Question 1

A country with a current account surplus:

Accepted Answer

A) Has imported more than it has exported 
B) Has borrowed heavily from the rest of the world 
C) Has exported more than it has imported 
D) Also has a capital account surplus 
A) Has imported more than it has exported 
B) Has borrowed heavily from the rest of the world 
C) Has exported more than it has imported 
D) Also has a capital account surplus

Question 2

The law of one price is not expected to hold for:

Accepted Answer

A) Differentiated goods 
B) Financial assets 
C) Commodity goods 
D) Oil 
A) Differentiated goods 
B) Financial assets 
C) Commodity goods 
D) Oil

Question 3

Differences in inflation rates between two countries can explain

Accepted Answer

A) Short-run changes in the exchange rate but not long-run changes 
B) Changes in the real exchange rate over the long run, but not changes in the nominal exchange rate 
C) Long-run changes in the exchange rate but not short-run changes 
D) Changes in the exchange rate in both the short run and the long run 
A) Short-run changes in the exchange rate but not long-run changes 
B) Changes in the real exchange rate over the long run, but not changes in the nominal exchange rate 
C) Long-run changes in the exchange rate but not short-run changes 
D) Changes in the exchange rate in both the short run and the long run

Question 4

What is the link between purchasing power parity, inflation and the exchange rate?

Accepted Answer

Purchasing power parity implies when pri

Question 5

A foreign exchange intervention is:

Accepted Answer

A) Synonymous with a fixed exchange rate 
B) The use of public statements by government officials to impact the exchange rate 
C) Only used in crisis situations 
D) The buying/selling of currencies to affect supply or demand which impacts the exchange rate 
A) Synonymous with a fixed exchange rate 
B) The use of public statements by government officials to impact the exchange rate 
C) Only used in crisis situations 
D) The buying/selling of currencies to affect supply or demand which impacts the exchange rate

Question 6

How will an increase in the U.S.productivity of labor versus labor in the European Union impact the real exchange rate, all other factors held constant? Explain.

Accepted Answer

An increase in the productivity of Ameri

Question 7

Considering the dollar-euro market, as a dollar will purchase fewer euros, holding other factors constant:

Accepted Answer

A) This is represented by a downward movement along the supply of dollars curve 
B) This would be represented by a leftward shift in the demand for dollars curve 
C) This would be represented by a leftward shift of the supply of dollars curve 
D) This is represented by a downward movement along the demand for dollars curve 
A) This is represented by a downward movement along the supply of dollars curve 
B) This would be represented by a leftward shift in the demand for dollars curve 
C) This would be represented by a leftward shift of the supply of dollars curve 
D) This is represented by a downward movement along the demand for dollars curve

Question 8

If we let P = the domestic price of a basket of goods and Pf = the foreign price of the same basket of goods:

Accepted Answer

A) If $\frac { P } { P _ { f } }$ > 1 foreign products will seem inexpensive 
B) If $P$

$P_{f}$ > 1 foreign products will seem expensive 
C) If $\frac { P } { P _ { f } }$ = 1 the nominal exchange rate is also = 1 
D) You cannot determine the relative prices of foreign goods from the equation $\frac { P } { P _ { f } }$ 
A) If $\frac { P } { P _ { f } }$ > 1 foreign products will seem inexpensive 
B) If $P$

$P_{f}$ > 1 foreign products will seem expensive 
C) If $\frac { P } { P _ { f } }$ = 1 the nominal exchange rate is also = 1 
D) You cannot determine the relative prices of foreign goods from the equation $\frac { P } { P _ { f } }$

Question 9

When a currency is described as overvalued, this implies:

Accepted Answer

A) It is overvalued relative to the exchange rate set by the nation's central bank 
B) It is selling at an exchange rate less than one 
C) The exchange rate is higher than one year previous 
D) Its current market value is higher than the value that is thought to be consistent with purchasing power parity 
A) It is overvalued relative to the exchange rate set by the nation's central bank 
B) It is selling at an exchange rate less than one 
C) The exchange rate is higher than one year previous 
D) Its current market value is higher than the value that is thought to be consistent with purchasing power parity

Question 10

Chapter 10 presents the Big Mac Index.While it is a clever illustration, the Big Mac Index is not really a good example to use to explain the theory of purchasing power parity.Why not?

Accepted Answer

The theory of purchasing power parity re

Question 11

Considering Foreign Exchange Basics transactions:

Accepted Answer

A) The U.S.dollar is exchanged in roughly 50% of all currency transactions 
B) All transactions involve the use of the U.S.dollar 
C) Most of these transactions are handled in New York 
D) More transactions are handled in London than anywhere else 
A) The U.S.dollar is exchanged in roughly 50% of all currency transactions 
B) All transactions involve the use of the U.S.dollar 
C) Most of these transactions are handled in New York 
D) More transactions are handled in London than anywhere else

Question 12

The strong appreciation of the dollar for the last part of the 1990s:

Accepted Answer

A) Was a benefit to all U.S.residents but costly to most foreign producers 
B) Was a benefit to U.S.exporters, but put a severe strain on U.S.Importers 
C) Was welcomed by all U.S.manufacturers 
D) Played a key role in keeping inflation in check even though the economy was growing rapidly 
A) Was a benefit to all U.S.residents but costly to most foreign producers 
B) Was a benefit to U.S.exporters, but put a severe strain on U.S.Importers 
C) Was welcomed by all U.S.manufacturers 
D) Played a key role in keeping inflation in check even though the economy was growing rapidly

Question 13

A country's current account represents:

Accepted Answer

A) The amount one country owes to another country 
B) The net flow of all transactions between one country and another country 
C) The amount a country imports from the rest of the world 
D) The net flow of goods and services between that country and the rest of the world 
A) The amount one country owes to another country 
B) The net flow of all transactions between one country and another country 
C) The amount a country imports from the rest of the world 
D) The net flow of goods and services between that country and the rest of the world

Question 14

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

Accepted Answer

A) U.S.bagels are less expensive than French bagels 
B) U.S.and French bagels are the same price 
C) French bagels are less expensive than U.S.bagels 
D) Americans should import French bagels 
A) U.S.bagels are less expensive than French bagels 
B) U.S.and French bagels are the same price 
C) French bagels are less expensive than U.S.bagels 
D) Americans should import French bagels

Question 15

If U.S.assets are seen as having greater risk relative to foreign assets in the market for foreign exchange, this should cause:

Accepted Answer

A) The demand for dollars to increase 
B) The supply of dollars to decrease 
C) The supply of dollars to increase 
D) The dollar to appreciate 
A) The demand for dollars to increase 
B) The supply of dollars to decrease 
C) The supply of dollars to increase 
D) The dollar to appreciate

Question 16

If the Federal Reserve in the United States begins to purchase foreign currency and pay for these purchases with dollars, this should cause:

Accepted Answer

A) The dollar to appreciate 
B) The dollar to depreciate 
C) Import prices to decrease 
D) Exports to decrease 
A) The dollar to appreciate 
B) The dollar to depreciate 
C) Import prices to decrease 
D) Exports to decrease

Question 17

An expected appreciation of the dollar, everything else held constant, should cause:

Accepted Answer

A) The supply of dollars to increase 
B) The demand for dollars to increase 
C) The demand for dollars to decrease 
D) The dollar to depreciate now relative to other currencies 
A) The supply of dollars to increase 
B) The demand for dollars to increase 
C) The demand for dollars to decrease 
D) The dollar to depreciate now relative to other currencies

Question 18

Large industrialized countries like the U.S., Japan and the common currency zone of Europe generally:

Accepted Answer

A) Use fixed exchange rates to promote stability 
B) Allow their respective Treasuries to determine the exchange rates 
C) Allow supply and demand to determine exchange rates 
D) Give exclusive control of exchange rates to their respective central banks 
A) Use fixed exchange rates to promote stability 
B) Allow their respective Treasuries to determine the exchange rates 
C) Allow supply and demand to determine exchange rates 
D) Give exclusive control of exchange rates to their respective central banks

Question 19

In looking at the foreign exchange rates in the Wall Street Journal you notice the dollar-euro spot rate is 1.085€/$ and the six-month forward rate is 1.098€/$.What does this imply?

Accepted Answer

This implies that people expect the doll

Question 20

Considering the foreign exchange market, identify four causes for an increase in the supply of dollars.

Accepted Answer

The supply of dollars on the foreign exc

Exam 10: Foreign Exchange

A country with a current account surplus:

The law of one price is not expected to hold for:

Differences in inflation rates between two countries can explain

What is the link between purchasing power parity, inflation and the exchange rate?

A foreign exchange intervention is:

How will an increase in the U.S.productivity of labor versus labor in the European Union impact the real exchange rate, all other factors held constant? Explain.

Considering the dollar-euro market, as a dollar will purchase fewer euros, holding other factors constant:

If we let P = the domestic price of a basket of goods and Pf = the foreign price of the same basket of goods:

When a currency is described as overvalued, this implies:

Chapter 10 presents the Big Mac Index.While it is a clever illustration, the Big Mac Index is not really a good example to use to explain the theory of purchasing power parity.Why not?

Considering Foreign Exchange Basics transactions:

The strong appreciation of the dollar for the last part of the 1990s:

A country's current account represents:

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

If U.S.assets are seen as having greater risk relative to foreign assets in the market for foreign exchange, this should cause:

If the Federal Reserve in the United States begins to purchase foreign currency and pay for these purchases with dollars, this should cause:

An expected appreciation of the dollar, everything else held constant, should cause:

Large industrialized countries like the U.S., Japan and the common currency zone of Europe generally:

In looking at the foreign exchange rates in the Wall Street Journal you notice the dollar-euro spot rate is 1.085€/$ and the six-month forward rate is 1.098€/$.What does this imply?

Considering the foreign exchange market, identify four causes for an increase in the supply of dollars.

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: the Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters

If we let P = the domestic price of a basket of goods and P_f = the foreign price of the same basket of goods: