Question 1

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

Accepted Answer

A) This is represented by an upward movement along the supply of dollars curve 
B) This is represented by a rightward shift of the supply of dollars curve 
C) This is represented by a rightward shift in the demand for dollars curve 
D) This is represented by an upward movement along the demand for dollars curve 
A) This is represented by an upward movement along the supply of dollars curve 
B) This is represented by a rightward shift of the supply of dollars curve 
C) This is represented by a rightward shift in the demand for dollars curve 
D) This is represented by an upward movement along the demand for dollars curve

Question 2

The same laptop computer cost $2,000 in the United States, 220,000 Japanese yen, $\le$ 1,300 British pounds, and € 1900 in Germany.If the law of one price holds, what are the yen/$; $\le$/$ and €/$ exchange rates?

Accepted Answer

If the law of one price holds

Question 3

Between 1998 and the end of 2000, the U.S.ran a large trade deficit; this should have caused the dollar to depreciate against foreign currencies but instead the dollar appreciated.The main reason for this is:

Accepted Answer

A) Foreign exchange markets are slow to react 
B) The supply of dollars actually fell 
C) The dramatic increase in U.S.stock prices attracted a lot of foreign capital increasing the demand for dollars by more than the increase in the supply of dollars 
D) The demand for dollars shifted left by more than the supply of dollars shifted right 
A) Foreign exchange markets are slow to react 
B) The supply of dollars actually fell 
C) The dramatic increase in U.S.stock prices attracted a lot of foreign capital increasing the demand for dollars by more than the increase in the supply of dollars 
D) The demand for dollars shifted left by more than the supply of dollars shifted right

Question 4

Assume that currently one $U.S.will purchase $\le$0.65.Investors believe that one year from now a dollar will purchase $\le$0.72.If we consider the dollar-pound market, where the horizontal axis measure the quantity of pounds, explain what we are likely to see in terms of demand and supply and the exchange rate.

Accepted Answer

In this case, investors expect a deterio

Question 5

Using a model of supply and demand for the dollar-pound market, where the horizontal axis is labeled quantity of British pounds, explain what happens when Americans have an increased demand for British automobiles.

Accepted Answer

When the demand for British autos increa

Question 6

The law of one price fails as a result of:

Accepted Answer

A) Low tariffs 
B) Insignificant transportation costs 
C) Similar technical specifications 
D) Goods that cannot be traded 
A) Low tariffs 
B) Insignificant transportation costs 
C) Similar technical specifications 
D) Goods that cannot be traded

Question 7

Considering the dollar-euro market, as a dollar purchases a greater number of euros, we should see:

Accepted Answer

A) The quantity of dollars demanded decrease 
B) The quantity of dollars supplied decrease 
C) American imports from Europe decrease 
D) American exports to Europe increase 
A) The quantity of dollars demanded decrease 
B) The quantity of dollars supplied decrease 
C) American imports from Europe decrease 
D) American exports to Europe increase

Question 8

Which of the following statements is most correct?

Accepted Answer

A) If the U.S.$ depreciates relative to the yen, then it is likely also depreciating relative to the euro 
B) If the U.S.$ is appreciating relative to the euro, the euro is likely depreciating relative to the yen 
C) If the U.S.$ is depreciating relative to the euro it is likely depreciating relative to all currencies 
D) If the U.S.$ is appreciating relative to the yen, the yen is depreciating relative to the U.S.$ 
A) If the U.S.$ depreciates relative to the yen, then it is likely also depreciating relative to the euro 
B) If the U.S.$ is appreciating relative to the euro, the euro is likely depreciating relative to the yen 
C) If the U.S.$ is depreciating relative to the euro it is likely depreciating relative to all currencies 
D) If the U.S.$ is appreciating relative to the yen, the yen is depreciating relative to the U.S.$

Question 9

A tariff disrupts the workings of the law of one price because tariffs:

Accepted Answer

A) Are standardized by GATT 
B) Are taxes on imports and can vary across products and countries 
C) Apply only to goods countries export 
D) Are only applied to commodity products 
A) Are standardized by GATT 
B) Are taxes on imports and can vary across products and countries 
C) Apply only to goods countries export 
D) Are only applied to commodity products

Question 10

Considering the foreign exchange market, identify at least four causes for a decrease in the demand for dollars.

Accepted Answer

The demand for dollars on the foreign ex

Question 11

Considering the law of one price, evidence shows:

Accepted Answer

A) The law works most of the time 
B) This is the closest thing to a perfect law in economics 
C) That the law fails most of the time 
D) The law only works in the very short run 
A) The law works most of the time 
B) This is the closest thing to a perfect law in economics 
C) That the law fails most of the time 
D) The law only works in the very short run

Question 12

Explain why many industrialized countries do not often intervene in the foreign exchange market.

Accepted Answer

As Chapter 10 pointed out with the lesso

Question 13

The law of one price:

Accepted Answer

A) Is based on arbitrage 
B) Applies only to real goods and not financial assets 
C) Can explain short-run exchange rates but not long-run exchange rates 
D) Is a mathematical concept that is not useful in explaining exchange rates 
A) Is based on arbitrage 
B) Applies only to real goods and not financial assets 
C) Can explain short-run exchange rates but not long-run exchange rates 
D) Is a mathematical concept that is not useful in explaining exchange rates

Question 14

Concrete likely does not follow the law of one price due to:

Accepted Answer

A) Technical differences 
B) Lack of information regarding prices 
C) Tariffs 
D) High transportation costs 
A) Technical differences 
B) Lack of information regarding prices 
C) Tariffs 
D) High transportation costs

Question 15

In the spring of 2002, the Japanese Ministry of Finance intervened in the foreign exchange market by selling yen and purchasing dollars.Why? And why did the intervention fail?

Accepted Answer

The attempt was to try to bring about a

Question 16

If Great Britain experiences higher rates of inflation than the United States over a long period of time, we should expect the British $\le$ (pound) per U.S.$ (dollar) exchange rate to:

Accepted Answer

A) Increase 
B) Hold constant, there isn't any link between inflation and exchange rates 
C) Decrease 
D) Hold constant since exchange rates are fixed 
A) Increase 
B) Hold constant, there isn't any link between inflation and exchange rates 
C) Decrease 
D) Hold constant since exchange rates are fixed

Question 17

If a country is running a current account deficit year after year, what should we expect to happen to the exchange rate for that country? Explain.

Accepted Answer

A country running a current account defi

Question 18

The price of a Big Mac in the U.S.is $2.00; the price in France is 3.35 euros.The current exchange rate is 1.05€/$.What is the real exchange rate?

Accepted Answer

The real Big Mac exchange rate is the U.

Question 19

If we let P = the domestic price of a basket of goods and P f = the foreign price of the same basket of goods, and $\varepsilon$ = the nominal exchange rate of foreign currency/$U.S., the real exchange rate is best expressed as:

Accepted Answer

A)  $\frac { P } { P _ { f } \cdot \varepsilon }$ 
B)  $\frac { P _ { f } } { P }$ 
C)  $\frac { P _ { f } } { P \cdot \varepsilon }$ 
D)  $\varepsilon \cdot \frac { P } { P _ { f } }$ 
A)  $\frac { P } { P _ { f } \cdot \varepsilon }$ 
B)  $\frac { P _ { f } } { P }$ 
C)  $\frac { P _ { f } } { P \cdot \varepsilon }$ 
D)  $\varepsilon \cdot \frac { P } { P _ { f } }$

Question 20

An increase in the real interest rate on U.S.bonds, everything else equal, will have the following impact on the foreign exchange market:

Accepted Answer

A) The demand for dollars will increase 
B) The supply of dollars will increase 
C) The dollar will depreciate relative to foreign currencies 
D) There will be a movement up the existing demand for dollars curve 
A) The demand for dollars will increase 
B) The supply of dollars will increase 
C) The dollar will depreciate relative to foreign currencies 
D) There will be a movement up the existing demand for dollars curve

Exam 10: Foreign Exchange

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

The same laptop computer cost $2,000 in the United States, 220,000 Japanese yen, ≤\le≤ 1,300 British pounds, and € 1900 in Germany.If the law of one price holds, what are the yen/$; ≤\le≤ /$ and €/$ exchange rates?

Between 1998 and the end of 2000, the U.S.ran a large trade deficit; this should have caused the dollar to depreciate against foreign currencies but instead the dollar appreciated.The main reason for this is:

Using a model of supply and demand for the dollar-pound market, where the horizontal axis is labeled quantity of British pounds, explain what happens when Americans have an increased demand for British automobiles.

The law of one price fails as a result of:

Considering the dollar-euro market, as a dollar purchases a greater number of euros, we should see:

Which of the following statements is most correct?

A tariff disrupts the workings of the law of one price because tariffs:

Considering the foreign exchange market, identify at least four causes for a decrease in the demand for dollars.

Considering the law of one price, evidence shows:

Explain why many industrialized countries do not often intervene in the foreign exchange market.

The law of one price:

Concrete likely does not follow the law of one price due to:

In the spring of 2002, the Japanese Ministry of Finance intervened in the foreign exchange market by selling yen and purchasing dollars.Why? And why did the intervention fail?

If Great Britain experiences higher rates of inflation than the United States over a long period of time, we should expect the British ≤\le≤ (pound) per U.S.$ (dollar) exchange rate to:

If a country is running a current account deficit year after year, what should we expect to happen to the exchange rate for that country? Explain.

The price of a Big Mac in the U.S.is $2.00; the price in France is 3.35 euros.The current exchange rate is 1.05€/$.What is the real exchange rate?

If we let P = the domestic price of a basket of goods and P f = the foreign price of the same basket of goods, and ε\varepsilonε = the nominal exchange rate of foreign currency/$U.S., the real exchange rate is best expressed as:

An increase in the real interest rate on U.S.bonds, everything else equal, will have the following impact on the foreign exchange market:

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

The same laptop computer cost $2,000 in the United States, 220,000 Japanese yen, $\le$ 1,300 British pounds, and € 1900 in Germany.If the law of one price holds, what are the yen/$; $\le$ /$ and €/$ exchange rates?

If Great Britain experiences higher rates of inflation than the United States over a long period of time, we should expect the British $\le$ (pound) per U.S.$ (dollar) exchange rate to:

If we let P = the domestic price of a basket of goods and P _f = the foreign price of the same basket of goods, and $\varepsilon$ = the nominal exchange rate of foreign currency/$U.S., the real exchange rate is best expressed as: