Exam 57: Exchange Rates and Financial Links Between Countries

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2 Refer to Figure 36.2.At the initial equilibrium point, with demand curve D and supply curve S₁:

Assume a one year U.S.bond pays 4.0% interest and a similar U.K.bond pays 5.2% interest.Which of the following changes will establish interest rate parity?

If prices rise within a country, then, other things equal, the value of a unit of domestic currency will:

Countries that maintain a constant gold value for their currencies are said to be on a gold standard.

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

Interest rate parity can be summarized by which of the following equilibrium conditions?

A reserve currency is a currency that is:

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.Suppose the initial equilibrium exchange rate is 10 pesos per real.A decrease in the Mexican demand for Brazilian coffee, other things equal, is most likely to result in a new equilibrium exchange rate of:

When a U.S.importer needs $20, 000 to settle an invoice for 228, 000 Uruguayan pesos, the price of 1 dollar is 11.4 Uruguayan pesos.

Given a one-year Canadian bond with a yield of 8 percent, what will be the U.S.investor's rate of return at maturity if the Canadian dollar appreciates 10 percent against the U.S.dollar?

Assume that you have just returned to the United States from a summer vacation in Russia, where you exchanged American dollars for Russian rubles.Your economic actions can be said to have:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2 Refer to Figure 36.2.Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60.If supply decreases from S₁ to S₂, the bank must:

In 1991, the French mineral water Perrier was temporarily taken off the market in the United States because of suspected impurities.Other things equal, this action brought about:

Assume an Australian importer expects to pay 16, 000 Australian dollars (AUD)for $8, 000 worth of U.S.goods, but on the shipment date 30 days later, the same volume of U.S.goods costs the Australian importer only 10, 000 Australian dollars.This means that between the contract date and the payment date, the exchange rate has changed:

Which of the following statements concerning the International Monetary Fund is true?

The gold standard ended with the:

The U.S.provides about _____ percent of the annual membership fees of IMF member countries.

Suppose you observe that with a given supply curve, the Peruvian demand for Argentinean pesos steadily decreases.This will most likely mean:

Assume that a British investor buys a one-year U.S.Treasury bill that pays 6 percent annual interest.Given a yield of 4 percent on a comparable British Treasury bill, the U.S.dollar must depreciate 2 percent against the British pound during the year for interest rate parity to hold.

If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan, then it implies that: