Question 1

An appreciation of a country's currency

Accepted Answer

A)  decreases the relative price of its exports and lowers the relative price of its imports. 
B)  raises the relative price of its exports and raises the relative price of its imports. 
C)  lowers the relative price of its exports and raises the relative price of its imports. 
D)  raises the relative price of its exports and lowers the relative price of its imports. 
E)  raises the relative price of its exports and does not affect the relative price of its imports. 
A)  decreases the relative price of its exports and lowers the relative price of its imports. 
B)  raises the relative price of its exports and raises the relative price of its imports. 
C)  lowers the relative price of its exports and raises the relative price of its imports. 
D)  raises the relative price of its exports and lowers the relative price of its imports. 
E)  raises the relative price of its exports and does not affect the relative price of its imports. D

Question 2

For the following 15 cases, compare the dollar rates of return on dollar and euro deposits.

Accepted Answer

The answer of For the following 15 cases, compare the...

Question 3

Compute how many British pounds it would cost to buy a pair of American designer jeans costing $45.

Accepted Answer

The answer of Compute how many British pounds it would...

Question 4

A(n) ________ of a nation's currency will cause imports to ________ and exports to ________, all other things held constant.

Accepted Answer

A)  depreciation; increase; decrease 
B)  appreciation; decrease; increase 
C)  depreciation; decrease; increase 
D)  appreciation; increase; increase 
E)  depreciation; decrease; decrease 
A)  depreciation; increase; decrease 
B)  appreciation; decrease; increase 
C)  depreciation; decrease; increase 
D)  appreciation; increase; increase 
E)  depreciation; decrease; decrease

Question 5

Forward and spot exchange rates

Accepted Answer

A)  are necessarily equal. 
B)  do not move closely together. 
C)  are always such that the forward exchange rate is higher. 
D)  move closely together and are equal on the value date. 
E)  are unrelated to the value date. 
A)  are necessarily equal. 
B)  do not move closely together. 
C)  are always such that the forward exchange rate is higher. 
D)  move closely together and are equal on the value date. 
E)  are unrelated to the value date.

Question 6

If the dollar interest rate is 10 percent, the euro interest rate is 12 percent, then

Accepted Answer

A)  an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
B)  an investor should invest only in euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
C)  an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
D)  an investor should invest only in dollars. 
E)  an investor should invest only in euros. 
A)  an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
B)  an investor should invest only in euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
C)  an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
D)  an investor should invest only in dollars. 
E)  an investor should invest only in euros.

Question 7

Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent which problem?

Accepted Answer

A)  loss of goods shipped from Hong Kong and Singapore 
B)  inconvertible currencies cannot be traded in foreign markets 
C)  lag between the spot exchange date and the value date 
D)  high travel costs from Asia to "traditional" foreign exchange markets 
E)  unstable currencies that hold no purchasing power 
A)  loss of goods shipped from Hong Kong and Singapore 
B)  inconvertible currencies cannot be traded in foreign markets 
C)  lag between the spot exchange date and the value date 
D)  high travel costs from Asia to "traditional" foreign exchange markets 
E)  unstable currencies that hold no purchasing power

Question 8

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.50 dollars per one British pound?

Accepted Answer

A)  50 dollars 
B)  60 dollars 
C)  70 dollars 
D)  80 dollars 
E)  75 dollars 
A)  50 dollars 
B)  60 dollars 
C)  70 dollars 
D)  80 dollars 
E)  75 dollars

Question 9

Which of the following statements is TRUE about a vehicle currency?

Accepted Answer

A)  It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle currency. 
B)  The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange deals. 
C)  There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar. 
D)  The pound sterling, once second only to the dollar as a key international currency, is beginning to rise in importance. 
E)  Vehicle currencies include nondeliverable currencies like the renminbi. 
A)  It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle currency. 
B)  The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange deals. 
C)  There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar. 
D)  The pound sterling, once second only to the dollar as a key international currency, is beginning to rise in importance. 
E)  Vehicle currencies include nondeliverable currencies like the renminbi.

Question 10

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.80 dollars per British pound?

Accepted Answer

A)  10 British pounds 
B)  25 British pounds 
C)  20 British pounds 
D)  30 British pounds 
E)  40 British pounds 
A)  10 British pounds 
B)  25 British pounds 
C)  20 British pounds 
D)  30 British pounds 
E)  40 British pounds

Question 11

Explain the purpose of the following figure 14-2 from the text in the context of the interest rates on the dollar and the Japanese Yen between 1980 and 2010.

Accepted Answer

Since the dollar and the Yen interest ra

Question 12

Assume that the euro interest rate is constant at 5 percent, and that the expected exchange rate is 1.05 dollars per one euro. Find the expected dollar return on euro deposits for the following cases.

Accepted Answer

The answer of Assume that the euro interest rate is...

Question 13

If the goods' money prices do not change, a depreciation of the dollar against the pound

Accepted Answer

A)  makes British sweaters cheaper in terms of American jeans. 
B)  makes British sweaters more expensive in terms of American jeans. 
C)  makes American jeans more expensive in terms of British sweaters. 
D)  doesn't change the relative price of sweaters and jeans. 
E)  makes British jeans more expensive in Britain. 
A)  makes British sweaters cheaper in terms of American jeans. 
B)  makes British sweaters more expensive in terms of American jeans. 
C)  makes American jeans more expensive in terms of British sweaters. 
D)  doesn't change the relative price of sweaters and jeans. 
E)  makes British jeans more expensive in Britain.

Question 14

Which major actor is at the center of the foreign exchange market?

Accepted Answer

A)  corporations 
B)  central banks 
C)  commercial banks 
D)  non-bank financial institutions 
E)  individual firms 
A)  corporations 
B)  central banks 
C)  commercial banks 
D)  non-bank financial institutions 
E)  individual firms

Question 15

In 2010, about

Accepted Answer

A)  20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
B)  10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
C)  30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
D)  40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
E)  85 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
A)  20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
B)  10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
C)  30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
D)  40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
E)  85 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.

Question 16

The following is an example of Radio Shack hedging its foreign currency risk

Accepted Answer

A)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to buy yen. 
B)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to sell yen. 
C)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot-exchange 1 month from now. 
D)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot-exchange 1 month from now. 
E)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen in a forward-exchange deal. 
A)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to buy yen. 
B)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to sell yen. 
C)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot-exchange 1 month from now. 
D)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot-exchange 1 month from now. 
E)  needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen in a forward-exchange deal.

Question 17

Calculate the interest rate in the euro zone if interest parity condition holds, for the following 15 cases.

Accepted Answer

The answer of Calculate the interest rate in the euro...

Question 18

Explain the purpose of the following figure.

Accepted Answer

To show that spot an

Question 19

By April 2010

Accepted Answer

A)  only about 10 percent of foreign exchange trades were against euros. 
B)  only about 24 percent of foreign exchange trades were against euros. 
C)  only about 39 percent of foreign exchange trades were against euros. 
D)  only about 42 percent of foreign exchange trades were against euros. 
E)  only about 60 percent of foreign exchange trades were against euros. 
A)  only about 10 percent of foreign exchange trades were against euros. 
B)  only about 24 percent of foreign exchange trades were against euros. 
C)  only about 39 percent of foreign exchange trades were against euros. 
D)  only about 42 percent of foreign exchange trades were against euros. 
E)  only about 60 percent of foreign exchange trades were against euros.

Question 20

If the dollar interest rate is 10 percent, the euro interest rate is 6 percent, then

Accepted Answer

A)  an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent. 
B)  an investor should invest only in euros if the expected dollar depreciation against the euro is 4 percent. 
C)  an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 4 percent. 
D)  an investor should invest only in dollars. 
E)  an investor should invest only in euros. 
A)  an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent. 
B)  an investor should invest only in euros if the expected dollar depreciation against the euro is 4 percent. 
C)  an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 4 percent. 
D)  an investor should invest only in dollars. 
E)  an investor should invest only in euros.

Exam 14: Exchange Rates and the Foreign Exchange Market: an Asset Approach

An appreciation of a country's currency

For the following 15 cases, compare the dollar rates of return on dollar and euro deposits.

Compute how many British pounds it would cost to buy a pair of American designer jeans costing $45.

A(n) ________ of a nation's currency will cause imports to ________ and exports to ________, all other things held constant.

Forward and spot exchange rates

If the dollar interest rate is 10 percent, the euro interest rate is 12 percent, then

Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent which problem?

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.50 dollars per one British pound?

Which of the following statements is TRUE about a vehicle currency?

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.80 dollars per British pound?

Explain the purpose of the following figure 14-2 from the text in the context of the interest rates on the dollar and the Japanese Yen between 1980 and 2010.

Assume that the euro interest rate is constant at 5 percent, and that the expected exchange rate is 1.05 dollars per one euro. Find the expected dollar return on euro deposits for the following cases.

If the goods' money prices do not change, a depreciation of the dollar against the pound

Which major actor is at the center of the foreign exchange market?

In 2010, about

The following is an example of Radio Shack hedging its foreign currency risk

Calculate the interest rate in the euro zone if interest parity condition holds, for the following 15 cases.

Explain the purpose of the following figure.

By April 2010

If the dollar interest rate is 10 percent, the euro interest rate is 6 percent, then

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

A(n) of a nation's currency will cause imports to and exports to , all other things held constant.