Exam 17: The Foreign Exchange Market

Evidence from the United States during the period 1973-2002 indicates that the value of the dollar and the measure of the ________ interest rate rose and fell together.

If the real exchange rate between the United States and Japan is ________,then it is cheaper to buy goods in Japan than in the United States.

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate,everything else held constant.

Everything else held constant,when the current value of the domestic currency increases,the ________ domestic assets ________.

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

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets,and if the dollar is expected to appreciate at a 4 percent rate,for Francois the Frenchman the expected rate of return on dollar-denominated assets is

Suppose that the latest Consumer Price Index (CPI)release shows a higher inflation rate in the U.S.than was expected.Everything else held constant,the release of the CPI report would immediately cause the demand for U.S.assets to ________ and the U.S.dollar would ________.

If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on peso-denominated assets,and if the euro is expected to appreciate at a 4 percent rate,for Manuel the Mexican the expected rate of return on euro-denominated assets is

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

Higher tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

Everything else held constant,when a country's currency appreciates,the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive.

The theory of purchasing power parity cannot fully explain exchange rate movements because

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the right and the domestic currency to ________,everything else held constant.

Lower tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

An increase in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

When the effects of the subprime crisis started to spread more quickly throughout the rest of the world,the U.S.dollar ________ because demand for U.S.assets ________.

According to the law of one price,if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound,then the exchange rate between the Colombian peso and the Brazilian real is: