Exam 17: The Foreign Exchange Market

When the exchange rate for the Mexican peso changes from 9 pesos to the U.S.dollar to 10 pesos to the U.S.dollar,then the Mexican peso has ________ and the U.S.dollar has ________.

________ in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate,everything else held constant.

________ in the domestic interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________,everything else held constant.

The theory of asset demand suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

Exchange rates are determined in

The starting point for understanding how exchange rates are determined is a simple idea called ________,which states: if two countries produce an identical good,the price of the good should be the same throughout the world no matter which country produces it.

The theory of PPP suggests that if one country's price level rises relative to another's,its currency should

Today 1 euro can be purchased for $1.10.This is the

According to PPP,the real exchange rate between two countries will always equal ________.

With a 10 percent interest rate on dollar deposits,and an expected appreciation of 7 percent over the coming year,the expected return on dollar deposits in terms of the foreign currency is

A decrease in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Explain and show graphically the effect of an increase in the expected future exchange rate on the equilibrium exchange rate,everything else held constant.

In an agreement to exchange dollars for euros in three months at a price of $0.90 per euro,the price is the

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate,everything else held constant.

Suppose a report was released today that showed the Euro-Zone inflation rate is running above the European Central Bank's inflation rate target.This leads people to expect that the European Central Bank will enact contractionary policy in the near future.Everything else held constant,the release of this report would immediately cause the demand for U.S.assets to ________ and the U.S.dollar will ________.

An agreement to exchange dollar bank deposits for euro bank deposits in one month is a

________ in the foreign interest rate causes the demand for domestic assets to increase and the domestic currency to ________,everything else held constant.

________ in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate,everything else held constant.

In the long run,a one-time percentage increase in the money supply is matched by the same one-time percentage rise in the price level,leaving unchanged the real money supply and ________.This proposition is called money ________.

________ in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ________,everything else held constant.