Exam 9: The Foreign Exchange Market

The largest trading center in the foreign exchange market is __________.

A government restricts the convertibility of its currency to protect the country's _____________ and to halt any capital flight.

Why do companies prefer not to use counter trade if it can be avoided?

Explain how the psychology of investors and bandwagon effects can have an impact on the movement in exchange rates.Do you believe that bandwagon effects really happen? Explain your answer.

The foreign exchange market converts the currency of one country into the currency of another and:

The Canadian money supply is growing more rapidly than Canadian output.Dollars will be relatively more plentiful than the currencies of countries where monetary growth is closer to output growth.This is an example of

Economic theory tells us that _____________ rates reflect expectations about likely future inflation rates.

For a firm that deals in international markets, what does "foreign exchange risk" mean? How could foreign exchange risk affect the profitability of a Canadian agricultural equipment firm exporting tractors to a German buyer?

Short run exchange rate movements may be explained by ______________?

In essence, the _______________ theory predicts that changes in relative prices will result in a change in exchange rates.

The _____________ states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

Inflation is a _____________ phenomenon.

In the context of forecasting exchange rate movements, describe the difference between fundamental analysis and technical analysis.Which approach is preferred by economists? Why?

A currency is said to be ______________ when only non-residents may convert it into a foreign currency without any limitations.

The international reserve market is a market for converting the currency of one country into that of another country.

The International Fisher Effect states that for any two countries, the _____________ exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

_____________ are reported daily in financial pages of newspapers.

The ______________ market school argues that companies can improve the foreign exchange market's estimate of future exchange rates by investing in forecasting services.

At the basic level, exchange rates are determined by the demand and supply of one currency relative to the demand and supply for another.

A(n) _______________ has no impediments to the free flow of goods and services.