Question 1

With interest rate parity,

Accepted Answer

A)  exchange rates remain equal. 
B)  expected depreciations equal expected appreciations. 
C)  money flows to where interest rates are lowest. 
D)  interest rates charged in different countries remain equal. 
E)  rates of return are equalized, accounting for expected exchange rate fluctuations. 
A)  exchange rates remain equal. 
B)  expected depreciations equal expected appreciations. 
C)  money flows to where interest rates are lowest. 
D)  interest rates charged in different countries remain equal. 
E)  rates of return are equalized, accounting for expected exchange rate fluctuations.

Question 2

An appreciating Canadian dollar causes a negative demand shock because export spending decreases and import spending increases.

Accepted Answer

A) True 
 B)False

Question 3

When a student from Toronto pays her tuition to a American university, the demand for U.S. dollars increases in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 4

If the rate of return is 3 percent in Mexico and 8 percent in Canada, the

Accepted Answer

A)  law of one price predicts a single international rate of return between 3 percent and 8 percent. 
B)  Mexican peso is expected to depreciate against the Canadian dollar by 5 percent. 
C)  Mexican peso is expected to appreciate against the Canadian dollar by 5 percent. 
D)  rate of return in Mexico is expected to rise to 8 percent. 
E)  rate of return in Canada is expected to fall to 3 percent. 
A)  law of one price predicts a single international rate of return between 3 percent and 8 percent. 
B)  Mexican peso is expected to depreciate against the Canadian dollar by 5 percent. 
C)  Mexican peso is expected to appreciate against the Canadian dollar by 5 percent. 
D)  rate of return in Mexico is expected to rise to 8 percent. 
E)  rate of return in Canada is expected to fall to 3 percent.

Question 5

A strong Canadian dollar hurts exporters.

Accepted Answer

A) True 
 B)False

Question 6

A fixed exchange rate is determined by governments or central banks.

Accepted Answer

A) True 
 B)False

Question 7

Which statements are true? If the exchange rate changes from US$1 = C$0.90 to US$1 = C$1.10, then the:
1) Canadian dollar appreciated against the U.S. dollar.
2) Canadian dollar depreciated against the U.S. dollar.
3) U.S. dollar appreciated against the Canadian dollar.
4) U.S. dollar depreciated against the Canadian dollar.

Accepted Answer

A)  1 and 3 
B)  1 and 4 
C)  2 and 3 
D)  2 and 4 
E)  3 only 
A)  1 and 3 
B)  1 and 4 
C)  2 and 3 
D)  2 and 4 
E)  3 only

Question 8

Which statements are true? If the exchange rate changes from C$1 = US$0.90 to C$1 = US$1.10, then the:
1) Canadian dollar depreciated against the U.S. dollar.
2) Canadian dollar appreciated against the U.S. dollar.
3) U.S. dollar depreciated against the Canadian dollar.
4) U.S. dollar appreciated against the Canadian dollar.

Accepted Answer

A)  1 and 3 
B)  1 and 4 
C)  2 and 3 
D)  2 and 4 
E)  2 only 
A)  1 and 3 
B)  1 and 4 
C)  2 and 3 
D)  2 and 4 
E)  2 only

Question 9

If the rate of return is 1 percent in Mexico and 3 percent in Canada, the

Accepted Answer

A)  law of one price predicts a single international rate of return between 1 percent and 3 percent. 
B)  Mexican peso is expected to depreciate against the Canadian dollar by 2 percent. 
C)  Mexican peso is expected to appreciate against the Canadian dollar by 2 percent. 
D)  rate of return in Mexico is expected to rise to 3 percent. 
E)  rate of return in Canada is expected to fall to 1 percent. 
A)  law of one price predicts a single international rate of return between 1 percent and 3 percent. 
B)  Mexican peso is expected to depreciate against the Canadian dollar by 2 percent. 
C)  Mexican peso is expected to appreciate against the Canadian dollar by 2 percent. 
D)  rate of return in Mexico is expected to rise to 3 percent. 
E)  rate of return in Canada is expected to fall to 1 percent.

Question 10

When the Canadian money supply decreases, the

Accepted Answer

A)  demand for Canadian dollars decreases. 
B)  supply of Canadian dollars increases. 
C)  Canadian dollar appreciates in value. 
D)  Canadian interest rates fall. 
E)  value of the Canadian dollar does not change. 
A)  demand for Canadian dollars decreases. 
B)  supply of Canadian dollars increases. 
C)  Canadian dollar appreciates in value. 
D)  Canadian interest rates fall. 
E)  value of the Canadian dollar does not change.

Question 11

The indirect effect on Canadian inflation of an exchange rate depreciation

Accepted Answer

A)  can sometimes offset the direct effect. 
B)  reinforces the direct effect. 
C)  can never offset the direct effect. 
D)  is equal and opposite to the direct effect. 
E)  is deflationary. 
A)  can sometimes offset the direct effect. 
B)  reinforces the direct effect. 
C)  can never offset the direct effect. 
D)  is equal and opposite to the direct effect. 
E)  is deflationary.

Question 12

If investors are confident that the Canadian economy will be strong, they buy Canadian assets, pushing up the value of the Canadian dollar.

Accepted Answer

A) True 
 B)False

Question 13

Excess supply of Canadian dollars in the FOREX market causes the Canadian dollar to depreciate.

Accepted Answer

A) True 
 B)False

Question 14

When R.O.W. demand for Canadian exports decreases, the

Accepted Answer

A)  Canadian dollar is not affected. 
B)  demand for Canadian dollars increases. 
C)  supply of Canadian dollars decreases. 
D)  Canadian dollar appreciates. 
E)  Canadian dollar depreciates. 
A)  Canadian dollar is not affected. 
B)  demand for Canadian dollars increases. 
C)  supply of Canadian dollars decreases. 
D)  Canadian dollar appreciates. 
E)  Canadian dollar depreciates.

Question 15

A negative demand shock causes the Canadian dollar to depreciate because

Accepted Answer

A)  the Canadian interest rate differential increases. 
B)  import spending is reduced. 
C)  investor confidence in Canada is reduced. 
D)  negative demand shocks cause inflation. 
E)  Canadian resources will be less valuable in international markets. 
A)  the Canadian interest rate differential increases. 
B)  import spending is reduced. 
C)  investor confidence in Canada is reduced. 
D)  negative demand shocks cause inflation. 
E)  Canadian resources will be less valuable in international markets.

Question 16

A depreciating dollar causes a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 17

The Canadian dollar appreciates if

Accepted Answer

A)  Canadian real GDP decreases. 
B)  world prices for Canadian resources fall. 
C)  Canadian interest rates fall relative to other countries. 
D)  the Canadian inflation rate rises relative to other countries. 
E)  speculators believe the Canadian dollar will appreciate in the future. 
A)  Canadian real GDP decreases. 
B)  world prices for Canadian resources fall. 
C)  Canadian interest rates fall relative to other countries. 
D)  the Canadian inflation rate rises relative to other countries. 
E)  speculators believe the Canadian dollar will appreciate in the future.

Question 18

When R.O.W demand for Canadian exports increases, demand for Canadian dollars in the FOREX market decreases.

Accepted Answer

A) True 
 B)False

Question 19

When the Canadian dollar depreciates, the direct impact on inflation in Canada is opposite to the indirect impact on inflation.

Accepted Answer

A) True 
 B)False

Question 20

Rate of return parity is another name for purchasing power parity.

Accepted Answer

A) True 
 B)False

With interest rate parity,

An appreciating Canadian dollar causes a negative demand shock because export spending decreases and import spending increases.

When a student from Toronto pays her tuition to a American university, the demand for U.S. dollars increases in the foreign exchange market.

If the rate of return is 3 percent in Mexico and 8 percent in Canada, the

A strong Canadian dollar hurts exporters.

A fixed exchange rate is determined by governments or central banks.

If the rate of return is 1 percent in Mexico and 3 percent in Canada, the

When the Canadian money supply decreases, the

The indirect effect on Canadian inflation of an exchange rate depreciation

If investors are confident that the Canadian economy will be strong, they buy Canadian assets, pushing up the value of the Canadian dollar.

Excess supply of Canadian dollars in the FOREX market causes the Canadian dollar to depreciate.

When R.O.W. demand for Canadian exports decreases, the

A negative demand shock causes the Canadian dollar to depreciate because

A depreciating dollar causes a recessionary gap.

The Canadian dollar appreciates if

When R.O.W demand for Canadian exports increases, demand for Canadian dollars in the FOREX market decreases.

When the Canadian dollar depreciates, the direct impact on inflation in Canada is opposite to the indirect impact on inflation.

Rate of return parity is another name for purchasing power parity.

Whats in Economics for You Scarcity, Opportunity Cost, Trade, and Models

Making Smart Choices: the Law of Demand

Show Me the Money: the Law of Supply

Coordinating Smart Choices: Demand and Supply

Are Your Smart Choices Smart for All Macroeconomics and Microeconomics

Up Around the Circular Flow: Gdp, Economic Growth, and Business Cycles

Costs of Not Working and Living: Unemployment and Inflation

Skating to Where the Puck Is Going: Aggregate Supply and Aggregate Demand

Money Is for Lunatics: Demanders and Suppliers of Money

Steering Blindly Monetary Policy and the Bank of Canada

Spending Others Money: Fiscal Policy, Deficits, and National Debt

Are Sweatshops All Bad Globalization and Trade Policy

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Exam 10: Trading Dollars for Dollars Exchange Rates and Payments With the Rest of the World

With interest rate parity,

An appreciating Canadian dollar causes a negative demand shock because export spending decreases and import spending increases.

When a student from Toronto pays her tuition to a American university, the demand for U.S. dollars increases in the foreign exchange market.

If the rate of return is 3 percent in Mexico and 8 percent in Canada, the

A strong Canadian dollar hurts exporters.

A fixed exchange rate is determined by governments or central banks.

If the rate of return is 1 percent in Mexico and 3 percent in Canada, the

When the Canadian money supply decreases, the

The indirect effect on Canadian inflation of an exchange rate depreciation

If investors are confident that the Canadian economy will be strong, they buy Canadian assets, pushing up the value of the Canadian dollar.

Excess supply of Canadian dollars in the FOREX market causes the Canadian dollar to depreciate.

When R.O.W. demand for Canadian exports decreases, the

A negative demand shock causes the Canadian dollar to depreciate because

A depreciating dollar causes a recessionary gap.

The Canadian dollar appreciates if

When R.O.W demand for Canadian exports increases, demand for Canadian dollars in the FOREX market decreases.

When the Canadian dollar depreciates, the direct impact on inflation in Canada is opposite to the indirect impact on inflation.

Rate of return parity is another name for purchasing power parity.

Whats in Economics for You Scarcity, Opportunity Cost, Trade, and Models

Making Smart Choices: the Law of Demand

Show Me the Money: the Law of Supply

Coordinating Smart Choices: Demand and Supply

Are Your Smart Choices Smart for All Macroeconomics and Microeconomics

Up Around the Circular Flow: Gdp, Economic Growth, and Business Cycles

Costs of Not Working and Living: Unemployment and Inflation

Skating to Where the Puck Is Going: Aggregate Supply and Aggregate Demand

Money Is for Lunatics: Demanders and Suppliers of Money

Steering Blindly Monetary Policy and the Bank of Canada

Spending Others Money: Fiscal Policy, Deficits, and National Debt

Are Sweatshops All Bad Globalization and Trade Policy

Filters