Question 1

A falling dollar makes Australian goods:

Accepted Answer

A)  more expensive abroad and increases the volume of Australian exports. 
B)  less expensive abroad and increases the volume of Australian exports. 
C)  less expensive abroad and decreases the volume of Australian exports. 
D)  more expensive abroad and decreases the volume of Australian exports. 
A)  more expensive abroad and increases the volume of Australian exports. 
B)  less expensive abroad and increases the volume of Australian exports. 
C)  less expensive abroad and decreases the volume of Australian exports. 
D)  more expensive abroad and decreases the volume of Australian exports. B

Question 2

If Australia puts a tariff on the importing of cars,the:

Accepted Answer

A)  price of Australian cars will fall. 
B)  Australian dollar will fall. 
C)  Australian dollar will rise. 
D)  price of foreign-produced cars sold in Australia will fall. 
A)  price of Australian cars will fall. 
B)  Australian dollar will fall. 
C)  Australian dollar will rise. 
D)  price of foreign-produced cars sold in Australia will fall. C

Question 3

According to the text,if USA's national income begins to grow quite rapidly while the rate of growth in Australia remains constant,then:

Accepted Answer

A)  Australian businesses may decide to expand. 
B)  foreign funds could be attracted to USA equities. 
C)  there could be an increase in demand for the AUD. 
D)  there could be an increase in supply of USD. 
A)  Australian businesses may decide to expand. 
B)  foreign funds could be attracted to USA equities. 
C)  there could be an increase in demand for the AUD. 
D)  there could be an increase in supply of USD. B

Question 4

In relation to the international FX markets before 1973:

Accepted Answer

A)  the majority of countries followed a floating peg regime. 
B)  the majority of countries followed a fixed exchange rate system. 
C)  exchange rates were floating against the US dollar. 
D)  most countries followed a managed floating exchange rate regime. 
A)  the majority of countries followed a floating peg regime. 
B)  the majority of countries followed a fixed exchange rate system. 
C)  exchange rates were floating against the US dollar. 
D)  most countries followed a managed floating exchange rate regime.

Question 5

When a central bank takes action to offset or reduce any volatility in the currency,this is called:

Accepted Answer

A)  FX smoothing. 
B)  risk-hedging monetary operations. 
C)  reserve nullification. 
D)  reserve management strategy. 
A)  FX smoothing. 
B)  risk-hedging monetary operations. 
C)  reserve nullification. 
D)  reserve management strategy.

Question 6

If the inflation rate in Australia is higher than that of Italy,and productivity is growing at a slower rate in Australia than it is in Italy,in the long run:

Accepted Answer

A)  the euro should depreciate, relative to the dollar. 
B)  the euro should appreciate, relative to the dollar. 
C)  there should be no change in the euro price of the dollar. 
D)  it is uncertain what will happen to the euro price of dollars. 
A)  the euro should depreciate, relative to the dollar. 
B)  the euro should appreciate, relative to the dollar. 
C)  there should be no change in the euro price of the dollar. 
D)  it is uncertain what will happen to the euro price of dollars.

Question 7

A depreciating nominal foreign exchange rate may arise from a/an:

Accepted Answer

A)  low domestic inflation rate, relative to the foreign inflation rate. 
B)  depreciating real foreign exchange rate. 
C)  appreciating real foreign exchange rate. 
D)  small Australian Commonwealth government budget deficit. 
A)  low domestic inflation rate, relative to the foreign inflation rate. 
B)  depreciating real foreign exchange rate. 
C)  appreciating real foreign exchange rate. 
D)  small Australian Commonwealth government budget deficit.

Question 8

All else being constant,a currency should _______ if there is _______ in the real rates of return,relative to those in other countries.

Accepted Answer

A)  depreciate; no change 
B)  depreciate; an increase 
C)  appreciate; a decrease 
D)  appreciate; an increase 
A)  depreciate; no change 
B)  depreciate; an increase 
C)  appreciate; a decrease 
D)  appreciate; an increase

Question 9

In the long run,if purchasing power parity (PPP)is maintained,a rise in a country's price level (relative to the foreign price level)should cause its currency to _______,while a fall in the country's relative price should cause its currency to _______.

Accepted Answer

A)  appreciate; appreciate 
B)  appreciate; depreciate 
C)  depreciate; appreciate 
D)  depreciate; depreciate 
A)  appreciate; appreciate 
B)  appreciate; depreciate 
C)  depreciate; appreciate 
D)  depreciate; depreciate

Question 10

A tariff is a:

Accepted Answer

A)  tax on goods exported to other countries. 
B)  tax on goods purchased from other countries. 
C)  limit on the number of goods that may be imported. 
D)  subsidy by governments granted to exporting companies. 
A)  tax on goods exported to other countries. 
B)  tax on goods purchased from other countries. 
C)  limit on the number of goods that may be imported. 
D)  subsidy by governments granted to exporting companies.

Question 11

A quota is a:

Accepted Answer

A)  prohibition on the import of specified goods. 
B)  government restriction on how much may be charged for imported goods. 
C)  government restriction on the amount of a specified good that may be imported. 
D)  subsidy by governments granted to importing companies. 
A)  prohibition on the import of specified goods. 
B)  government restriction on how much may be charged for imported goods. 
C)  government restriction on the amount of a specified good that may be imported. 
D)  subsidy by governments granted to importing companies.

Question 12

A change in the Australian dollar value of the British pound from $2.60 to $2.50 means:

Accepted Answer

A)  there has been an increase in the pound price of British goods. 
B)  the pound has appreciated relative to the Australian dollar. 
C)  the Australian dollar has appreciated relative to the pound. 
D)  an increase in the dollar price of British goods. 
A)  there has been an increase in the pound price of British goods. 
B)  the pound has appreciated relative to the Australian dollar. 
C)  the Australian dollar has appreciated relative to the pound. 
D)  an increase in the dollar price of British goods.

Question 13

All else being constant,a currency should _______ if there is _______ in a country's inflationary expectations,relative to those in other countries.

Accepted Answer

A)  depreciate; an increase 
B)  depreciate; a decline 
C)  appreciate; increase 
D)  appreciate; no change 
A)  depreciate; an increase 
B)  depreciate; a decline 
C)  appreciate; increase 
D)  appreciate; no change

Question 14

One important view of the determination of the foreign exchange value of a currency is given in the purchasing power parity theory.The theory states,in effect,that:

Accepted Answer

A)  any national currency should have equal buying power, given current exchange rates. 
B)  although prices in one country may rise faster than in another, parity is maintained. 
C)  lower prices in one country are offset by a depreciation of the currency in another country. 
D)  all of the given answers are correct. 
A)  any national currency should have equal buying power, given current exchange rates. 
B)  although prices in one country may rise faster than in another, parity is maintained. 
C)  lower prices in one country are offset by a depreciation of the currency in another country. 
D)  all of the given answers are correct.

Question 15

When a country's exchange rate depreciates,the price of:

Accepted Answer

A)  that country's goods abroad decreases. 
B)  that country's goods abroad increases. 
C)  foreign goods sold in that country increases. 
D)  that country's goods produced and sold locally increases. 
A)  that country's goods abroad decreases. 
B)  that country's goods abroad increases. 
C)  foreign goods sold in that country increases. 
D)  that country's goods produced and sold locally increases.

Question 16

When there is a shortage of currency in the FX markets dealers will bid the price and the quantity of currency would increase.

Accepted Answer

A) True 
 B)False

Question 17

If a regression analysis was run for the AUD/USD exchange rate and obtained the following coefficients,a1 = 0.8 for (IUS -IA),a2 = 0.5 for (YUS - YA)and a3 = 0.6 for (iUS -iA),explain the meaning of the coefficients.

Accepted Answer

The coefficient a₁ = 0.8 suggests that a

Question 18

A rising dollar makes Australian goods:

Accepted Answer

A)  more expensive abroad and increases the volume of Australian exports. 
B)  less expensive abroad and increases the volume of Australian exports. 
C)  less expensive abroad and decreases the volume of Australian exports. 
D)  more expensive abroad and decreases the volume of Australian exports. 
A)  more expensive abroad and increases the volume of Australian exports. 
B)  less expensive abroad and increases the volume of Australian exports. 
C)  less expensive abroad and decreases the volume of Australian exports. 
D)  more expensive abroad and decreases the volume of Australian exports.

Question 19

A demand curve for a local currency slopes downward as the higher the price of the local currency the less demand there would be for it.

Accepted Answer

A) True 
 B)False

Question 20

If the interest rate in Australia rises,overseas investors:

Accepted Answer

A)  increase their demand for Australian dollars and the Australian exchange rate falls. 
B)  increase their demand for Australian dollars and the Australian exchange rate increases. 
C)  decrease their demand for Australian dollars and the Australian exchange rate rises. 
D)  decrease their demand for Australian dollars and the Australian exchange rate falls. 
A)  increase their demand for Australian dollars and the Australian exchange rate falls. 
B)  increase their demand for Australian dollars and the Australian exchange rate increases. 
C)  decrease their demand for Australian dollars and the Australian exchange rate rises. 
D)  decrease their demand for Australian dollars and the Australian exchange rate falls.

Exam 16: Foreign Exchange: Factors That Influence the Exchange Rate

A falling dollar makes Australian goods:

If Australia puts a tariff on the importing of cars,the:

According to the text,if USA's national income begins to grow quite rapidly while the rate of growth in Australia remains constant,then:

In relation to the international FX markets before 1973:

When a central bank takes action to offset or reduce any volatility in the currency,this is called:

If the inflation rate in Australia is higher than that of Italy,and productivity is growing at a slower rate in Australia than it is in Italy,in the long run:

A depreciating nominal foreign exchange rate may arise from a/an:

All else being constant,a currency should _______ if there is _______ in the real rates of return,relative to those in other countries.

In the long run,if purchasing power parity (PPP)is maintained,a rise in a country's price level (relative to the foreign price level)should cause its currency to _______,while a fall in the country's relative price should cause its currency to _______.

A tariff is a:

A quota is a:

A change in the Australian dollar value of the British pound from $2.60 to $2.50 means:

All else being constant,a currency should _______ if there is _______ in a country's inflationary expectations,relative to those in other countries.

One important view of the determination of the foreign exchange value of a currency is given in the purchasing power parity theory.The theory states,in effect,that:

When a country's exchange rate depreciates,the price of:

When there is a shortage of currency in the FX markets dealers will bid the price and the quantity of currency would increase.

If a regression analysis was run for the AUD/USD exchange rate and obtained the following coefficients,a1 = 0.8 for (IUS -IA),a2 = 0.5 for (YUS - YA)and a3 = 0.6 for (iUS -iA),explain the meaning of the coefficients.

A rising dollar makes Australian goods:

A demand curve for a local currency slopes downward as the higher the price of the local currency the less demand there would be for it.

If the interest rate in Australia rises,overseas investors:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

All else being constant,a currency should _ if there is _ in the real rates of return,relative to those in other countries.

In the long run,if purchasing power parity (PPP)is maintained,a rise in a country's price level (relative to the foreign price level)should cause its currency to _,while a fall in the country's relative price should cause its currency to _.

All else being constant,a currency should _ if there is _ in a country's inflationary expectations,relative to those in other countries.

If a regression analysis was run for the AUD/USD exchange rate and obtained the following coefficients,a₁ = 0.8 for (I_US -I_A),a₂ = 0.5 for (Y_US - Y_A)and a₃ = 0.6 for (i_US -i_A),explain the meaning of the coefficients.