Question 1

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

Accepted Answer

A) dollar exchange standard. 
B) euro exchange standard. 
C) gold exchange standard. 
D) silver exchange standard. 
E) flexible exchange rate standard. 
A) dollar exchange standard. 
B) euro exchange standard. 
C) gold exchange standard. 
D) silver exchange standard. 
E) flexible exchange rate standard. C

Question 2

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% A

Question 3

Under the _____ arrangement, the exchange rate is adjusted periodically by small amounts at a fixed, pre-announced rate or in response to certain indicators.

Accepted Answer

A) currency board 
B) crawling peg 
C) reserve currency 
D) conventional fixed peg 
E) independent float 
A) currency board 
B) crawling peg 
C) reserve currency 
D) conventional fixed peg 
E) independent float B

Question 4

Suppose purchasing power parity exists in the car stereo market in the United States and Australia.If a car stereo costs $230 in the United States and the exchange rate is $1 = $AUD1.67, the same car stereo may be purchased in Australia for approximately:

Accepted Answer

A) $AUD 138. 
B) $AUD 230. 
C) $AUD 2, 300. 
D) $AUD 384. 
E) $AUD 108. 
A) $AUD 138. 
B) $AUD 230. 
C) $AUD 2, 300. 
D) $AUD 384. 
E) $AUD 108.

Question 5

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 6

The supply of Thai baht in the foreign exchange market originates with:

Accepted Answer

A) tourists who go on vacation to Thailand. 
B) the export of Thailand oranges and other goods. 
C) Thai residents who wish to purchase goods from other countries. 
D) the Thai royal family. 
E) Thai central bank intervention to stop the peseta from depreciating. 
A) tourists who go on vacation to Thailand. 
B) the export of Thailand oranges and other goods. 
C) Thai residents who wish to purchase goods from other countries. 
D) the Thai royal family. 
E) Thai central bank intervention to stop the peseta from depreciating.

Question 7

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) The IMF was created to help finance economic development in poor countries. 
B) One of the principal aims of the IMF is to discourage international trade and encourage countries to become self-sufficient. 
C) The IMF lends money to countries experiencing large balance-of-payments surpluses. 
D) When the IMF lends currencies, it always insists on the borrowing country taking action to reduce its balance-of-payments surplus. 
E) The IMF obtains funds from annual membership fees charged to member countries. 
A) The IMF was created to help finance economic development in poor countries. 
B) One of the principal aims of the IMF is to discourage international trade and encourage countries to become self-sufficient. 
C) The IMF lends money to countries experiencing large balance-of-payments surpluses. 
D) When the IMF lends currencies, it always insists on the borrowing country taking action to reduce its balance-of-payments surplus. 
E) The IMF obtains funds from annual membership fees charged to member countries.

Question 9

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 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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 22.1   In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 22.1.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 12

When a U.S.importer needs $22, 000 to settle an invoice for 25, 520 Swiss francs, the exchange rate must be:

Accepted Answer

A) 1 Swiss franc = $1.16. 
B) 1 Swiss franc = $0.16. 
C) 1 Swiss franc = $0.84. 
D) $1 = 1.16 Swiss franc. 
E) $1 = 1.84 Swiss franc. 
A) 1 Swiss franc = $1.16. 
B) 1 Swiss franc = $0.16. 
C) 1 Swiss franc = $0.84. 
D) $1 = 1.16 Swiss franc. 
E) $1 = 1.84 Swiss franc.

Question 13

The Bretton Woods System of exchange rates was established:

Accepted Answer

A) to solidify support for the then-existing gold standard. 
B) to peg the worldwide price of silver to the price of gold. 
C) in Europe before World War II to establish a flexible exchange rate regime. 
D) in the United States in 1944 to develop a gold exchange standard. 
E) by a mechanism that made gold the reserve currency of the system. 
A) to solidify support for the then-existing gold standard. 
B) to peg the worldwide price of silver to the price of gold. 
C) in Europe before World War II to establish a flexible exchange rate regime. 
D) in the United States in 1944 to develop a gold exchange standard. 
E) by a mechanism that made gold the reserve currency of the system.

Question 14

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Accepted Answer

A) True 
 B)False

Question 15

Suppose a U.S.importer agrees to pay a Japanese firm 55, 000 yen for a shipment of goods.If the agreement is made when the exchange rate is $1 = ¥100, what is the change in the dollar value of the goods if the exchange rate changes to $1 = ¥110, on the payment-due date?

Accepted Answer

A) -$50 
B) $550, 000 
C) -$550, 000 
D) $50 
E) -$55, 000 
A) -$50 
B) $550, 000 
C) -$550, 000 
D) $50 
E) -$55, 000

Question 16

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 22.1   In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 22.1.Assume that the initial equilibrium exchange rate is 6 pesos per real.Other things remaining equal, an increase in the number of Brazilian tourists to Mexico is most likely to:

Accepted Answer

A) keep the equilibrium exchange rate constant. 
B) shift the demand curve for pesos to the right. 
C) shift the supply curve of pesos to the left. 
D) shift the demand curve for pesos to the left. 
E) shift the supply curve of pesos to the right. 
A) keep the equilibrium exchange rate constant. 
B) shift the demand curve for pesos to the right. 
C) shift the supply curve of pesos to the left. 
D) shift the demand curve for pesos to the left. 
E) shift the supply curve of pesos to the right.

Question 17

To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 18

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 22.1   In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 22.1.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:

Accepted Answer

A) 6 pesos per real and an equilibrium quantity of 200 Brazilian reals. 
B) 6 pesos per real and an equilibrium quantity of 250 Brazilian reals. 
C) 8 pesos per real and an equilibrium quantity of 150 Brazilian reals. 
D) 8 pesos per real and an equilibrium quantity of 100 Brazilian reals. 
E) 10 pesos per real and an equilibrium quantity of 200 Brazilian reals. 
A) 6 pesos per real and an equilibrium quantity of 200 Brazilian reals. 
B) 6 pesos per real and an equilibrium quantity of 250 Brazilian reals. 
C) 8 pesos per real and an equilibrium quantity of 150 Brazilian reals. 
D) 8 pesos per real and an equilibrium quantity of 100 Brazilian reals. 
E) 10 pesos per real and an equilibrium quantity of 200 Brazilian reals.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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?

Accepted Answer

A) The British pound would be expected to appreciate by 1.2% against the U.S.dollar. 
B) The U.S.dollar would be expected to depreciate by 1.2% against the British pound. 
C) The British pound would be expected to depreciate by 1.2% against the U.S.dollar. 
D) The British pound would be expected to appreciate by 9.2% against the U.S.dollar. 
E) The U.S.dollar would be expected to appreciate by 9.2% against the British pound. 
A) The British pound would be expected to appreciate by 1.2% against the U.S.dollar. 
B) The U.S.dollar would be expected to depreciate by 1.2% against the British pound. 
C) The British pound would be expected to depreciate by 1.2% against the U.S.dollar. 
D) The British pound would be expected to appreciate by 9.2% against the U.S.dollar. 
E) The U.S.dollar would be expected to appreciate by 9.2% against the British pound.

Exam 42: Exchange Rates and Financial Links Between Countries

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

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?

Under the _____ arrangement, the exchange rate is adjusted periodically by small amounts at a fixed, pre-announced rate or in response to certain indicators.

Suppose purchasing power parity exists in the car stereo market in the United States and Australia.If a car stereo costs $230 in the United States and the exchange rate is $1 = $AUD1.67, the same car stereo may be purchased in Australia for approximately:

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

The supply of Thai baht in the foreign exchange market originates with:

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

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

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

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.

When a U.S.importer needs $22, 000 to settle an invoice for 25, 520 Swiss francs, the exchange rate must be:

The Bretton Woods System of exchange rates was established:

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Suppose a U.S.importer agrees to pay a Japanese firm 55, 000 yen for a shipment of goods.If the agreement is made when the exchange rate is $1 = ¥100, what is the change in the dollar value of the goods if the exchange rate changes to $1 = ¥110, on the payment-due date?

To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S.dollar.

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

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?

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

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

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Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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