Exam 12: Exchange Rate Determination

Monetary and asset or portfolio models have not been very successful in forecasting exchange rates,especially in the short run,due to which of the following reasons?

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Question 1

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In a nutshell,explain what the trade or elasticity approach says about exchange rate determination.

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Question 2

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Speculative bubbles in the foreign exchange market are formed when the movement of exchange rate in a given direction (could be either an appreciation or a depreciation)generates an expectation that it will continue to move in the same direction even though such expectations are not supported by the fundamentals.This may lead to a feeding frenzy just as it is seen in the stock market and leads to an artificially inflated value for that particular currency.When the bubble bursts and it eventually does,the exchange rate movement reverses itself and the same overzealousness that created the bubble in the first place works in the opposite direction and generates too much pessimism regarding the value of that same foreign currency.The result is a currency whose price widely fluctuates around its long-run equilibrium value.

If there a country's imports exceed in value its exports,the domestic currency depreciates and trade adjustments start taking place.Under this scenario how does the employment of resources affect the amount of currency depreciation required to shift domestic resources to the production of more exports and import substitutes?

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Which of the following is true about PPP theory?

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Question 4

Which of the following would occur if the interest rate in the United States fell relative to that in the UK,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

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Question 5

From which of the following does a nation's demand for foreign exchange arise?

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Question 6

During which time period was the there was a sharp overvaluation of the US dollar?

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Question 7

Which of the following would occur if labor productivity in the UK increased relative to that in the US,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

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Question 8

Which of the following is the elasticity approach not able to explain?

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Question 9

According to the relative purchasing-power parity theory,what is the percentage change in the exchange rate if the price for one unit of corn in the US is $10 in 2003 and $12 in 2004,and in the UK,₤15 in 2003 and ₤20 in 2004?

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Question 10

According to the absolute PPP theory,which of the following would occur if the price level in the US decreases relative to the UK,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

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Question 11

The elasticities approach is more useful in explaining exchange rates during which time frame?

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Question 12

Which of the following states that the equilibrium exchange rate is equal to the ratio of price levels in the two nations?

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Question 13

By considering both financial and trade adjustments,which of the analysis of exchange rate determination has become the centerpiece of the different available theories?

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Question 14

An increase in the nation's money supply leads to which of the following?

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Question 15

Which of the theories of exchange rate determination states the following? "Increase in the nation's money supply leads to an immediate decline in the interest rate in the nation and a shift from domestic bonds to the domestic currency and foreign bonds……A shift to foreign bonds will then cause an immediate depreciation of the home currency……Overtime this depreciation stimulates nation's exports and discourages the nation's imports."

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Question 16

What determines the supply of money in each nation?

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Question 17

The trade or elasticities approach is more useful in explaining exchange rates during which time frame?

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Question 18

According to the absolute PPP theory,which of the following would occur if the price level in the US increases relative to the UK,and before this increase the dollar was in exchange rate equilibrium with the sterling?

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Question 19

Which of the following approaches to exchange rate determination stresses the role of the flow of goods and services in the determination of exchange rates?

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Question 20

Showing 1 - 20 of 52

Monetary and asset or portfolio models have not been very successful in forecasting exchange rates,especially in the short run,due to which of the following reasons?

In a nutshell,explain what the trade or elasticity approach says about exchange rate determination.

Which of the following is true about PPP theory?

Which of the following would occur if the interest rate in the United States fell relative to that in the UK,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

From which of the following does a nation's demand for foreign exchange arise?

During which time period was the there was a sharp overvaluation of the US dollar?

Which of the following would occur if labor productivity in the UK increased relative to that in the US,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

Which of the following is the elasticity approach not able to explain?

According to the relative purchasing-power parity theory,what is the percentage change in the exchange rate if the price for one unit of corn in the US is $10 in 2003 and $12 in 2004,and in the UK,₤15 in 2003 and ₤20 in 2004?

According to the absolute PPP theory,which of the following would occur if the price level in the US decreases relative to the UK,and before this increase the dollar was in an exchange rate equilibrium with the sterling?

The elasticities approach is more useful in explaining exchange rates during which time frame?

Which of the following states that the equilibrium exchange rate is equal to the ratio of price levels in the two nations?

By considering both financial and trade adjustments,which of the analysis of exchange rate determination has become the centerpiece of the different available theories?

An increase in the nation's money supply leads to which of the following?

What determines the supply of money in each nation?

The trade or elasticities approach is more useful in explaining exchange rates during which time frame?

According to the absolute PPP theory,which of the following would occur if the price level in the US increases relative to the UK,and before this increase the dollar was in exchange rate equilibrium with the sterling?

Which of the following approaches to exchange rate determination stresses the role of the flow of goods and services in the determination of exchange rates?

Introduction to the Global Economy

Comparative Advantage

The Standard Trade Model

The Heckscher-Ohlin and Other Trade Theories

Trade Restrictions: Tariffs

Nontariff Trade Barriers and the Political Economy of Protectionism

Economic Integration

Growth and Development With International Trade

International Resource Movements and Multinational Corporations

Balance of Payments

The Foreign Exchange Market and Exchange Rates

Automatic Adjustments With Flexible and Fixed Exchange Rates

Adjustment Policies

Flexible Versus Fixed Exchange Rates,european Monetary Systems,and Macroeconomic Policy Coordination

The International Monetary System: Past, present, and Future

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