Question 1

Concerning exchange rate forecasting,technical analysis extrapolates from past exchange-rate trends while ignoring economic and political determinants of exchange rates.

Accepted Answer

A) True 
 B)False

Question 2

In the foreign exchange market,a decrease in the world demand for Japanese exports

Accepted Answer

A)  shifts the demand curve for yen leftward that causes the yen to depreciate 
B)  shifts the demand curve for yen leftward that causes the yen to appreciate 
C)  shifts the demand curve for yen rightward that causes the yen to depreciate 
D)  shifts the demand curve for yen rightward that causes the yen to appreciate

Question 3

The U.S.interest rate minus the foreign interest rate is called the U.S.interest rate differential.The U.S.interest rate differential would increase if

Accepted Answer

A)  the U.S.interest rate decreases and the foreign interest rate remains constant 
B)  the U.S.interest rate decreases and the foreign interest rate increases 
C)  the U.S.interest rate increases and the foreign interest rate increases 
D)  the U.S.interest rate increases and the foreign interest rate decreases

Question 4

Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar.One can say that the:

Accepted Answer

A)  Yen has appreciated against the dollar and the dollar has depreciated against the yen 
B)  Yen has depreciated against the dollar and the dollar has appreciated against the yen 
C)  Yen has appreciated against the dollar and the dollar has appreciated against the yen 
D)  Yen has depreciated against the dollar and the dollar has depreciated against the yen

Question 5

The Canadian dollar would depreciate on the foreign exchange market if:

Accepted Answer

A)  Canadian consumer tastes change in favor of goods produced domestically 
B)  The profitability of assets in Canada rises relative to the profitability of assets abroad 
C)  Canada experiences a disastrous wheat-crop failure,leading to imports of more wheat 
D)  Canada realizes technological improvements in the production of manufactured goods,leading to relatively low costs for Canada

Question 6

The relationship between the exchange rate and the prices of tradable goods is known as the:

Accepted Answer

A)  Purchasing-power-parity theory 
B)  Asset-markets theory 
C)  Monetary theory 
D)  Balance-of-payments theory

Question 7

In the presence of purchasing-power parity,if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States,then in Great Britain the VCR should cost:

Accepted Answer

A)  200 pounds 
B)  400 pounds 
C)  600 pounds 
D)  800 pounds

Question 8

With floating exchange rates,easy credit and low short term interest rates lead to

Accepted Answer

A)  Exchange rate depreciation in the short run 
B)  Exchange rate appreciation in the short run 
C)  Exchange rate depreciation in the long run 
D)  Exchange rate appreciation in the long run

Question 9

Under floating exchange rates,relatively low domestic interest rates tend to promote depreciation of a currency's exchange value while relatively high domestic interest rates lead to currency appreciation.

Accepted Answer

A) True 
 B)False

Question 10

The appreciation in the value of the dollar in the early 1980s is explained by all of the following except:

Accepted Answer

A)  The United States being considered a safe haven by foreign investors 
B)  Relatively high real interest rates in the United States 
C)  Confidence of foreign investors in the U.S.economy 
D)  Relatively high inflation rates in the United States

Question 11

Increased tariffs on U.S.steel imports cause the dollar to ____ in the ____.

Accepted Answer

A)  Appreciate,long run 
B)  Depreciate,long run 
C)  Appreciate,short run 
D)  Depreciate,short run

Question 12

What is the purchasing power parity approach to exchange rate determination?

Accepted Answer

The answer of What is the purchasing power parity approach...

Question 13

For the United States,suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent.For Japan,suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent.These variables would cause investment funds to flow from:

Accepted Answer

A)  The United States to Japan,causing the dollar to depreciate 
B)  The United States to Japan,causing the dollar to appreciate 
C)  Japan to the United States,causing the yen to depreciate 
D)  Japan to the United States,causing the yen to appreciate

Question 14

Long-run exchange rate movements are governed by all of the following except:

Accepted Answer

A)  National productivity levels 
B)  Consumer tastes and preferences 
C)  Rates of inflation 
D)  Interest rate levels

Question 15

The figure below illustrates the supply and demand schedules of Swiss francs in a market of freely-floating exchange rates.
Figure 12.1 The Market for Francs
 
-Refer to Figure 12.1.Should the U.S.price level rise relative to the Swiss price level,there would occur a (an):

Accepted Answer

A)  Increase in the demand for francs--increase in the supply of francs-appreciation of the dollar 
B)  Decrease in the demand for francs--decrease in the supply of francs-depreciation of the dollar 
C)  Increase in the supply of francs--decrease in the demand for francs-appreciation of the dollar 
D)  Decrease in the supply of francs--increase in the demand for francs-depreciation of the dollar

Question 16

Which of the following will result in a depreciation of the U.S.dollar against the Mexican peso?

Accepted Answer

A)  an increase in the Mexican demand for U.S.imports 
B)  a decrease in the Mexican demand for U.S.imports 
C)  a decrease in the U.S.demand for Mexican imports 
D)  no change in the U.S.demand for Mexican imports

Question 17

Long-run determinants of the dollar's exchange value include all of the following except:

Accepted Answer

A)  Preferences of Americans for foreign produced goods 
B)  U.S.tariffs placed on imports of foreign produced goods 
C)  Productivity of the American worker 
D)  Interest rates in U.S.financial markets

Question 18

The quantity of Canadian dollars supplied to the foreign exchange market would increase if,other things remaining equal:

Accepted Answer

A)  Preferences for imports rise in Canada 
B)  Labor productivity increases in Canada 
C)  Prices of goods and services decrease in Canada 
D)  Import tariffs rise in Canada

Question 19

A primary reason that explains the appreciation in the value of the U.S.dollar in the 1980s is:

Accepted Answer

A)  Large trade surpluses for the United States 
B)  Relatively high inflation rates in the United States 
C)  Lack of investor confidence in the U.S.monetary policy 
D)  Relatively high interest rates in the United States

Question 20

According to the theory of purchasing power parity,if the price level in France rises by 6 percent and the price level in the United States rises by 4 percent,then the dollar will

Accepted Answer

A)  appreciate by 2 percent against the euro in the short run 
B)  depreciate by 2 percent against the euro in the short run 
C)  appreciate by 2 percent against the euro in the long run 
D)  depreciate by 2 percent against the euro in the long run

Exam 12: Exchange Rate Determination