Exam 42: Exchange Rates and Financial Links Between Countries

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:

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.

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

Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce.We can then say that:

Equilibrium in the foreign exchange market occurs:

In the foreign exchange market where French francs are traded for Japanese yen, a decrease in the interest rate in France is most likely to cause:

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.

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:

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

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

The World Bank obtains the funds it lends by:

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 8 Mexican pesos per Brazilian real and 150 brazilian reals are traded in the market.Suppose, there is an increase in the Brazilian demand for Mexican exports.Other things remaining equal, which of the following can be concluded?

Suppose the official gold value of the Brazilian real changes from 457 reals per ounce to 528 reals per ounce.We can then say that:

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.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:

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year.What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

Which of the following can be categorized as a commodity money standard?

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

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?

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