Exam 57: Exchange Rates and Financial Links Between Countries

If a bushel of corn sells for $2 in the United States and for 4, 000 COP (Colombian peso)in Colombia, and if 1 dollar is worth 2, 200 COP, then:

Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive.The main reason for this phenomenon is that:

Assume a U.S.firm invests $1, 500 to buy a one-year U.K.bond.What is the dollar value of the proceeds if the dollar return on the U.K.bond is 20 percent at maturity?

If you receive a dollar return of 6 percent on a one-year Korean bond that yields 10 percent annually, this means that between the purchase date and the time of maturity:

Suppose the 12-month interest rate on a U.S.Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent.The exchange rate today is $2.00 per pound.What must be the expected exchange rate at maturity for interest rate parity to hold?

Other things equal, an appreciation of the Algerian dinar in relation to the euro will act to increase Algerian demand for European goods and to decrease European demand for Algerian goods.

Suppose a U.S.citizen invests $1, 000 to purchase a one-year Japanese bond that has an interest yield of 10 percent.If the dollar appreciates 20 percent against the Japanese yen by the maturity date, the dollar value of the proceeds is _____.

Consider a country Atlantica, using dollars ($)as its currency.If this country sets a price for gold, and then issues currency such that the amount in circulation is equivalent to the value of gold held in reserve, it is said to be following:

If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian dollars per ounce, we can say that the Australian dollar has appreciated in value.

Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.

The World Bank was created to help finance economic development in poor countries.

Appreciation of the dollar means that now it takes more dollars to buy one unit of foreign currency.

Suppose you are a U.S.exporter expecting to receive a payment of NZD1, 000 (New Zealand dollars)in 12 months.The annual interest rate on NZD deposits is 5 percent, and the annual interest rate on dollar deposits is 9 percent.If the present exchange rate is $0.50 per NZD and interest rate parity holds, how many dollars do you expect to receive at the maturity date of the export contract?

How many dollars do you need to buy a Swedish Kronor (SEK)when the exchange rate is $1 = 6.429 SEK?

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 demand curves shown for Brazilian reals are based on:

Suppose a hefty rise in the demand for Mexican pesos create a chronic shortage of this currency in the foreign exchange market.Which of the following steps should be adopted by the Mexican government to eliminate this shortage?

Suppose that the price of an ounce of gold is 120 pesos in Mexico and 2, 400 yen in Japan.Then the Japanese yen is worth two hundred times the value of a Mexican peso.

If interest rates in Europe fall below interest rates in the United States, then, other things equal, the demand for euros will decrease.

Which of the following exchange rate systems have a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate?

The Bretton Woods System of exchange rates was established: