Exam 22: Exchange Rates and Financial Links Between Countries

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure: D₁ and D₂: Demand for Brazilian reals S₁ and S₂: Supply of Brazilian reals -Refer to Figure 22.1.Determine the equilibrium exchange rate and equilibrium quantity of Brazilian reals,if D₁ and S₁ are the relevant demand and supply curves for Brazilian reals in this market.

Suppose a U.S.firm buys a one-year U.K.bond for 6,000 British pounds when 1 British pound is worth $1.50 on the foreign exchange market.What is the firm's approximate rate of return on the bond if the interest rate on the bond is 15 percent and the exchange rate is 1 British pound is worth $1.93 at maturity?

Under the Bretton Woods system,international debts were settled in:

Economists typically date the beginning of the gold standard to the period:

If the price of an ounce of gold is 200 ZARs in South Africa and $75 in Canada,what will be the South African Rand (ZAR) per Canadian dollar (C$) exchange rate?

If interest rates in Europe fall below interest rates in the United States,then,other things equal,the demand for euros will decrease.

Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.

Suppose a U.S.investor buys a Canadian government bond with a face value of Canadian dollar (CAD) 100 and an annual yield of 8.8 percent.Which of the following statements is true?

Assume that a one-year Malaysian bond yields 10 percent interest and that the dollar return on maturity is 5 percent.If the exchange rate at maturity is $1 = MYR 4.00 (Malaysian ringgit),what was the exchange rate at the time the bond was purchased?

Assume an Australian importer expects to pay 16,000 Australian dollars (AUD) for $8,000 worth of U.S.goods,but on the shipment date 30 days later,the same volume of U.S.goods costs the Australian importer only 10,000 Australian dollars.This means that between the contract date and the payment date,the exchange rate has changed:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 - Refer to Figure 22.2.Suppose the British central bank is committed to maintaining an exchange rate of £1 = $1.50,but there is a permanent shift in supply from S₁ to S₃.According to the Bretton Woods agreement:

The euro floats against other currencies,but the member nations of the euro have no separate national money.For this reason,Spain,that uses the euro as its currency is listed under the managed float arrangement.

Suppose a permanent increase in demand for the Argentinean peso causes a chronic shortage of this currency in the foreign exchange market.The Argentinean government should then:

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure: D₁ and D₂: Demand for Brazilian reals S₁ and S₂: Supply of Brazilian reals -Refer to Figure 22.1.Assume that the initial equilibrium exchange rate is 8 Mexican pesos per Brazilian real and 150 brazilian reals are traded in the market.Suppose,there is an increase in the Brazilian demand for Mexican exports.Other things remaining equal,which of the following can be concluded?

When a U.S.importer needs $20,000 to settle an invoice for 228,000 Uruguayan pesos,the price of 1 dollar is 11.4 Uruguayan pesos.

Assume a U.S.firm invests $1,500 to buy a one-year U.K.bond.What is the dollar value of the proceeds if the dollar return on the U.K.bond is 20 percent at maturity?

The Bretton Woods System of exchange rates was established:

How many dollars do you need to buy a Swedish Kronor (SEK) when the exchange rate is $1 = 6.429 SEK?

Which of the following was the reserve currency under the gold exchange standard?

Countries that maintain a constant gold value for their currencies are said to be on a gold standard.