Question 1

One reason the theory of purchasing power parity may not explain price differences between countries is:

Accepted Answer

A) Real exchange rates are almost impossible to calculate 
B) Inflation rates differ across countries 
C) Some products do not trade 
D) Nominal exchange rates are flexible 
A) Real exchange rates are almost impossible to calculate 
B) Inflation rates differ across countries 
C) Some products do not trade 
D) Nominal exchange rates are flexible

Question 2

A decrease in Americans' preference for foreign goods will lead to the following in the foreign exchange market:

Accepted Answer

A) An increase in the demand for dollars 
B) A decrease in the supply of dollars 
C) A depreciation of the dollar relative to foreign currencies 
D) A movement down the demand curve for dollars 
A) An increase in the demand for dollars 
B) A decrease in the supply of dollars 
C) A depreciation of the dollar relative to foreign currencies 
D) A movement down the demand curve for dollars

Question 3

Explain how a currency speculator would use something like the Big Mac Index in order to make a profit trading currencies.

Accepted Answer

The Big Mac Index is meant to be a simpl

Question 4

If in late 2003 one U.S.dollar exchanged for 118 euros and in mid-2004 one U.S.dollar exchanged for 127 euros, then:

Accepted Answer

A) The euro appreciated relative to the dollar 
B) The dollar appreciated relative to the euro 
C) European goods became more expensive to Americans 
D) American goods became more expensive to Americans 
A) The euro appreciated relative to the dollar 
B) The dollar appreciated relative to the euro 
C) European goods became more expensive to Americans 
D) American goods became more expensive to Americans

Question 5

If the Japanese yen appreciates against the U.S.dollar:

Accepted Answer

A) Americans should find Japanese goods are now less expensive 
B) Japanese residents would find Japanese goods are relatively less expensive than American goods 
C) U.S.goods should have an easier time competing against Japanese goods in both countries 
D) Japanese goods should have an easier time competing against U.S.goods in both countries 
A) Americans should find Japanese goods are now less expensive 
B) Japanese residents would find Japanese goods are relatively less expensive than American goods 
C) U.S.goods should have an easier time competing against Japanese goods in both countries 
D) Japanese goods should have an easier time competing against U.S.goods in both countries

Question 6

Purchasing power parity says that:

Accepted Answer

A) Differences in inflation rates between countries should have no impact on the exchange rate between those countries 
B) Differences in inflation rates between countries will create changes in exchange rates 
C) The changes in exchange rates move independently from inflation 
D) For inflation to change the exchange rate, the rate of inflation has to be the same between countries 
A) Differences in inflation rates between countries should have no impact on the exchange rate between those countries 
B) Differences in inflation rates between countries will create changes in exchange rates 
C) The changes in exchange rates move independently from inflation 
D) For inflation to change the exchange rate, the rate of inflation has to be the same between countries

Question 7

There was a lot of pressure on U.S.policymakers in late 1999 and into the early 2000s to decrease the value of the dollar.This pressure was coming mainly from:

Accepted Answer

A) Importers 
B) Foreign manufacturers 
C) U.S.manufacturers 
D) Foreign central banks 
A) Importers 
B) Foreign manufacturers 
C) U.S.manufacturers 
D) Foreign central banks

Question 8

The government of a country that is experiencing strong currency appreciation might find itself under pressure from some of its own citizens.Who would be likely to be bringing pressure and why?

Accepted Answer

A country experiencing strong currency a

Question 9

During the latter 1990s and into the early 2000s, the U.S.stock market boomed reflecting rapid growth in the U.S.economy.In terms of demand for and supply of dollars, explain what possible impacts this rapid increase in stock market values could have on the exchange rate.

Accepted Answer

The increase in U.S.stock values could h

Question 10

A country running a current account surplus over many years should see its exchange rate:

Accepted Answer

A) Appreciate 
B) Depreciate 
C) Hold steady 
D) The rate can rise, fall, or hold steady; the current account and the exchange rate are not linked 
A) Appreciate 
B) Depreciate 
C) Hold steady 
D) The rate can rise, fall, or hold steady; the current account and the exchange rate are not linked

Question 11

Explain why an appreciating U.S.dollar does not benefit everyone in the U.S.

Accepted Answer

An appreciating U.S.$ will benefit impor

Question 12

If we ignore transportation costs and the price of a pair of Nike shoes in Detroit is $100 U.S.what should be the price of the Nike shoes in Windsor, Canada (in Canadian dollars) if the nominal exchange rate is 1.36Canadian dollars/1 U.S.dollar?

Accepted Answer

A) 74 
B) 100 
C) 136 
D) 64 
A) 74 
B) 100 
C) 136 
D) 64

Question 13

Is it possible for a country to run a trade deficit and yet have the value of its currency not change? Use a supply and demand model of a foreign exchange market to explain how this could occur.

Accepted Answer

A trade deficit means that the country i

Question 14

Considering the theory of purchasing power parity, if inflation in Mexico is 5% while prices in the U.S.are stable; we should expect:

Accepted Answer

A) The dollar to appreciate 5% relative to the peso 
B) The peso to appreciate 5% relative to the dollar 
C) The nominal exchange rate to stay fixed 
D) The real exchange rate of U.S.goods / Mexican goods to appreciate 5% 
A) The dollar to appreciate 5% relative to the peso 
B) The peso to appreciate 5% relative to the dollar 
C) The nominal exchange rate to stay fixed 
D) The real exchange rate of U.S.goods / Mexican goods to appreciate 5%

Question 15

Between 1997 and 2006, U.S.policymakers intervened in the foreign exchange markets:

Accepted Answer

A) Almost constantly 
B) Twice 
C) Never 
D) Once a year 
A) Almost constantly 
B) Twice 
C) Never 
D) Once a year

Question 16

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

Accepted Answer

A) We would expect the supply curve of dollars to slope downward 
B) Foreign goods become relatively less expensive than American goods 
C) Foreign assets become relatively more expensive than American assets 
D) American goods become relatively less expensive than foreign goods 
A) We would expect the supply curve of dollars to slope downward 
B) Foreign goods become relatively less expensive than American goods 
C) Foreign assets become relatively more expensive than American assets 
D) American goods become relatively less expensive than foreign goods

Question 17

A country running a current account deficit over a long time should see its exchange rate:

Accepted Answer

A) Hold steady 
B) Appreciate 
C) Depreciate 
D) The rate can rise, fall, or hold steady; the current account and the exchange rate are not linked 
A) Hold steady 
B) Appreciate 
C) Depreciate 
D) The rate can rise, fall, or hold steady; the current account and the exchange rate are not linked

Question 18

A country that exports less than it imports will:

Accepted Answer

A) Have a current account deficit and a capital account deficit 
B) Have a current account surplus and a capital account deficit 
C) Have a current account surplus and a capital account surplus 
D) Have a current account deficit and a capital account surplus 
A) Have a current account deficit and a capital account deficit 
B) Have a current account surplus and a capital account deficit 
C) Have a current account surplus and a capital account surplus 
D) Have a current account deficit and a capital account surplus

Question 19

If an American traveling abroad can obtain 115 euros for $100 U.S, the current euro per $ exchange rate is:

Accepted Answer

A) 0.870 euros/$ 
B) 1.15 euros/$ 
C) 115euros/$ 
D) 1euro/1.15$ 
A) 0.870 euros/$ 
B) 1.15 euros/$ 
C) 115euros/$ 
D) 1euro/1.15$

Question 20

The empirical evidence on purchasing power parity seems to point out that:

Accepted Answer

A) The higher a country's inflation rate, the greater is the appreciation in the country's currency 
B) The theory of purchasing power parity cannot explain long-run changes in exchange rates 
C) The higher a country's inflation rate the greater is the depreciation in the country's currency 
D) There isn't any clear link between inflation rates and exchange rates 
A) The higher a country's inflation rate, the greater is the appreciation in the country's currency 
B) The theory of purchasing power parity cannot explain long-run changes in exchange rates 
C) The higher a country's inflation rate the greater is the depreciation in the country's currency 
D) There isn't any clear link between inflation rates and exchange rates

Exam 10: Foreign Exchange

One reason the theory of purchasing power parity may not explain price differences between countries is:

A decrease in Americans' preference for foreign goods will lead to the following in the foreign exchange market:

Explain how a currency speculator would use something like the Big Mac Index in order to make a profit trading currencies.

If in late 2003 one U.S.dollar exchanged for 118 euros and in mid-2004 one U.S.dollar exchanged for 127 euros, then:

If the Japanese yen appreciates against the U.S.dollar:

Purchasing power parity says that:

There was a lot of pressure on U.S.policymakers in late 1999 and into the early 2000s to decrease the value of the dollar.This pressure was coming mainly from:

The government of a country that is experiencing strong currency appreciation might find itself under pressure from some of its own citizens.Who would be likely to be bringing pressure and why?

During the latter 1990s and into the early 2000s, the U.S.stock market boomed reflecting rapid growth in the U.S.economy.In terms of demand for and supply of dollars, explain what possible impacts this rapid increase in stock market values could have on the exchange rate.

A country running a current account surplus over many years should see its exchange rate:

Explain why an appreciating U.S.dollar does not benefit everyone in the U.S.

If we ignore transportation costs and the price of a pair of Nike shoes in Detroit is $100 U.S.what should be the price of the Nike shoes in Windsor, Canada (in Canadian dollars) if the nominal exchange rate is 1.36Canadian dollars/1 U.S.dollar?

Is it possible for a country to run a trade deficit and yet have the value of its currency not change? Use a supply and demand model of a foreign exchange market to explain how this could occur.

Considering the theory of purchasing power parity, if inflation in Mexico is 5% while prices in the U.S.are stable; we should expect:

Between 1997 and 2006, U.S.policymakers intervened in the foreign exchange markets:

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

A country running a current account deficit over a long time should see its exchange rate:

A country that exports less than it imports will:

If an American traveling abroad can obtain 115 euros for $100 U.S, the current euro per $ exchange rate is:

The empirical evidence on purchasing power parity seems to point out that:

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

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