Exam 15: The Foreign Exchange Market

If the interest rate on dollar deposits is 10 percent,and the dollar is expected to appreciate by 7 percent over the coming year,the expected return on dollar deposits in terms of the foreign currency is

The interest parity condition states that ________.

A decrease in the foreign interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to appreciate.

If the inflation rate in the United States is higher than that in Germany and productivity is growing at a slower rate in the United States than it is in Germany,in the long run,

If the dollar appreciates relative to the Swiss franc,

In the long run,a rise in a country's price level (relative to the foreign price level)causes its currency to ________,while a rise in the country's relative productivity causes its currency to ________.

A fall in the expected future exchange rate shifts the expected return schedule for domestic deposits to the right and causes the domestic currency to depreciate.

Explain graphically how a change in the foreign interest rate will affect exchange rates.

The foreign exchange market

The foreign exchange market is organized as an over-the-counter market in which deposits denominated in foreign currencies are bought and sold.

When François the Foreigner considers the expected return on dollar deposits in terms of foreign currency,the expected return must be adjusted for

When the exchange rate for the euro changes from $0.90 to $0.85,then holding everything else constant,the euro has depreciated and American wheat sold in Germany becomes more expensive.

If the interest rate is 7 percent on euro deposits and 5 percent on dollar deposits,and if the dollar is expected to appreciate at a 4 percent rate,

When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar,the euro has ________ and the dollar has ________.

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

When the domestic nominal interest rate rises because of an increase in expected inflation,the expected appreciation of the dollar declines,________ shifts out more than ________,and the exchange rate declines.

A rise in the expected future exchange rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to appreciate.

The expected return on dollar deposits in terms of foreign currency is the ________ the interest rate on dollar deposits and the expected appreciation of the dollar.

American firms became less competitive compared to foreign firms during the 1980s because

An increase in the domestic interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to appreciate.