Exam 13: Exchange Rates and the Open Economy

All else equal, if U.S. stocks are perceived to have become riskier compared to financial investments in other countries, then the market equilibrium value of the exchange rate for the U.S. dollar will:

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

If a country's international reserves are increasing, then its exchange rate is ______ and there is a balance-of-payments _______.

When the nominal exchange rate changes from 4 francs per dollar to 6 francs per dollar, the dollar has:

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 0.25 U.S. dollars per franc, then the franc is _____ and Franconia has a balance-of-payments ______.

In an open economy with flexible exchange rates, monetary policy affects ______ through changes in the real interest rate and affects ______ through changes in the exchange rate.

A flexible exchange rate is an exchange rate whose value:

An exchange rate that has an officially fixed value greater than its fundamental or market equilibrium value is called a(n) _______ exchange rate.

As U.S. real GDP falls, poorer households may decide to buy ______ foreign goods and assets, which would cause a(n) ______ of the U.S. dollar.

All else being equal, if the prospect of a recession leads the Federal Reserve to ease monetary policy, the equilibrium value of the exchange rate for the U.S. dollar will:

If the exchange rate moves from 10 Mexican pesos per U.S. dollar to 8 Mexican pesos per U.S. dollar, then the Mexican peso has ______ and the U.S. dollar has _____.

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

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

An increase in the real exchange rate will tend to ______ exports and to ______ imports.

Based on the theory of purchasing power parity, in the long run, currencies of countries with significant inflation will tend to:

According to the theory of purchasing power parity, the real exchange rate between two currencies will equal ______ in the long run.

The demand for euros in the foreign exchange market equals 8,000 - 2,000 e and the supply of euros in the foreign exchange market equals 3,000 + 3,000 e, where e is the nominal exchange rate expressed in U.S. dollars per euro. If the euro is fixed at 1.25 U.S. dollars per euro, then the euro is _____ and Euroland has a balance-of-payments ______.

Suppose the price of gold is initially 300 U.S. dollars per ounce in New York and 450 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. If Canada experiences inflation, such that the price of gold rises to 510 Canadian dollars per ounce, but the U.S. does not experience any inflation, the nominal exchange rate would be ______ Canadian dollars per U.S. dollar.

Suppose the government of New Country has fixed the value of its currency, the New Peso, at $1 per New Peso, but the market equilibrium value of the New Peso is $2 per New Peso. In order to maintain the official value of the New Peso the Central Bank of New Country must either _____ domestic interest rates, or ________the supply of international reserves by purchasing New Pesos

The following table provides nominal exchange rates for the U.S. dollar. Based on these data, the nominal exchange rate equals approximately ______ reals per Swiss franc or, equivalently, ______ Swiss francs per real.