Question 1

If a euro costs $1.25 today, and it costs $1.50 tomorrow, what has happened to the dollar-euro exchange rate?

Accepted Answer

A)  Both the dollar and euro have depreciated. 
B)  The dollar has appreciated and the euro has depreciated. 
C)  The dollar has depreciated and the euro has appreciated. 
D)  Both the dollar and euro have appreciated. 
A)  Both the dollar and euro have depreciated. 
B)  The dollar has appreciated and the euro has depreciated. 
C)  The dollar has depreciated and the euro has appreciated. 
D)  Both the dollar and euro have appreciated. C

Question 2

When exchange rates are very volatile, with a wide range of variation, the currency is said to be:

Accepted Answer

A)  in limbo. 
B)  in free float. 
C)  perfectly flexible. 
D)  in sluggish float. 
A)  in limbo. 
B)  in free float. 
C)  perfectly flexible. 
D)  in sluggish float. B

Question 3

A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome. Thus, $1 is equal to:

Accepted Answer

A)  1 euro. 
B)  2 euros. 
C)  1.67 euros. 
D)  0.6 euros. 
A)  1 euro. 
B)  2 euros. 
C)  1.67 euros. 
D)  0.6 euros. C

Question 4

If the U.S. interest rate is 4% per year and the U.K. interest rate is 9% per year, which of the following statements is TRUE?

Accepted Answer

A)  The dollar will depreciate 4% in one year. 
B)  The pound will depreciate 9% in one year. 
C)  The pound will depreciate 5% in one year. 
D)  The dollar will appreciate 4% in one year. 
A)  The dollar will depreciate 4% in one year. 
B)  The pound will depreciate 9% in one year. 
C)  The pound will depreciate 5% in one year. 
D)  The dollar will appreciate 4% in one year.

Question 5

A vehicle currency is:

Accepted Answer

A)  contraband-it is used to smuggle other assets into controlled economies. 
B)  a widely accepted, tradable currency that serves as a currency to use for buying or selling one's own. 
C)  a currency whose value changes rapidly and erratically. 
D)  a currency used to purchase imports of autos, buses, and other transportation equipment. 
A)  contraband-it is used to smuggle other assets into controlled economies. 
B)  a widely accepted, tradable currency that serves as a currency to use for buying or selling one's own. 
C)  a currency whose value changes rapidly and erratically. 
D)  a currency used to purchase imports of autos, buses, and other transportation equipment.

Question 6

We use the effective exchange rate calculation to tell us:

Accepted Answer

A)  the underlying rate of inflation. 
B)  how international finance affects a nation's exchange rate. 
C)  how the overall international purchasing power of a nation has changed. 
D)  the natural (real) exchange rate taking out the effects of inflation. 
A)  the underlying rate of inflation. 
B)  how international finance affects a nation's exchange rate. 
C)  how the overall international purchasing power of a nation has changed. 
D)  the natural (real) exchange rate taking out the effects of inflation.

Question 7

Which of the following exchange rate systems is in the right order, from MOST control to LEAST control?

Accepted Answer

A)  floating, fixed, managed float 
B)  fixed, floating, managed float 
C)  managed float, floating, fixed 
D)  fixed, managed float, floating 
A)  floating, fixed, managed float 
B)  fixed, floating, managed float 
C)  managed float, floating, fixed 
D)  fixed, managed float, floating

Question 8

Which nation took the bold step of abandoning its own currency and adopting the U.S. dollar?

Accepted Answer

A)  China 
B)  India 
C)  Mexico 
D)  Ecuador 
A)  China 
B)  India 
C)  Mexico 
D)  Ecuador

Question 9

(Table: Currency Values I) The U.S. dollar appreciated against the real by:

Accepted Answer

A)  2.4%. 
B)  25%. 
C)  75%. 
D)  12.4%. 
A)  2.4%. 
B)  25%. 
C)  75%. 
D)  12.4%.

Question 10

Suppose a country trades with three countries: Brazil (20% of trade), China (45%), and France (35%). Over the last year, the currency of this country has depreciated by 4% against the Brazilian real, appreciated by 3% against the Chinese yuan, and depreciated by 7% against the euro. What has happened to the effective exchange rate of the country?

Accepted Answer

The effective exchange rate of a country

Question 11

When the dollar "cost" of a unit of foreign currency falls, the dollar is _____ against the foreign currency.

Accepted Answer

A)  depreciating 
B)  appreciating 
C)  equalizing 
D)  holding its own 
A)  depreciating 
B)  appreciating 
C)  equalizing 
D)  holding its own

Question 12

If investors can cover themselves in the forward market, they will take advantage of interest rate differentials by:

Accepted Answer

A)  buying assets (lending) denominated in the high-interest rate currency, and selling assets (borrowing) in the low-interest rate currency. 
B)  removing funds from both investments. 
C)  turning over their investment portfolio to an expert in one of the two nations. 
D)  selling assets denominated in high-interest rate currency and buying assets in the low-interest rate currency. 
A)  buying assets (lending) denominated in the high-interest rate currency, and selling assets (borrowing) in the low-interest rate currency. 
B)  removing funds from both investments. 
C)  turning over their investment portfolio to an expert in one of the two nations. 
D)  selling assets denominated in high-interest rate currency and buying assets in the low-interest rate currency.

Question 13

If one nation's currency strengthens against a foreign currency, the other nation's currency must _____ against the domestic currency.

Accepted Answer

A)  strengthen 
B)  equalize 
C)  weaken 
D)  appreciate 
A)  strengthen 
B)  equalize 
C)  weaken 
D)  appreciate

Question 14

From 1992 to 2013, the volume of currency traded worldwide:

Accepted Answer

A)  slumped due to the world recession. 
B)  has steadily increased. 
C)  fluctuated wildly due to investor expectations. 
D)  was concentrated in trades in the developing world. 
A)  slumped due to the world recession. 
B)  has steadily increased. 
C)  fluctuated wildly due to investor expectations. 
D)  was concentrated in trades in the developing world.

Question 15

Suppose interest rates in the United States are 5.5%, while they are 3% in the euro area. Currently the dollar-euro exchange rate is at $2.50 per euro. If UIP holds, what do you expect the exchange rate to be in the future? Round to three decimals.

Accepted Answer

Uncovered Interest Parity (UIP) suggests

Question 16

Suppose $1 = 10.5 pesos in New York and $1 = 9.6 pesos in Mexico City. If you had $10,000 using arbitrage, your profits would be:

Accepted Answer

A)  $937.50. 
B)  937 pesos. 
C)  9,600 pesos. 
D)  $790. 
A)  $937.50. 
B)  937 pesos. 
C)  9,600 pesos. 
D)  $790.

Question 17

Since the mid-1990s, the Argentine peso has NOT experienced:

Accepted Answer

A)  a one-to-one peg with the U.S. dollar. 
B)  a large devaluation and crisis. 
C)  limited flexibility, after which it was kept in a narrow band with the dollar. 
D)  a currency union. 
A)  a one-to-one peg with the U.S. dollar. 
B)  a large devaluation and crisis. 
C)  limited flexibility, after which it was kept in a narrow band with the dollar. 
D)  a currency union.

Question 18

It is customary to express changes in the exchange rates of two currencies over time, as:

Accepted Answer

A)  the loss of purchasing power of one currency divided by the loss of purchasing power of the other currency. 
B)  the percentage change expressed as an appreciation or depreciation of one against the other. 
C)  a ratio of the absolute values (without signs). 
D)  a ratio of the price of gold in each nation. 
A)  the loss of purchasing power of one currency divided by the loss of purchasing power of the other currency. 
B)  the percentage change expressed as an appreciation or depreciation of one against the other. 
C)  a ratio of the absolute values (without signs). 
D)  a ratio of the price of gold in each nation.

Question 19

When exchange rates change and prices stay the same:

Accepted Answer

A)  relative prices of traded goods in the two nations are unchanged. 
B)  the price of foreign goods expressed in the home currency will always rise. 
C)  imports get more expensive as the home currency depreciates. 
D)  the price of foreign goods expressed in the home currency will always fall. 
A)  relative prices of traded goods in the two nations are unchanged. 
B)  the price of foreign goods expressed in the home currency will always rise. 
C)  imports get more expensive as the home currency depreciates. 
D)  the price of foreign goods expressed in the home currency will always fall.

Question 20

Suppose the U.S. dollar interest rate is 5% and the euro interest rate is 6%. Assume no transaction costs, fees, or commissions. In all markets, the spot rate for euros is $1.25. You believe in one year's time the spot rate for euros will be $1.30. An investor would like to invest $100,000 for one year and is willing to take on risk for a higher return.
I. How would you advise him?
II. What if you are incorrect and the euro rate is lower? Calculate the "break-even" exchange rate; that is, an investment that returns the same as investing $100,000 at 5%.

Accepted Answer

I. I would advise the investor to consid

If a euro costs $1.25 today, and it costs $1.50 tomorrow, what has happened to the dollar-euro exchange rate?

When exchange rates are very volatile, with a wide range of variation, the currency is said to be:

A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome. Thus, $1 is equal to:

If the U.S. interest rate is 4% per year and the U.K. interest rate is 9% per year, which of the following statements is TRUE?

A vehicle currency is:

We use the effective exchange rate calculation to tell us:

Which of the following exchange rate systems is in the right order, from MOST control to LEAST control?

Which nation took the bold step of abandoning its own currency and adopting the U.S. dollar?

(Table: Currency Values I) The U.S. dollar appreciated against the real by:

When the dollar "cost" of a unit of foreign currency falls, the dollar is _____ against the foreign currency.

If investors can cover themselves in the forward market, they will take advantage of interest rate differentials by:

If one nation's currency strengthens against a foreign currency, the other nation's currency must _____ against the domestic currency.

From 1992 to 2013, the volume of currency traded worldwide:

Suppose interest rates in the United States are 5.5%, while they are 3% in the euro area. Currently the dollar-euro exchange rate is at $2.50 per euro. If UIP holds, what do you expect the exchange rate to be in the future? Round to three decimals.

Suppose $1 = 10.5 pesos in New York and $1 = 9.6 pesos in Mexico City. If you had $10,000 using arbitrage, your profits would be:

Since the mid-1990s, the Argentine peso has NOT experienced:

It is customary to express changes in the exchange rates of two currencies over time, as:

When exchange rates change and prices stay the same:

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

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short 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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Exam 13: Introduction to Exchange Rates and the Foreign Exchange Market

If a euro costs $1.25 today, and it costs $1.50 tomorrow, what has happened to the dollar-euro exchange rate?

When exchange rates are very volatile, with a wide range of variation, the currency is said to be:

A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome. Thus, $1 is equal to:

If the U.S. interest rate is 4% per year and the U.K. interest rate is 9% per year, which of the following statements is TRUE?

A vehicle currency is:

We use the effective exchange rate calculation to tell us:

Which of the following exchange rate systems is in the right order, from MOST control to LEAST control?

Which nation took the bold step of abandoning its own currency and adopting the U.S. dollar?

(Table: Currency Values I) The U.S. dollar appreciated against the real by:

When the dollar "cost" of a unit of foreign currency falls, the dollar is _____ against the foreign currency.

If investors can cover themselves in the forward market, they will take advantage of interest rate differentials by:

If one nation's currency strengthens against a foreign currency, the other nation's currency must _____ against the domestic currency.

From 1992 to 2013, the volume of currency traded worldwide:

Suppose interest rates in the United States are 5.5%, while they are 3% in the euro area. Currently the dollar-euro exchange rate is at $2.50 per euro. If UIP holds, what do you expect the exchange rate to be in the future? Round to three decimals.

Suppose $1 = 10.5 pesos in New York and $1 = 9.6 pesos in Mexico City. If you had $10,000 using arbitrage, your profits would be:

Since the mid-1990s, the Argentine peso has NOT experienced:

It is customary to express changes in the exchange rates of two currencies over time, as:

When exchange rates change and prices stay the same:

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

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short 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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