Deck 22: Exchange Rates and Financial Links Between Countries

Question 1

Which of the following was the reserve currency under the gold exchange standard?

A)U.S.dollar
B)Euro
C)Great Britain pound
D)Australian dollar
E)Deutsche mark

Answer 1

A

Question 2

Which of the following statements concerning the International Monetary Fund is true?

A)The IMF was created to help finance economic development in poor countries.
B)One of the principal aims of the IMF is to discourage international trade and encourage countries to become self-sufficient.
C)The IMF lends money to countries experiencing large balance-of-payments surpluses.
D)When the IMF lends currencies,it always insists on the borrowing country taking action to reduce its balance-of-payments surplus.
E)The IMF obtains funds from annual membership fees charged to member countries.

Answer 2

E

Question 3

Economists typically date the beginning of the gold standard to the period:

A)before 1500.
B)before 1776.
C)between 1880 and 1914.
D)between the two world wars.
E)between 1970 and 2000.

Answer 3

C

Question 4

A commodity money standard exists when exchange rates are:

A)artificially pegged to the price of oil.
B)fixed in terms of gold,thus creating flexible exchange rates between countries.
C)fixed in terms of gold,thus creating fixed exchange rates between countries.
D)allowed to fluctuate based on the values of different currencies.
E)fixed,based on the values of different currencies,in terms of some commodity.

Question 5

The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

A)dollar exchange standard.
B)euro exchange standard.
C)gold exchange standard.
D)silver exchange standard.
E)flexible exchange rate standard.

Question 6

If $1 was equivalent to 120 Japanese yen in 2008 and 125 Japanese yen in 2010,it implies in 2010,there was:

A)a depreciation of the dollar against the yen.
B)a depreciation of the yen against the dollar.
C)an appreciation of the yen against the dollar.
D)no change in the value of yen,but the dollar had weakened.
E)no change in the value of dollar,but the yen had strengthened.

Question 7

The Bretton Woods System of exchange rates was established:

A)to solidify support for the then-existing gold standard.
B)to peg the worldwide price of silver to the price of gold.
C)in Europe before World War II to establish a flexible exchange rate regime.
D)in the United States in 1944 to develop a gold exchange standard.
E)by a mechanism that made gold the reserve currency of the system.

Question 8

The World Bank obtains the funds it lends by:

A)selling bonds on the international bond market.
B)selling bonds to countries it has loaned funds to.
C)collecting each country's annual membership fee or quota.
D)levying a small tax on every foreign exchange conversion worldwide.
E)depending on voluntary subsidies from member nations.

Question 9

If the price of an ounce of gold is 200 ZARs in South Africa and $75 in Canada,what will be the South African Rand (ZAR) per Canadian dollar (C$) exchange rate?

A)C$1 = 4.25 ZAR
B)C$1 = 1.75 ZAR
C)C$1 = 2 ZAR
D)C$1 = 2.67 ZAR
E)C$1 = 4 ZAR

Question 10

Consider a country Atlantica,using dollars ($) as its currency.If this country sets a price for gold,and then issues currency such that the amount in circulation is equivalent to the value of gold held in reserve,it is said to be following:

A)a gold exchange standard.
B)a gold standard.
C)a reserve currency standard.
D)a crawling peg standard.
E)a currency board standard.

Question 11

A country on a gold standard was able to maintain people's confidence in the value of its currency by:

A)printing more and more paper money.
B)restricting international exchange of goods and services.
C)ensuring the convertibility of paper money into gold.
D)maintaining a fixed stock of foreign currencies.
E)ensuring balance of payment surplus.

Question 12

The focal point of the Bretton Woods system was the:

A)Great Britain pound.
B)institution of special drawing rights.
C)U.S.dollar.
D)gold reserve.
E)management of commodity money.

Question 13

The gold standard ended with the:

A)rise of Napoleon to power.
B)American Declaration of Independence.
C)outbreak of World War I.
D)first Arab oil embargo.
E)presidency of Richard Nixon.

Question 14

The U.S.provides about _____ percent of the annual membership fees of IMF member countries.

A)5.6
B)10.2
C)15.3
D)17.3
E)22.4

Question 15

Under the Bretton Woods system,international debts were settled in:

A)gold.
B)U.S.dollars.
C)British pounds.
D)silver.
E)German marks.

Question 16

Suppose the price of an ounce of silver is 100 nuevos soles in Peru and $400 in the United States.This implies:

A)the Peruvian nuevo sol is worth four times the value of a U.S.dollar.
B)the Peruvian nuevo sol is worth one-fourth the value of a U.S.dollar.
C)Peru's economy must be four times larger than the U.S.economy.
D)the U.S.economy must be four times larger than that of Peru.
E)the U.S.dollar is worth four times the value of a Peruvian nuevo sol.

Question 17

The gold standard fixes the:

A)future price of gold in terms of silver.
B)price of gold in terms of international currencies.
C)future price of silver in terms of gold.
D)money supply in terms of paper currency.
E)past exchange rate and the future exchange rate.

Question 18

A reserve currency is a currency that is:

A)used exclusively to settle domestic debts.
B)specifically designed for use by commercial banks to settle accounts.
C)held only by bureaucrats.
D)used to settle international debts by private corporations.
E)held by governments to facilitate foreign exchange market interventions.

Question 19

Which of the following can be categorized as a commodity money standard?

A)The pegged exchange rate standard
B)The free float standard
C)The managed float standard
D)The reserve currency standard
E)The gold standard

Question 20

In effect,during the period immediately following World War II,the world was on a(n):

A)gold standard.
B)flexible-exchange-rate standard.
C)U.S.dollar standard.
D)exchange-rate standard dictated by Germany
E)pegged-exchange rate standard.

Question 21

What is a currency board?

A)A fixed exchange rate that,by law,exchanges domestic currency for a specified foreign currency at a fixed exchange rate.
B)A floating exchange rate.
C)A managed floating exchange-rate policy that the government adjusts periodically according to some economic indicator.
D)A laissez-faire exchange-rate policy.
E)An interventionist exchange-rate policy.

Question 22

Which of the following exchange rate systems have a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate?

A)Gold standard
B)Gold exchange standard
C)Crawling band
D)Horizontal band
E)Currency board

Question 23

Equilibrium in the foreign exchange market occurs:

A)at the point where the foreign exchange demand and supply curves intersect.
B)at the point where the foreign exchange demand and supply curves reach maximum separation.
C)when two nations' economic leaders agree on the appropriate exchange rate.
D)when two nations' diplomatic leaders agree on an exchange rate that meets both countries' needs.
E)only by chance,if at all,because they change very frequently.

Question 24

The IMF mostly receives its funds from:

A)the subscription fees paid by the member nations.
B)selling of bonds.
C)the loans given by the World Bank.
D)the central banks of the major industrialized nations.
E)the gold reserves available with the Fed.

Question 25

Suppose the official gold value of the Brazilian real changes from 457 reals per ounce to 528 reals per ounce.We can then say that:

A)the Brazilian real has been devalued.
B)the Brazilian economy is expected to experience rapid inflation.
C)gold has been devalued.
D)the Brazilian real has appreciated in value.
E)gold is now cheaper to purchase in Brazil than it was before.

Question 26

Foreign exchange market intervention is most effective when:

A)each country's political leaders agree to cooperate fully with the process.
B)leading economists in each country concur that intervention is needed.
C)permanent differences between the free market exchange rate and the fixed exchange rate are expected.
D)temporary differences between the free market exchange rate and the fixed exchange rate are expected.
E)all the countries restrict the international movement of goods and services.

Question 27

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 22.1.Assume that the initial equilibrium exchange rate is 8 Mexican pesos per Brazilian real and 150 brazilian reals are traded in the market.Suppose,there is an increase in the Brazilian demand for Mexican exports.Other things remaining equal,which of the following can be concluded?

A)The demand curve for Brazilian reals will shift to the the right.
B)The supply curve of Brazilian reals will shift to the the right.
C)The Mexican pesos will depreciate in value.
D)The Brazilian reals will appreciate in value.
E)Around 100 Brazilian reals will be traded in the forex market.

Question 28

Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce.We can then say that:

A)the Brazilian real has depreciated in value as a consequence of free market fluctuations.
B)the Brazilian real has appreciated in value.
C)gold is now more expensive to purchase in Brazil than it was before.
D)the Brazilian real has been devalued.
E)the Brazilian economy is expected to experience rapid inflation.

Question 29

The annual membership fees of the 185 member countries of the IMF are called:

A)annuities.
B)quotas.
C)vetos.
D)conditionalities.
E)petrodollars.

Question 30

Assume that you have just returned to the United States from a summer vacation in Russia,where you exchanged American dollars for Russian rubles.Your economic actions can be said to have:

A)increased the supply of American dollars in Russia.
B)decreased the supply of Russian rubles in America.
C)decreased the supply of American dollars in Russia.
D)increased the demand for American dollars in America.
E)increased the supply of Russian rubles in Russia.

Question 31

Assume that a country's government influences the exchange rate through active central bank intervention,with no pre-announced path.This policy is known as a(n):

A)floating exchange-rate policy.
B)managed floating exchange-rate policy.
C)fixed exchange-rate policy.
D)crawling-peg exchange-rate policy.
E)interventionist exchange-rate policy.

Question 32

When the exchange rate fluctuates around a fixed central target,allowing for a moderate amount of fluctuation,while tying the currency to the target central rate,the exchange rate is under:

A)a horizontal band.
B)a crawling peg.
C)a managed float.
D)an independent float.
E)a currency board.

Question 33

An upward-sloping supply curve of Korean won in terms of Canadian dollars indicates that:

A)the higher the dollar price of Korean won,the more won will be demanded.
B)the higher the dollar price of Korean won,the fewer won will be supplied.
C)the lower the dollar price of Korean won,the more won will be demanded.
D)the lower the dollar price of Korean won,the fewer won will be supplied.
E)the Korean economy is stronger than the Canadian economy.

Question 34

Which of the following had resulted from the Smithsonian agreement of 1971?

A)Devaluation of the U.S.dollar
B)Dissolution of a fixed exchange rate regime
C)Appreciation of the U.S.dollar
D)Establishment of an equilibrium exchange rate
E)Laissez-faire in the foreign exchange market

Question 35

The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):

A)historical anachronism.
B)fixed exchange rate.
C)"dirty float" exchange rate.
D)unmanaged exchange rate.
E)free market equilibrium exchange rate.

Question 36

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 22.1.Determine the equilibrium exchange rate and equilibrium quantity of Brazilian reals,if D₁ and S₁ are the relevant demand and supply curves for Brazilian reals in this market.

A)10 pesos per real and a quantity of 150 reals
B)6 pesos per real and a quantity of 250 reals
C)8 pesos per real and a quantity of 150 reals
D)8 pesos per real and a quantity of 250 reals
E)6 pesos per real and a quantity of 200 reals

Question 37

The Bretton Woods system required countries to actively buy and sell dollars to maintain fixed exchange rates when:

A)a country experienced a severe bout of inflation.
B)the free market equilibrium exchange rate differed from the fixed rate.
C)a country experienced serious unemployment.
D)the threat of recession began to spread from one country to another.
E)worldwide trade began to deteriorate.

Question 38

Under the _____ arrangement,the exchange rate is adjusted periodically by small amounts at a fixed,pre-announced rate or in response to certain indicators.

A)currency board
B)crawling peg
C)reserve currency
D)conventional fixed peg
E)independent float

Question 39

The primary function of the World Bank is to:

A)lend money to the World Trade Organization.
B)provide loans to countries experiencing huge budget deficit.
C)finance economic development in poor countries.
D)assist countries experiencing balance of payments deficits.
E)finance the fiscal stabilization program of the U.S.government.

Question 40

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 22.1.Suppose the initial equilibrium exchange rate is 10 pesos per real.A decrease in the Mexican demand for Brazilian coffee,other things equal,is most likely to result in a new equilibrium exchange rate of:

A)6 pesos per real and an equilibrium quantity of 200 Brazilian reals.
B)6 pesos per real and an equilibrium quantity of 250 Brazilian reals.
C)8 pesos per real and an equilibrium quantity of 150 Brazilian reals.
D)8 pesos per real and an equilibrium quantity of 100 Brazilian reals.
E)10 pesos per real and an equilibrium quantity of 200 Brazilian reals.

Question 41

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

A)the demand for British pounds has decreased.
B)the supply of British pounds has decreased.
C)increased demand for dollars has caused the dollar to depreciate and the pound to appreciate.
D)increased demand for dollars has caused the dollar to appreciate and the pound to depreciate.
E)the equilibrium exchange rate is $1.60 per British pound.

Question 42

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 22.1.Assume that the initial equilibrium exchange rate is 6 pesos per real.Other things remaining equal,an increase in the number of Brazilian tourists to Mexico is most likely to:

A)keep the equilibrium exchange rate constant.
B)shift the demand curve for pesos to the right.
C)shift the supply curve of pesos to the left.
D)shift the demand curve for pesos to the left.
E)shift the supply curve of pesos to the right.

Question 43

In 1991,the French mineral water Perrier was temporarily taken off the market in the United States because of suspected impurities.Other things equal,this action brought about:

A)an increase in the demand for Perrier.
B)a decrease in the price of Perrier in terms of French francs.
C)a depreciation of the French franc relative to the U.S.dollar.
D)an appreciation of the French franc relative to the U.S.dollar.
E)an increased supply of dollars in the foreign exchange market.

Question 44

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.Suppose that the British central bank wishes to maintain a fixed exchange rate of £1 = $1.60.If supply decreases from S₁ to S₂,the bank must:

A)buy 25 pounds to shift the supply curve from S₂ to S₁.
B)buy 50 pounds to shift the supply curve from S₂ to S₁.
C)sell 75 pounds to shift the supply curve from S₂ to S₁.
D)buy 75 pounds to shift the supply curve from S₂ to S₁.
E)sell 10 pounds to shift the supply curve from S₂ to S₁.

Question 45

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 22.1.The demand curves shown for Brazilian reals are based on:

A)the supply of Brazilian reals in the market.
B)the demand for Mexican pesos.
C)Brazilian demand for Brazilian products.
D)Brazilian demand for Mexican products.
E)Mexican demand for Brazilian products.

Question 46

Suppose a permanent increase in demand for the Argentinean peso causes a chronic shortage of this currency in the foreign exchange market.The Argentinean government should then:

A)request other countries to revalue their currency.
B)devalue the peso.
C)allow the peso to appreciate.
D)restricts exports.
E)restrict imports.

Question 47

The supply of Thai baht in the foreign exchange market originates with:

A)tourists who go on vacation to Thailand.
B)the export of Thailand oranges and other goods.
C)Thai residents who wish to purchase goods from other countries.
D)the Thai royal family.
E)Thai central bank intervention to stop the peseta from depreciating.

Question 48

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 22.1.If the initial equilibrium exchange rate is 6 pesos per real,then other things equal,a decrease in the number of Brazilian tourists to Mexico would:

A)increase the demand for Brazilian reals from D₂ to D₁ and increase the exchange rate to 8 pesos per real.
B)decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 8 pesos per real.
C)decrease the supply of Brazilian reals from S₁ to S₂ and increase the exchange rate to 10 pesos per real.
D)decrease the demand for Brazilian reals from D₁ to D₂ and increase the exchange rate to 8 pesos per real.
E)decrease the supply of Brazilian reals from S₁ to S₂ and increase the demand for Brazilian reals from D₂ to D₁,thereby changing the exchanging rate to 10 pesos per real.

Question 49

If prices rise within a country,then,other things equal,the value of a unit of domestic currency will:

A)rise in both the domestic and the foreign exchange markets.
B)fall in both the domestic and the foreign exchange markets.
C)rise in the domestic market and fall in the foreign exchange market.
D)fall in the domestic market and rise in the foreign exchange market.
E)fluctuate unpredictably in both domestic and foreign exchange markets.

Question 50

Suppose you observe that with a given supply curve,the Peruvian demand for Argentinean pesos steadily decreases.This will most likely mean:

A)the supply of Peruvian nuevos soles has increased on the foreign exchange market.
B)the Argentinean peso will appreciate in value relative to the Peruvian nuevo sol.
C)the Argentinean peso will depreciate in value relative to the Peruvian nuevo sol.
D)the Peruvian demand for Argentinean goods has increased.
E)the supply of Argentinean pesos has increased on the foreign exchange market.

Question 51

Suppose a hefty rise in the demand for Mexican pesos create a chronic shortage of this currency in the foreign exchange market.Which of the following steps should be adopted by the Mexican government to eliminate this shortage?

A)The government should impose a ban on Mexican exports.
B)The government should devalue the peso.
C)The government should print more pesos to increase its supply.
D)The government should allow the peso to appreciate.
E)The government should allow the peso to depreciate.

Question 52

Carlos Silva,a Colombian singer,goes on tour to the United States for one month,following high American demand for his live shows.Assuming that all the show's expenses are paid by the U.S.promoters,other things equal,the U.S.tour will bring about:

A)a decreased supply of Colombian pesos in the foreign exchange market.
B)an increased supply of American dollars in the foreign exchange market.
C)an increased supply of Colombian pesos in the foreign exchange market.
D)a decreased demand for Colombian pesos in the foreign exchange market.
E)an increased demand for American dollars in the foreign exchange market.

Question 53

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.At the initial equilibrium point,with demand curve D and supply curve S₁:

A)the price of dollar per British pound is $1.50 and the quantity of British pounds being traded is 225.
B)the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 225.
C)the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 300.
D)the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 350.
E)the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 300.

Question 54

A permanent shift in the foreign exchange market supply and demand curves such that the fixed exchange rate is no longer an equilibrium rate is referred to as:

A)permanent devaluation.
B)speculative disequilibrium.
C)permanent revaluation.
D)speculative equilibrium.
E)fundamental disequilibrium.

Question 55

Fixed exchange rates require the economic policies of countries linked by the exchange rate to be:

A)completely independent.
B)complementary to each other.
C)determined by the World Bank.
D)similar in nature.
E)determined by the International Monetary Fund.

Question 56

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.Suppose S₁ is the initial supply curve and the British demand for U.S.manufactured computers decreases.Then,with flexible exchange rates:

A)the price per British pound decreases by $0.10 and the quantity of British pounds increases by 50.
B)the price per British pound decreases by $0.10 and the quantity of British pounds decreases by 50.
C)the price per British pound increases by $0.15 and the quantity of British pounds decreases by 50.
D)the price per British pound increases by $0.15 and the quantity of British pounds decreases by 75.
E)the price per British pound and the quantity of British pounds remain unchanged.

Question 57

Currency speculators are traders who seek to profit from a(n):

A)shift in global demand and supply patterns.
B)increase in the price of oil.
C)sudden shift in interest rates.
D)exchange rate change by selling the currency expected to appreciate and buying the currency expected to depreciate.
E)exchange rate change by selling the currency expected to depreciate and buying the currency expected to appreciate.

Question 58

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 22.1 In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals
Refer to Figure 22.1.The supply curves shown for Brazilian reals are based on:

A)the supply of Brazilian goods in the international market.
B)the Brazilian demand for Mexican products.
C)the supply of Mexican pesos in the market.
D)the Brazilian demand for Brazilian products.
E)the Mexican demand for Brazilian products.

Question 59

Under the flexible exchange rate system,when a country tries to stimulate economic growth and improve its employment rates,it is likely to cause:

A)the domestic inflation rate to rise and the domestic currency to depreciate.
B)the domestic inflation rate to rise and the domestic currency to appreciate.
C)the domestic inflation rate and the value of the domestic currency to remain constant.
D)the domestic inflation rate to fall and the domestic currency to appreciate.
E)the domestic inflation rate to fall and the domestic currency to depreciate.

Question 60

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.Suppose the British central bank is committed to maintaining an exchange rate of £1 = $1.50,but there is a permanent shift in supply from S₁ to S₃.According to the Bretton Woods agreement:

A)the pound should be devalued.
B)the dollar should be devalued.
C)the British central bank should buy pounds in exchange for dollars.
D)the British central bank should encourage speculation.
E)the Fed should intervene to maintain the exchange rate of £1 = $1.

Question 61

Suppose a U.S.importer purchases "Mexican Oaxaca" cheese for $500.If the present exchange rate is Mexican peso (MXP) 10 per U.S.dollar,and the MXP appreciates 10 percent against the U.S.dollar between the date of purchase and the date of payment,then the peso value of the invoice when payment is due is:

A)MXP 500.
B)MXP 550.
C)MXP 4,500.
D)MXP 5,500.
E)MXP 4,450.

Question 62

Assume an Australian importer expects to pay 16,000 Australian dollars (AUD) for $8,000 worth of U.S.goods,but on the shipment date 30 days later,the same volume of U.S.goods costs the Australian importer only 10,000 Australian dollars.This means that between the contract date and the payment date,the exchange rate has changed:

A)from $1 = 1.25 AUD to $1 = 2.0 AUD.
B)from $1 = 2.0 AUD to $1 = 1.25 AUD.
C)from $1 = 0.8 AUD to $1 = 0.5 AUD.
D)from $1 = 0.5 AUD to $1 = 0.8 AUD.
E)from $1 = 0.5 AUD to $1 = 2.0 AUD.

Question 63

How many U.S.dollars does a U.S.importer need to pay for 100,000 yen worth of stereo equipment when the price of 1 yen is $0.008?

A)$125 million
B)$1.25 million
C)$80,000
D)$1,250
E)$800

Question 64

Suppose a U.S.importer agrees to pay a Japanese firm 55,000 yen for a shipment of goods.If the agreement is made when the exchange rate is $1 = ¥100,what is the change in the dollar value of the goods if the exchange rate changes to $1 = ¥110,on the payment-due date?

A)-$50
B)$550,000
C)-$550,000
D)$50
E)-$55,000

Question 65

When a U.S.importer needs $22,000 to settle an invoice for 25,520 Swiss francs,the exchange rate must be:

A)1 Swiss franc = $1.16.
B)1 Swiss franc = $0.16.
C)1 Swiss franc = $0.84.
D)$1 = 1.16 Swiss franc.
E)$1 = 1.84 Swiss franc.

Question 66

One of the advantages of floating exchange rates is that:

A)consumers always know how much imported goods cost.
B)businesses always know,in advance,what future exchange rates will be.
C)countries are free to pursue their own macroeconomic policies without maintaining exchange rates.
D)countries cannot act independently and must thus coordinate their macroeconomic policies.
E)the global interest rate tends to decline to the lowest possible level.

Question 67

When the U.S.dollar depreciates against other currencies:

A)foreign goods become less expensive to U.S.buyers.
B)U.S.goods become more expensive to foreign buyers.
C)foreign currencies depreciate against the U.S.dollar.
D)the volume of U.S.imports decline.
E)the volume of U.S.exports decline.

Question 68

If a bushel of corn sells for $2 in the United States and for 4,000 COP (Colombian peso) in Colombia,and if 1 dollar is worth 2,200 COP,then:

A)the corn is 400 COP more expensive in Colombia.
B)the corn is 400 COP cheaper in Colombia.
C)the price of a bushel of corn equals $2 in both the United States and Colombia.
D)the price of corn is 4,000 COP lower in Colombia than in the United States.
E)the price of corn is $0.20 lower in the United States than in Colombia.

Question 69

Suppose purchasing power parity exists in the car stereo market in the United States and Australia.If a car stereo costs $230 in the United States and the exchange rate is $1 = $AUD1.67,the same car stereo may be purchased in Australia for approximately:

A)$AUD 138.
B)$AUD 230.
C)$AUD 2,300.
D)$AUD 384.
E)$AUD 108.

Question 70

When the exchange rate moves from $1 = CAD1.5 to $1 = CAD1.66,it implies:

A)the U.S.dollar has depreciated in relation to the Canadian dollar.
B)U.S.imports of Canadian goods will rise.
C)the dollar price of the Canadian dollar has risen.
D)the Canadian dollar has appreciated in relation to the U.S.dollar.
E)Canadian imports of U.S.goods will rise.

Question 71

Under a fixed exchange-rate system,in order to maintain the exchange rate:

A)governments must adopt a laissez-faire economic policy.
B)all trading partners must enjoy the same level of economic growth.
C)currencies must be inconvertible.
D)the imports of one country must equal the exports of its trading partner.
E)governments must intervene in the foreign exchange market.

Question 72

How many dollars do you need to buy a Swedish Kronor (SEK) when the exchange rate is $1 = 6.429 SEK?

A)$0.016
B)$1.056
C)$0.649
D)$0.156
E)$1.56

Question 73

A decrease in the price of a currency in terms of another under a flexible exchange rate regimeis called:

A)capital flight.
B)depreciation.
C)revaluation.
D)devaluation.
E)currency adjustment.

Question 74

Assume that a Chrysler automobile sells for $15,000 in the United States and that the exchange rate is $1 = €1.3.For purchasing power parity to hold,the same car should sell in Germany for:

A)€15,000.
B)€11,538.
C)€19,500.
D)€1,538.
E)€15,500.

Question 75

Deviations from purchasing power parity will be increasingly higher as international trade tariffs become more restrictive.The main reason for this phenomenon is that:

A)arbitrage activities become less profitable.
B)governments prefer purchasing power parity not to hold.
C)the interest rate parity fails to hold.
D)goods become more differentiated across countries.
E)individuals develop hatred toward closed economies.

Question 76

When the U.S.dollar depreciates in relation to the Swiss franc:

A)a U.S.importer will need more dollars to pay for an invoice denominated in Swiss francs.
B)a Swiss exporter will receive more Swiss francs for an invoice denominated in the exporter's currency.
C)Swiss imports of U.S.goods will fall.
D)the Swiss franc is now worth less in terms of the U.S.dollar.
E)a U.S.exporter will receive fewer dollars for an invoice denominated in Swiss francs.

Question 77

Which of the following holds true,if goods sell for the same price worldwide when converted to a common currency?

A)A high rate of inflation exists
B)A fixed exchange-rate system exists
C)Purchasing power parity exists
D)The foreign exchange market is in equilibrium
E)Arbitrage opportunities exist

Question 78

Purchasing power parity exists when domestic currency:

A)maintains a fixed exchange rate with foreign currency.
B)is not convertible into foreign currency.
C)buys more goods at home than abroad.
D)buys as many goods at home as it does abroad.
E)appreciates in value against foreign currency.

Question 79

Suppose a U.S.investor buys a Canadian government bond with a face value of Canadian dollar (CAD) 100 and an annual yield of 8.8 percent.Which of the following statements is true?

A)At maturity,the dollar return from the Canadian bond will be $108.8,regardless of what happens to the exchange rate.
B)The Canadian bond will yield the same dollar return from the time of purchase to the time of maturity.
C)An American will make a profit on the Canadian bond only when the CAD-denominated return is higher on the Canadian bond than the dollar-denominated return on a comparable U.S.bond.
D)The dollar return on the Canadian bond depends on the dollar price of the Canadian dollar at the time of maturity.
E)The decision to buy the Canadian bond should be based solely on the CAD interest return and not on changes in the exchange rate.

Question 80

An appreciation of the Norwegian kroner in relation to the U.S.dollar is most likely to cause:

A)an increase in the U.S.demand for Norwegian goods.
B)an increase in the Norwegian demand for U.S.goods.
C)an increase in the supply of U.S.goods to Norway.
D)a decrease in the supply of Norwegian goods to the United States.
E)no change in the demand or supply of goods for either country.