Exam 15: The Foreign Exchange Market

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

Depreciation of a currency makes it easier for domestic manufacturers to sell their goods abroad and makes foreign goods less competitive in domestic markets.

The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

Evidence from the United States during the period 1973-2012 indicates the correspondence between nominal interest rates and exchange rate movements is

In a world with few impediments to capital mobility,the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency,a situation known as the

The theory of purchasing power parity is a theory of how exchange rates are determined in

If the French demand for American exports rises at the same time that U.S.productivity rises relative to French productivity,then,in the long run,

If the demand for ________ goods decreases relative to ________ goods,the domestic currency will depreciate.

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

If the interest rate on foreign deposits increases,holding everything else constant,

If the dollar depreciates relative to the Swiss franc,

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.

Higher tariffs and quotas cause a country's currency to ________ in the ________ run.

There are two kinds of exchange rate transactions: spot transactions and forward transactions.

As the relative expected return on dollar deposits increases,foreigners will want to hold more ________ deposits and less ________ deposits.

Lower tariffs and quotas cause a country's currency to ________ in the ________ run.

We currently live in a world in which there is capital mobility,meaning that ________.

As the relative expected return on dollar deposits increases,

If the dollar depreciates relative to the British pound,British sweaters will become more expensive in the United States.