Question 1

Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.

Accepted Answer

A) True 
 B)False

Question 2

A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar price of Korean won, the more won will be demanded.

Accepted Answer

A) True 
 B)False

Question 3

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 36.1   In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 36.1.The supply curves shown for Brazilian reals are based on:

Accepted Answer

A) the supply of Brazilian goods in the international market. 
B) the Brazilian demand for Mexican products. 
C) the supply of Mexican pesos in the market. 
D) the Brazilian demand for Brazilian products. 
E) the Mexican demand for Brazilian products. 
A) the supply of Brazilian goods in the international market. 
B) the Brazilian demand for Mexican products. 
C) the supply of Mexican pesos in the market. 
D) the Brazilian demand for Brazilian products. 
E) the Mexican demand for Brazilian products.

Question 4

How many U.S.dollars does a U.S.importer need to pay for 100, 000 yen worth of stereo equipment when the price of 1 yen is $0.008?

Accepted Answer

A) $125 million 
B) $1.25 million 
C) $80, 000 
D) $1, 250 
E) $800 
A) $125 million 
B) $1.25 million 
C) $80, 000 
D) $1, 250 
E) $800

Question 5

The IMF comprises of 50 member countries including all developed countries, and a few countries of Asia and Latin America.

Accepted Answer

A) True 
 B)False

Question 6

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Accepted Answer

A) True 
 B)False

Question 7

Currency speculators are traders who seek to profit from a(n):

Accepted Answer

A) shift in global demand and supply patterns. 
B) increase in the price of oil. 
C) sudden shift in interest rates. 
D) exchange rate change by selling the currency expected to appreciate and buying the currency expected to depreciate. 
E) exchange rate change by selling the currency expected to depreciate and buying the currency expected to appreciate. 
A) shift in global demand and supply patterns. 
B) increase in the price of oil. 
C) sudden shift in interest rates. 
D) exchange rate change by selling the currency expected to appreciate and buying the currency expected to depreciate. 
E) exchange rate change by selling the currency expected to depreciate and buying the currency expected to appreciate.

Question 8

The exchange rate affects the trade in goods and services between California and NewYork.

Accepted Answer

A) True 
 B)False

Question 9

Assume a U.S.investor buys a Mexican bond with a face value of MXP 1, 000 and a 20 percent annual interest yield while the exchange rate is MXP 10 per dollar.What is the dollar return from the bond if the exchange rate at the end of the year is MXP 11 per dollar?

Accepted Answer

A) 9.1% 
B) 10.0% 
C) 18.2% 
D) 20.0% 
E) 32.0% 
A) 9.1% 
B) 10.0% 
C) 18.2% 
D) 20.0% 
E) 32.0%

Question 10

When the exchange rate moves from $1 = CAD1.5 to $1 = CAD1.66, it implies:

Accepted Answer

A) the U.S.dollar has depreciated in relation to the Canadian dollar. 
B) U.S.imports of Canadian goods will rise. 
C) the dollar price of the Canadian dollar has risen. 
D) the Canadian dollar has appreciated in relation to the U.S.dollar. 
E) Canadian imports of U.S.goods will rise. 
A) the U.S.dollar has depreciated in relation to the Canadian dollar. 
B) U.S.imports of Canadian goods will rise. 
C) the dollar price of the Canadian dollar has risen. 
D) the Canadian dollar has appreciated in relation to the U.S.dollar. 
E) Canadian imports of U.S.goods will rise.

Question 11

Which of the following had resulted from the Smithsonian agreement of 1971?

Accepted Answer

A) Devaluation of the U.S.dollar 
B) Dissolution of a fixed exchange rate regime 
C) Appreciation of the U.S.dollar 
D) Establishment of an equilibrium exchange rate 
E) Laissez-faire in the foreign exchange market 
A) Devaluation of the U.S.dollar 
B) Dissolution of a fixed exchange rate regime 
C) Appreciation of the U.S.dollar 
D) Establishment of an equilibrium exchange rate 
E) Laissez-faire in the foreign exchange market

Question 12

When the U.S.dollar depreciates in relation to the Swiss franc:

Accepted Answer

A) a U.S.importer will need more dollars to pay for an invoice denominated in Swiss francs. 
B) a Swiss exporter will receive more Swiss francs for an invoice denominated in the exporter's currency. 
C) Swiss imports of U.S.goods will fall. 
D) the Swiss franc is now worth less in terms of the U.S.dollar. 
E) a U.S.exporter will receive fewer dollars for an invoice denominated in Swiss francs. 
A) a U.S.importer will need more dollars to pay for an invoice denominated in Swiss francs. 
B) a Swiss exporter will receive more Swiss francs for an invoice denominated in the exporter's currency. 
C) Swiss imports of U.S.goods will fall. 
D) the Swiss franc is now worth less in terms of the U.S.dollar. 
E) a U.S.exporter will receive fewer dollars for an invoice denominated in Swiss francs.

Question 13

Which of the following holds true, if goods sell for the same price worldwide when converted to a common currency?

Accepted Answer

A) A high rate of inflation exists 
B) A fixed exchange-rate system exists 
C) Purchasing power parity exists 
D) The foreign exchange market is in equilibrium 
E) Arbitrage opportunities exist 
A) A high rate of inflation exists 
B) A fixed exchange-rate system exists 
C) Purchasing power parity exists 
D) The foreign exchange market is in equilibrium 
E) Arbitrage opportunities exist

Question 14

When the domestic currency depreciates, domestic goods become more expensive to foreign buyers.

Accepted Answer

A) True 
 B)False

Question 15

Suppose a U.S.investor buys a Canadian government bond with a face value of Canadian dollar (CAD)100 and an annual yield of 8.8 percent.Which of the following statements is true?

Accepted Answer

A) At maturity, the dollar return from the Canadian bond will be $108.8, regardless of what happens to the exchange rate. 
B) The Canadian bond will yield the same dollar return from the time of purchase to the time of maturity. 
C) An American will make a profit on the Canadian bond only when the CAD-denominated return is higher on the Canadian bond than the dollar-denominated return on a comparable U.S.bond. 
D) The dollar return on the Canadian bond depends on the dollar price of the Canadian dollar at the time of maturity. 
E) The decision to buy the Canadian bond should be based solely on the CAD interest return and not on changes in the exchange rate. 
A) At maturity, the dollar return from the Canadian bond will be $108.8, regardless of what happens to the exchange rate. 
B) The Canadian bond will yield the same dollar return from the time of purchase to the time of maturity. 
C) An American will make a profit on the Canadian bond only when the CAD-denominated return is higher on the Canadian bond than the dollar-denominated return on a comparable U.S.bond. 
D) The dollar return on the Canadian bond depends on the dollar price of the Canadian dollar at the time of maturity. 
E) The decision to buy the Canadian bond should be based solely on the CAD interest return and not on changes in the exchange rate.

Question 16

If $1 was equivalent to 120 Japanese yen in 2008 and 125 Japanese yen in 2010, it implies in 2010, there was:

Accepted Answer

A) a depreciation of the dollar against the yen. 
B) a depreciation of the yen against the dollar. 
C) an appreciation of the yen against the dollar. 
D) no change in the value of yen, but the dollar had weakened. 
E) no change in the value of dollar, but the yen had strengthened. 
A) a depreciation of the dollar against the yen. 
B) a depreciation of the yen against the dollar. 
C) an appreciation of the yen against the dollar. 
D) no change in the value of yen, but the dollar had weakened. 
E) no change in the value of dollar, but the yen had strengthened.

Question 17

Suppose a Canadian investor buys a one-year U.S.government bond that pays 7 percent interest.If the U.S.dollar appreciates 4 percent against the Canadian dollar during the year, what must be the yield on a comparable Canadian government bond for interest rate parity to hold?

Accepted Answer

A) 3 percent 
B) 4 percent 
C) 7 percent 
D) 10 percent 
E) 11 percent 
A) 3 percent 
B) 4 percent 
C) 7 percent 
D) 10 percent 
E) 11 percent

Question 18

When the U.S.dollar depreciates against other currencies:

Accepted Answer

A) foreign goods become less expensive to U.S.buyers. 
B) U.S.goods become more expensive to foreign buyers. 
C) foreign currencies depreciate against the U.S.dollar. 
D) the volume of U.S.imports decline. 
E) the volume of U.S.exports decline. 
A) foreign goods become less expensive to U.S.buyers. 
B) U.S.goods become more expensive to foreign buyers. 
C) foreign currencies depreciate against the U.S.dollar. 
D) the volume of U.S.imports decline. 
E) the volume of U.S.exports decline.

Question 19

An upward-sloping supply curve of Korean won in terms of Canadian dollars indicates that:

Accepted Answer

A) the higher the dollar price of Korean won, the more won will be demanded. 
B) the higher the dollar price of Korean won, the fewer won will be supplied. 
C) the lower the dollar price of Korean won, the more won will be demanded. 
D) the lower the dollar price of Korean won, the fewer won will be supplied. 
E) the Korean economy is stronger than the Canadian economy. 
A) the higher the dollar price of Korean won, the more won will be demanded. 
B) the higher the dollar price of Korean won, the fewer won will be supplied. 
C) the lower the dollar price of Korean won, the more won will be demanded. 
D) the lower the dollar price of Korean won, the fewer won will be supplied. 
E) the Korean economy is stronger than the Canadian economy.

Question 20

A commodity money standard exists when exchange rates are:

Accepted Answer

A) artificially pegged to the price of oil. 
B) fixed in terms of gold, thus creating flexible exchange rates between countries. 
C) fixed in terms of gold, thus creating fixed exchange rates between countries. 
D) allowed to fluctuate based on the values of different currencies. 
E) fixed, based on the values of different currencies, in terms of some commodity. 
A) artificially pegged to the price of oil. 
B) fixed in terms of gold, thus creating flexible exchange rates between countries. 
C) fixed in terms of gold, thus creating fixed exchange rates between countries. 
D) allowed to fluctuate based on the values of different currencies. 
E) fixed, based on the values of different currencies, in terms of some commodity.

Exam 57: Exchange Rates and Financial Links Between Countries

Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.

A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar price of Korean won, the more won will be demanded.

How many U.S.dollars does a U.S.importer need to pay for 100, 000 yen worth of stereo equipment when the price of 1 yen is $0.008?

The IMF comprises of 50 member countries including all developed countries, and a few countries of Asia and Latin America.

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Currency speculators are traders who seek to profit from a(n):

The exchange rate affects the trade in goods and services between California and NewYork.

Assume a U.S.investor buys a Mexican bond with a face value of MXP 1, 000 and a 20 percent annual interest yield while the exchange rate is MXP 10 per dollar.What is the dollar return from the bond if the exchange rate at the end of the year is MXP 11 per dollar?

When the exchange rate moves from $1 = CAD1.5 to $1 = CAD1.66, it implies:

Which of the following had resulted from the Smithsonian agreement of 1971?

When the U.S.dollar depreciates in relation to the Swiss franc:

Which of the following holds true, if goods sell for the same price worldwide when converted to a common currency?

When the domestic currency depreciates, domestic goods become more expensive to foreign buyers.

Suppose a U.S.investor buys a Canadian government bond with a face value of Canadian dollar (CAD)100 and an annual yield of 8.8 percent.Which of the following statements is true?

If $1 was equivalent to 120 Japanese yen in 2008 and 125 Japanese yen in 2010, it implies in 2010, there was:

Suppose a Canadian investor buys a one-year U.S.government bond that pays 7 percent interest.If the U.S.dollar appreciates 4 percent against the Canadian dollar during the year, what must be the yield on a comparable Canadian government bond for interest rate parity to hold?

When the U.S.dollar depreciates against other currencies:

An upward-sloping supply curve of Korean won in terms of Canadian dollars indicates that:

A commodity money standard exists when exchange rates are:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Filters