Exam 39: Exchange Rates and Financial Links Between Countries

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

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?

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.

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 21.1 In the figure: D₁ and D₂: Demand for Brazilian reals S₁ and S₂: Supply of Brazilian reals Refer to Figure 21.1.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 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 _____.

The annual membership fees of the 185 member countries of the IMF are called:

Purchasing power parity exists when domestic currency:

What is the interest rate on a 12-month U.K.certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 21.2 Refer to Figure 21.2.Suppose the British central bank is committed to maintaining an exchange rate of £1 = $1.50, but there is a permanent shift in supply from S₁ to S₃.According to the Bretton Woods agreement:

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?

The gold standard ended with the:

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

An Australian investor buys a U.S.Treasury bond that has a price of $10, 000, pays 5 percent interest, and matures in a year.Between the purchase date and the maturity date, the exchange rate changes from $1 = AUD 5.0 to $1= AUD 5.2.What will be the Australian investor's rate of return from the U.S.bond?

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:

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:

Under the Bretton Woods system, international debts were settled in:

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

Suppose a U.S.citizen purchases a one-year Norwegian bond that yields 10 percent interest.Between the purchase date and the maturity date, the exchange rate changes from to How much was initially invested in the bond if the dollar value of the proceeds at maturity is $3, 500? (roundoff up to the nearest whole number)

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