Exam 4: Exchange Rate Determination

Government controls can only affect the supply of a given currency for sale and not the demand.

The exchange rates of smaller countries are very stable because the market for their currency is very liquid.

When the Japanese yen appreciates against the U.S. dollar, this means that the U.S. dollar is strengthening relative to the yen.

Assume that the U.S. places a strict quota on goods imported from Chile and that Chile does not retaliate. Holding other factors constant, this event should immediately cause the U.S. demand for Chilean pesos to ____ and the value of the peso to ____.

An increase in U.S. inflation relative to Singapore inflation places upward pressure on the Singapore dollar.

The equilibrium exchange rate of pounds is $1.70. At an exchange rate of $1.72 per pound:

Forecasting a currency's future value is difficult, because it is difficult to identify how the factors affecting the currency value will change, and how they will interact to impact the currency's value.

If a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value.

An increase in U.S. interest rates relative to German interest rates would likely ____ the U.S. demand for euros and ____ the supply of euros for sale.

Assume that the inflation rate becomes much higher in the U.K. relative to the U.S. This will place ____ pressure on the value of the British pound. Also, assume that interest rates in the U.K. begin to rise relative to interest rates in the U.S. The change in interest rates will place ____ pressure on the value of the British pound.

The real interest rate adjusts the nominal interest rate for:

The equilibrium exchange rate of the Swiss franc is $0.90. At an exchange rate $.83:

If the British government desires an appreciation in its currency with respect to the U.S. dollar, it would consider intervening in the foreign exchange market by buying dollars with pounds.

The value of euro was $1.30 last week. During last week the euro depreciated by 5%. What is the value of euro today?

Assume that the income levels in U.K. start to rise, while U.S. income levels remain unchanged. This will place ____ pressure on the value of British pound. Also, assume that U.S. interest rates rise, while the British pound remains unchanged. This will place ____ pressure on the value of British pound.

Liquidity of a currency can affect the extent to which speculation can impact the currency's value.

The main effect of interest rate movements on exchange rates is through their effect on international trade.

Any event that increases the U.S. demand for euros should result in a(n) ____ in the value of the euro with respect to ____, other things being equal.

The phrase "the dollar was mixed in trading" means that:

Investors from Germany, the United States, and the U.K. frequently invest in each other based on prevailing interest rates. If British interest rates increase, German investors are likely to buy ____ dollar-denominated securities, and the euro is likely to ____ relative to the dollar.