Question 1

There are two kinds of exchange rate transactions.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) foreign; domestic 
B) foreign; foreign 
C) domestic; domestic 
D) domestic; foreign 
A) foreign; domestic 
B) foreign; foreign 
C) domestic; domestic 
D) domestic; foreign

Question 3

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

Accepted Answer

A) foreign; foreign 
B) foreign; dollar 
C) dollar; foreign 
D) dollar; dollar 
A) foreign; foreign 
B) foreign; dollar 
C) dollar; foreign 
D) dollar; dollar

Question 4

As the relative expected return on dollar deposits increases, Americans will want to hold fewer dollar deposits and more foreign deposits.

Accepted Answer

A) True 
 B)False

Question 5

Discuss the relationship between changes in domestic real and nominal interest rates and exchange rates.

Accepted Answer

The answer of Discuss the relationship between changes in domestic...

Question 6

Evidence from the United States during the period 1973-2010 indicates the correspondence between nominal interest rates and exchange rate movements is

Accepted Answer

A) much closer than that between real interest rates and exchange rate movements. 
B) not nearly as close as that between government spending and exchange rate movements. 
C) not nearly as close as that between government deficits and exchange rate movements. 
D) not nearly as close as that between real interest rates and exchange rate movements. 
A) much closer than that between real interest rates and exchange rate movements. 
B) not nearly as close as that between government spending and exchange rate movements. 
C) not nearly as close as that between government deficits and exchange rate movements. 
D) not nearly as close as that between real interest rates and exchange rate movements.

Question 7

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.

Accepted Answer

A) product of 
B) ratio of 
C) sum of 
D) difference in 
A) product of 
B) ratio of 
C) sum of 
D) difference in

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) domestic; right 
B) domestic; left 
C) foreign; right 
D) foreign; left 
A) domestic; right 
B) domestic; left 
C) foreign; right 
D) foreign; left

Question 10

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 ________.

Accepted Answer

A) appreciate; appreciate 
B) appreciate; depreciate 
C) depreciate; appreciate 
D) depreciate; depreciate 
A) appreciate; appreciate 
B) appreciate; depreciate 
C) depreciate; appreciate 
D) depreciate; depreciate

Question 11

Forward exchange rates

Accepted Answer

A) involve the immediate exchange of bank deposits. 
B) involve the exchange of bank deposits at some specified future date. 
C) involve the immediate exchange of imports and exports. 
D) none of the above. 
A) involve the immediate exchange of bank deposits. 
B) involve the exchange of bank deposits at some specified future date. 
C) involve the immediate exchange of imports and exports. 
D) none of the above.

Question 12

Increased demand for a country's exports causes its currency to depreciate.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) domestic; right 
B) domestic; left 
C) foreign; right 
D) foreign; left 
A) domestic; right 
B) domestic; left 
C) foreign; right 
D) foreign; left

Question 14

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

Accepted Answer

A) 3 percent. 
B) 10 percent. 
C) 13.5 percent. 
D) 17 percent. 
E) 24 percent. 
A) 3 percent. 
B) 10 percent. 
C) 13.5 percent. 
D) 17 percent. 
E) 24 percent.

Question 15

If the dollar ________ from 1.2 euros per dollar to 0.8 euros per dollar, the euro ________ from 0.83 dollars to 1.25 dollars per euro.

Accepted Answer

A) appreciates; appreciates 
B) appreciates; depreciates 
C) depreciates; depreciates 
D) depreciates; appreciates 
A) appreciates; appreciates 
B) appreciates; depreciates 
C) depreciates; depreciates 
D) depreciates; appreciates

Question 16

The purchasing power parity theory

Accepted Answer

A) has significant predictive power in the short run. 
B) is the starting point for understanding how exchange rates are determined. 
C) does not take into account that many goods and services are not traded across borders. 
D) is none of the above. 
A) has significant predictive power in the short run. 
B) is the starting point for understanding how exchange rates are determined. 
C) does not take into account that many goods and services are not traded across borders. 
D) is none of the above.

Question 17

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

Accepted Answer

A change in the foreign interest rate ca

Question 18

Explain the theory of purchasing power parity.

Accepted Answer

The theory of purchasing power parity (P

Question 19

When the value of the dollar changes from 0.50 pounds to 0.75 pounds, the pound has appreciated and the dollar has depreciated.

Accepted Answer

A) True 
 B)False

Question 20

According to the interest parity condition, if the domestic interest rate is ________ the foreign interest rate, then ________.

Accepted Answer

A) above; there is expected appreciation of the foreign currency 
B) above; there is expected depreciation of the foreign currency 
C) below; there is expected appreciation of the foreign currency 
D) below; the interest parity condition is violated 
A) above; there is expected appreciation of the foreign currency 
B) above; there is expected depreciation of the foreign currency 
C) below; there is expected appreciation of the foreign currency 
D) below; the interest parity condition is violated

Exam 15: The Foreign Exchange Market

There are two kinds of exchange rate transactions.

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

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

As the relative expected return on dollar deposits increases, Americans will want to hold fewer dollar deposits and more foreign deposits.

Discuss the relationship between changes in domestic real and nominal interest rates and exchange rates.

Evidence from the United States during the period 1973-2010 indicates the correspondence between nominal interest rates and exchange rate movements is

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.

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.

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

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 ________.

Forward exchange rates

Increased demand for a country's exports causes its currency to depreciate.

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

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

If the dollar ________ from 1.2 euros per dollar to 0.8 euros per dollar, the euro ________ from 0.83 dollars to 1.25 dollars per euro.

The purchasing power parity theory

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

Explain the theory of purchasing power parity.

When the value of the dollar changes from 0.50 pounds to 0.75 pounds, the pound has appreciated and the dollar has depreciated.

According to the interest parity condition, if the domestic interest rate is ________ the foreign interest rate, then ________.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters

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

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

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

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 decrease in the domestic interest rate shifts the expected return schedule for deposits to the and causes the domestic currency to depreciate.

If the dollar from 1.2 euros per dollar to 0.8 euros per dollar, the euro from 0.83 dollars to 1.25 dollars per euro.

According to the interest parity condition, if the domestic interest rate is the foreign interest rate, then .