Question 1

The U.S.provides about _____ percent of the annual membership fees of IMF member countries.

Accepted Answer

A) 5.6 
B) 10.2 
C) 15.3 
D) 17.3 
E) 22.4 
A) 5.6 
B) 10.2 
C) 15.3 
D) 17.3 
E) 22.4

Question 2

When the U.S.dollar depreciates against other currencies:

Accepted Answer

A) foreign goods become less expensive to U.S.buyers. 
B) U.S.goods become more expensive to foreign buyers. 
C) foreign currencies depreciate against the U.S.dollar. 
D) the volume of U.S.imports decline. 
E) the volume of U.S.exports decline. 
A) foreign goods become less expensive to U.S.buyers. 
B) U.S.goods become more expensive to foreign buyers. 
C) foreign currencies depreciate against the U.S.dollar. 
D) the volume of U.S.imports decline. 
E) the volume of U.S.exports decline.

Question 3

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

Accepted Answer

A) True 
 B)False

Question 4

The supply of Thai baht in the foreign exchange market originates with:

Accepted Answer

A) tourists who go on vacation to Thailand. 
B) the export of Thailand oranges and other goods. 
C) Thai residents who wish to purchase goods from other countries. 
D) the Thai royal family. 
E) Thai central bank intervention to stop the peseta from depreciating. 
A) tourists who go on vacation to Thailand. 
B) the export of Thailand oranges and other goods. 
C) Thai residents who wish to purchase goods from other countries. 
D) the Thai royal family. 
E) Thai central bank intervention to stop the peseta from depreciating.

Question 5

Suppose purchasing power parity exists in the car stereo market in the United States and Australia.If a car stereo costs $230 in the United States and the exchange rate is $1 = $AUD1.67,the same car stereo may be purchased in Australia for approximately:

Accepted Answer

A) $AUD 138. 
B) $AUD 230. 
C) $AUD 2,300. 
D) $AUD 384. 
E) $AUD 108. 
A) $AUD 138. 
B) $AUD 230. 
C) $AUD 2,300. 
D) $AUD 384. 
E) $AUD 108.

Question 6

A reserve currency is a currency that is:

Accepted Answer

A) used exclusively to settle domestic debts. 
B) specifically designed for use by commercial banks to settle accounts. 
C) held only by bureaucrats. 
D) used to settle international debts by private corporations. 
E) held by governments to facilitate foreign exchange market interventions. 
A) used exclusively to settle domestic debts. 
B) specifically designed for use by commercial banks to settle accounts. 
C) held only by bureaucrats. 
D) used to settle international debts by private corporations. 
E) held by governments to facilitate foreign exchange market interventions.

Question 7

To ensure interest rate parity,a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 8

Fixed exchange rates serve as a constraint on inflationary government policies.

Accepted Answer

A) True 
 B)False

Question 9

The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):

Accepted Answer

A) historical anachronism. 
B) fixed exchange rate. 
C) "dirty float" exchange rate. 
D) unmanaged exchange rate. 
E) free market equilibrium exchange rate. 
A) historical anachronism. 
B) fixed exchange rate. 
C) "dirty float" exchange rate. 
D) unmanaged exchange rate. 
E) free market equilibrium exchange rate.

Question 10

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:
DS1U1B11S1U1B0 and DS1U1B12S1U1B0: Demand for Brazilian reals
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Supply of Brazilian reals
-Refer to Figure 22.1.Suppose the initial equilibrium exchange rate is 10 pesos per real.A decrease in the Mexican demand for Brazilian coffee,other things equal,is most likely to result in a new equilibrium exchange rate of:

Accepted Answer

A) 6 pesos per real and an equilibrium quantity of 200 Brazilian reals. 
B) 6 pesos per real and an equilibrium quantity of 250 Brazilian reals. 
C) 8 pesos per real and an equilibrium quantity of 150 Brazilian reals. 
D) 8 pesos per real and an equilibrium quantity of 100 Brazilian reals. 
E) 10 pesos per real and an equilibrium quantity of 200 Brazilian reals. 
A) 6 pesos per real and an equilibrium quantity of 200 Brazilian reals. 
B) 6 pesos per real and an equilibrium quantity of 250 Brazilian reals. 
C) 8 pesos per real and an equilibrium quantity of 150 Brazilian reals. 
D) 8 pesos per real and an equilibrium quantity of 100 Brazilian reals. 
E) 10 pesos per real and an equilibrium quantity of 200 Brazilian reals.

Question 11

Given a one-year Canadian bond with a yield of 8 percent,what will be the U.S.investor's rate of return at maturity if the Canadian dollar appreciates 10 percent against the U.S.dollar?

Accepted Answer

A) 2 percent 
B) 8 percent 
C) 10 percent 
D) 18 percent 
E) 25 percent 
A) 2 percent 
B) 8 percent 
C) 10 percent 
D) 18 percent 
E) 25 percent

Question 12

Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce.We can then say that:

Accepted Answer

A) the Brazilian real has depreciated in value as a consequence of free market fluctuations. 
B) the Brazilian real has appreciated in value. 
C) gold is now more expensive to purchase in Brazil than it was before. 
D) the Brazilian real has been devalued. 
E) the Brazilian economy is expected to experience rapid inflation. 
A) the Brazilian real has depreciated in value as a consequence of free market fluctuations. 
B) the Brazilian real has appreciated in value. 
C) gold is now more expensive to purchase in Brazil than it was before. 
D) the Brazilian real has been devalued. 
E) the Brazilian economy is expected to experience rapid inflation.

Question 13

Suppose the price of an ounce of silver is 100 nuevos soles in Peru and $400 in the United States.This implies:

Accepted Answer

A) the Peruvian nuevo sol is worth four times the value of a U.S.dollar. 
B) the Peruvian nuevo sol is worth one-fourth the value of a U.S.dollar. 
C) Peru's economy must be four times larger than the U.S.economy. 
D) the U.S.economy must be four times larger than that of Peru. 
E) the U.S.dollar is worth four times the value of a Peruvian nuevo sol. 
A) the Peruvian nuevo sol is worth four times the value of a U.S.dollar. 
B) the Peruvian nuevo sol is worth one-fourth the value of a U.S.dollar. 
C) Peru's economy must be four times larger than the U.S.economy. 
D) the U.S.economy must be four times larger than that of Peru. 
E) the U.S.dollar is worth four times the value of a Peruvian nuevo sol.

Question 14

Assume that a British investor buys a one-year U.S.Treasury bill that pays 6 percent annual interest.Given a yield of 4 percent on a comparable British Treasury bill,the U.S.dollar must depreciate 2 percent against the British pound during the year for interest rate parity to hold.

Accepted Answer

A) True 
 B)False

Question 15

Suppose a U.S.citizen invests $1,000 to purchase a one-year Japanese bond that has an interest yield of 10 percent.If the dollar appreciates 20 percent against the Japanese yen by the maturity date,the dollar value of the proceeds is _____.

Accepted Answer

A) $900 
B) $1,100 
C) $1,300 
D) $1,500 
E) $1,200 
A) $900 
B) $1,100 
C) $1,300 
D) $1,500 
E) $1,200

Question 16

Under a fixed exchange-rate system,in order to maintain the exchange rate:

Accepted Answer

A) governments must adopt a laissez-faire economic policy. 
B) all trading partners must enjoy the same level of economic growth. 
C) currencies must be inconvertible. 
D) the imports of one country must equal the exports of its trading partner. 
E) governments must intervene in the foreign exchange market. 
A) governments must adopt a laissez-faire economic policy. 
B) all trading partners must enjoy the same level of economic growth. 
C) currencies must be inconvertible. 
D) the imports of one country must equal the exports of its trading partner. 
E) governments must intervene in the foreign exchange market.

Question 17

Carlos Silva,a Colombian singer,goes on tour to the United States for one month,following high American demand for his live shows.Assuming that all the show's expenses are paid by the U.S.promoters,other things equal,the U.S.tour will bring about:

Accepted Answer

A) a decreased supply of Colombian pesos in the foreign exchange market. 
B) an increased supply of American dollars in the foreign exchange market. 
C) an increased supply of Colombian pesos in the foreign exchange market. 
D) a decreased demand for Colombian pesos in the foreign exchange market. 
E) an increased demand for American dollars in the foreign exchange market. 
A) a decreased supply of Colombian pesos in the foreign exchange market. 
B) an increased supply of American dollars in the foreign exchange market. 
C) an increased supply of Colombian pesos in the foreign exchange market. 
D) a decreased demand for Colombian pesos in the foreign exchange market. 
E) an increased demand for American dollars in the foreign exchange market.

Question 18

Assume that a country's government influences the exchange rate through active central bank intervention,with no pre-announced path.This policy is known as a(n):

Accepted Answer

A) floating exchange-rate policy. 
B) managed floating exchange-rate policy. 
C) fixed exchange-rate policy. 
D) crawling-peg exchange-rate policy. 
E) interventionist exchange-rate policy. 
A) floating exchange-rate policy. 
B) managed floating exchange-rate policy. 
C) fixed exchange-rate policy. 
D) crawling-peg exchange-rate policy. 
E) interventionist exchange-rate policy.

Question 19

Purchasing power parity exists when domestic currency:

Accepted Answer

A) maintains a fixed exchange rate with foreign currency. 
B) is not convertible into foreign currency. 
C) buys more goods at home than abroad. 
D) buys as many goods at home as it does abroad. 
E) appreciates in value against foreign currency. 
A) maintains a fixed exchange rate with foreign currency. 
B) is not convertible into foreign currency. 
C) buys more goods at home than abroad. 
D) buys as many goods at home as it does abroad. 
E) appreciates in value against foreign currency.

Question 20

One of the advantages of floating exchange rates is that:

Accepted Answer

A) consumers always know how much imported goods cost. 
B) businesses always know,in advance,what future exchange rates will be. 
C) countries are free to pursue their own macroeconomic policies without maintaining exchange rates. 
D) countries cannot act independently and must thus coordinate their macroeconomic policies. 
E) the global interest rate tends to decline to the lowest possible level. 
A) consumers always know how much imported goods cost. 
B) businesses always know,in advance,what future exchange rates will be. 
C) countries are free to pursue their own macroeconomic policies without maintaining exchange rates. 
D) countries cannot act independently and must thus coordinate their macroeconomic policies. 
E) the global interest rate tends to decline to the lowest possible level.

Exam 22: Exchange Rates and Financial Links Between Countries

The U.S.provides about _____ percent of the annual membership fees of IMF member countries.

When the U.S.dollar depreciates against other currencies:

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

The supply of Thai baht in the foreign exchange market originates with:

Suppose purchasing power parity exists in the car stereo market in the United States and Australia.If a car stereo costs $230 in the United States and the exchange rate is $1 = $AUD1.67,the same car stereo may be purchased in Australia for approximately:

A reserve currency is a currency that is:

To ensure interest rate parity,a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S.dollar.

Fixed exchange rates serve as a constraint on inflationary government policies.

The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):

Given a one-year Canadian bond with a yield of 8 percent,what will be the U.S.investor's rate of return at maturity if the Canadian dollar appreciates 10 percent against the U.S.dollar?

Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce.We can then say that:

Suppose the price of an ounce of silver is 100 nuevos soles in Peru and $400 in the United States.This implies:

Assume that a British investor buys a one-year U.S.Treasury bill that pays 6 percent annual interest.Given a yield of 4 percent on a comparable British Treasury bill,the U.S.dollar must depreciate 2 percent against the British pound during the year for interest rate parity to hold.

Suppose a U.S.citizen invests $1,000 to purchase a one-year Japanese bond that has an interest yield of 10 percent.If the dollar appreciates 20 percent against the Japanese yen by the maturity date,the dollar value of the proceeds is _____.

Under a fixed exchange-rate system,in order to maintain the exchange rate:

Carlos Silva,a Colombian singer,goes on tour to the United States for one month,following high American demand for his live shows.Assuming that all the show's expenses are paid by the U.S.promoters,other things equal,the U.S.tour will bring about:

Assume that a country's government influences the exchange rate through active central bank intervention,with no pre-announced path.This policy is known as a(n):

Purchasing power parity exists when domestic currency:

One of the advantages of floating exchange rates is that:

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Filters