Exam 17: The Foreign Exchange Market

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

Everything else held constant,increased demand for a country's ________ causes its currency to appreciate in the long run,while increased demand for ________ causes its currency to depreciate.

Suppose that the Federal Reserve enacts expansionary policy.Everything else held constant,this will cause the demand for U.S.assets to ________ and the U.S.dollar to ________.

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

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

According to the interest parity condition,if the domestic interest rate is 10 percent and the foreign interest rate is 12 percent,then the expected ________ of the foreign currency must be ________ percent.

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

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

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

On January 25,2009,one U.S.dollar traded on the foreign exchange market for about 1.15 Swiss francs.Therefore,one Swiss franc would have purchased about ________ U.S.dollars.

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price,everything else held constant.

If the dollar depreciates relative to the Swiss franc

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

According to the interest parity condition,if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent,then the expected ________ of the foreign currency must be ________ percent.

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

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

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

The theory of asset demand suggests that the most important factor affecting the demand for domestic and foreign assets is

According to the purchasing power parity theory,a rise in the United States price level of 5 percent,and a rise in the Mexican price level of 6 percent cause

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.