Exam 12: Exchange-rate Determination

Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?

Economies with relatively high growth rates in labor productivity tend to find their currencies' exchange values appreciating under a floating exchange-rate system.

Exchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as central banks do not intervene in the foreign exchange markets.

Assume the initial yen/dollar exchange rate to be 100 yen per dollar.If the U.S.inflation rate is 2 percent and the Japanese inflation rate is 7 percent,the exchange rate should move to 105 yen per dollar according to the purchasing-power-parity theory.

If the exchange rate between Swiss francs and British pounds is 5 francs per pound,then the number of pounds that can be obtained for 200 francs equals:

Suppose Mexico and the United States were the only two countries in the world.There exists an excess supply of pesos on the foreign exchange market.This suggests that:

Concerning exchange-rate determination,market fundamentals include inflation rates,productivity levels,and speculative opinion about future exchange rates.

According to the purchasing-power-parity theory,the U.S.dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of:

Figure 12.2. The Market for Swiss Francs -Refer to Figure 12.2.If the Federal Reserve adopts a restrictive monetary policy that leads to relatively high interest rates in the United States,the demand for francs would decrease,the supply of francs would increase,and the dollar's exchange value would appreciate.

If Mexico's labor productivity rises relative to Europe's labor productivity:

With floating exchange rates,a country experiencing faster economic growth than its trading partners find its currency's exchange value appreciating.

Under floating exchange rates,short-run exchange rates are primarily determined by national differences in real interest rates and shifting expectations of future exchange rates.

If Japan realizes technological improvements in the production of automobiles,which lowers its production costs relative to foreign producers,Japanese exports will rise and the yen's exchange value will appreciate under a system of floating exchange rates.

Figure 12.2. The Market for Swiss Francs -Refer to Figure 12.2.If the United States decreases tariffs on imports from Switzerland,there would occur a decrease in the demand for francs and a decrease in the dollar price of the franc.

In the presence of purchasing-power parity,if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States,then in Great Britain the VCR should cost:

Given a system of floating exchange rates,if Canada's labor productivity rises relative to the labor productivity of its trading partners:

Econometric models are best suited for forecasting long-run exchange rates rather than short-run exchange rates.

Given a system of floating exchange rates,stronger U.S.preferences for imports would trigger:

Given floating exchange rates,if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods,then we would expect the yen's exchange value to:

Lower tariffs on U.S.agricultural imports cause the dollar to ____ in the ____.