Exam 22: Exchange Rates and Financial Links Between Countries

A permanent shift in the foreign exchange market supply and demand curves such that the fixed exchange rate is no longer an equilibrium rate is referred to as:

Because of their greediness,speculators are considered bad for exchange-rate markets.

Assume that a Chrysler automobile sells for $15,000 in the United States and that the exchange rate is $1 = €1.3.For purchasing power parity to hold,the same car should sell in Germany for:

Assume a one year U.S.bond pays 4.0% interest and a similar U.K.bond pays 5.2% interest.Which of the following changes will establish interest rate parity?

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Consider a country Atlantica,using dollars ($) as its currency.If this country sets a price for gold,and then issues currency such that the amount in circulation is equivalent to the value of gold held in reserve,it is said to be following:

When an exchange rate is established as a fixed peg,active intervention may be required to maintain the target-pegged rate.

If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan,then it implies that:

Suppose that the price of an ounce of gold is 120 pesos in Mexico and 2,400 yen in Japan.Then the Japanese yen is worth two hundred times the value of a Mexican peso.

The exchange rate affects the trade in goods and services between California and NewYork.

When the exchange rate moves from $1 = CAD1.5 to $1 = CAD1.66,it implies:

Currency speculators are traders who seek to profit from a(n):

When the domestic currency depreciates,domestic goods become more expensive to foreign buyers.

Interest rate parity can be summarized by which of the following equilibrium conditions?

Fixed exchange rates require the economic policies of countries linked by the exchange rate to be:

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 6 pesos per real.Other things remaining equal,an increase in the number of Brazilian tourists to Mexico is most likely to:

The Bretton Woods system required countries to actively buy and sell dollars to maintain fixed exchange rates when:

When the exchange rate fluctuates around a fixed central target,allowing for a moderate amount of fluctuation,while tying the currency to the target central rate,the exchange rate is under:

Under the flexible exchange rate system,when a country tries to stimulate economic growth and improve its employment rates,it is likely to cause:

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.