Exam 13: Exchange Rates and the Open Economy

If the fundamental value of the nominal exchange rate equals 0.20 U.S. dollars per franc, but the franc is officially fixed at 0.15 U.S. dollars per franc, then the franc exchange rate is _____ and to maintain this exchange rate there will be _____ in the government's stock of international reserves.

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 ____.

The U.S. dollar exchange rate, e, where e is the nominal exchange rate expressed as Japanese yen per U.S. dollar, will appreciate when:

Holding all else constant, an increase in the preferences of Americans for Mexican goods will ______ the supply of dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S. dollar exchange rate.

There is ______ connection between the strength of a country's currency and the strength of its ______.

The law of one price states that if transportation costs are relatively small, then the:

The price of gold is 300 U.S. dollars per ounce in New York and 435 Canadian dollars per ounce in Toronto, Canada. If the law of one price holds for gold, the nominal exchange rate is ______ Canadian dollars per U.S. dollar.

Suppose the government of South Island has fixed the value of its currency, the Islandia, at $0.50 per Islandia, but the market equilibrium value of the Islandia is $0.75 per Islandia. In order to maintain the official value of the Islandia the Central Bank of South Island must either _____ domestic interest rates or supply Islandia, which causes the supply of international reserves to ______.

The theory that nominal exchange rates are determined so that the law of one price holds is called:

Each of the following would decrease the demand for U.S. dollars, shifting the demand curve for dollars to the left, except:

All else equal, compared to the case of a closed economy, monetary policy is ______ effective in an open economy with a ______ exchange rate.

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when:

European firms wishing to purchase American goods and services are ______ the foreign exchange market.

Holding all else equal, if the U.S. government imposes tariffs on imported products, then the equilibrium value of the U.S. dollar will:

Suppose the price of gold is $300 per ounce in the United States and 2,400 pesos per ounce in Mexico. If purchasing power parity holds then, if the price of oil is 200 pesos per barrel in Mexico, the price of oil is ______ per barrel in the United States.

Large economies, such as the U.S. economy, should ______ adopt a flexible exchange rate, because giving up the power to stabilize the domestic economy via monetary policy _____.

The U.S. dollar exchange rate, e, where e is the nominal exchange rate expressed as Japanese yen per U.S. dollar, will depreciate when:

All else equal, if the risk associated with U.S. stocks is perceived to have fallen compared to financial assets in other countries, then the market equilibrium value of the exchange rate for the U.S. dollar will:

Suppose the government of New Country fixes the exchange rate of its currency, the Newo, in terms of the U.S. dollar. Initially the exchange rate is set at $0.50 per Newo. Later the government changes the exchange rate to $0.75 per Newo. This is an example of a(n):

The demand for the Franconian franc in the foreign exchange market equals 11,000 - 25,000e and the supply of francs in the foreign exchange market equals 9,000 + 25,000 e, where e is the nominal exchange rate expressed in U.S. dollars per franc. If the franc is fixed at 0.15 U.S. dollars per franc, then the franc is _____ and Franconia has a balance-of-payments ______.