the euro as their common currency, they are ________ able to conduct independent ________ policy.

A decrease in the value of a currency relative to other currencies is called a(n):