Exam 15: Exchange Rates II: the Asset Approach in the Short Run

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In your own words, explain the essence of the trilemma. Why can't a country with fixed exchange rates and capital mobility maintain autonomy?

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Question 121

Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected exchange rate in one year is $1.224. If the spot rate is $1.24, then the expected dollar return on euro deposits is:

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Question 122

The case of Denmark illustrates the effects on a nation of a fixed exchange rate regime. Briefly discuss the trade-offs from a fixed exchange rate and the ability to conduct monetary policy.

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Question 123

During the U.S. Civil War (1861-1865), the Confederate States printed their own currency. Events occurred during the war that affected the exchange value of the Confederate dollars. What evidence was there that supports the theory of long- and short-run exchange rate determination?

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Question 124

Which of the following conditions do NOT exist in long-run equilibrium?

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Question 125

Using the UIP equation, what would happen to the spot rate for euros if the dollar-euro exchange rate is expected to appreciate in the future?

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Question 126

If UIP holds and the home currency is expected to appreciate by 4%, then the home interest rate is:

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Question 127

The outcome of the Civil War in the United States was that:

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Question 128

We assume flexible prices in the long run, but whenever it is costly to change prices (menu costs) or when there are long-term contracts for labor or capital:

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Question 129

If an economy wants to maintain monetary policy autonomy, then:

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Question 130

What happens, ceteris paribus, to the foreign return on assets, as the spot exchange rate increases (depreciates).

(Short Answer)

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Question 131

(Figure: The Domestic Interest Rate) Using the graph, if the expected future exchange rate falls from $1.224 to $1.15:

(Multiple Choice)

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Question 132

The asset approach basically looks at as the fundamental variable affecting _ exchange rates.

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Question 133

When the European interest rate falls, the foreign expected dollar return curve shifts:

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Question 134

At higher nominal rates of interest, the demand for real balances is:

(Multiple Choice)

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Question 135

When the public perceives that a monetary expansion will be temporary, what happens to nominal interest rates in the short run?

(Multiple Choice)

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Question 136

The overriding factor in analyzing long-run changes in the exchange rate is:

(Multiple Choice)

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Question 137

Which of the following is correct?

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Question 138

With sticky prices increasing, the supply of money results in:

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Question 139

Which of the following is NOT an assumption of the behavior of exchange rates in the short run?

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Question 140

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Exam 15: Exchange Rates II: the Asset Approach in the Short Run

In your own words, explain the essence of the trilemma. Why can't a country with fixed exchange rates and capital mobility maintain autonomy?

Assume that the U.S. interest rate is 5%, the European interest rate is 2%, and the future expected exchange rate in one year is $1.224. If the spot rate is $1.24, then the expected dollar return on euro deposits is:

The case of Denmark illustrates the effects on a nation of a fixed exchange rate regime. Briefly discuss the trade-offs from a fixed exchange rate and the ability to conduct monetary policy.

During the U.S. Civil War (1861-1865), the Confederate States printed their own currency. Events occurred during the war that affected the exchange value of the Confederate dollars. What evidence was there that supports the theory of long- and short-run exchange rate determination?

Which of the following conditions do NOT exist in long-run equilibrium?

Using the UIP equation, what would happen to the spot rate for euros if the dollar-euro exchange rate is expected to appreciate in the future?

If UIP holds and the home currency is expected to appreciate by 4%, then the home interest rate is:

The outcome of the Civil War in the United States was that:

We assume flexible prices in the long run, but whenever it is costly to change prices (menu costs) or when there are long-term contracts for labor or capital:

If an economy wants to maintain monetary policy autonomy, then:

What happens, ceteris paribus, to the foreign return on assets, as the spot exchange rate increases (depreciates).

(Figure: The Domestic Interest Rate) Using the graph, if the expected future exchange rate falls from $1.224 to $1.15:

The asset approach basically looks at ____ as the fundamental variable affecting _____ exchange rates.

When the European interest rate falls, the foreign expected dollar return curve shifts:

At higher nominal rates of interest, the demand for real balances is:

When the public perceives that a monetary expansion will be temporary, what happens to nominal interest rates in the short run?

The overriding factor in analyzing long-run changes in the exchange rate is:

Which of the following is correct?

With sticky prices increasing, the supply of money results in:

Which of the following is NOT an assumption of the behavior of exchange rates in the short run?

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

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The asset approach basically looks at as the fundamental variable affecting _ exchange rates.