Question 1

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

Accepted Answer

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. E

Question 2

Suppose a U.S. citizen invests $1,000 to purchase a one-year Japanese bond that has an interest yield of 10 percent. If the dollar appreciates 20 percent against the Japanese yen by the maturity date, the dollar value of the proceeds is _____.

Accepted Answer

A)   $900
B)   $1,100
C)   $1,300
D)   $1,500
E)   $1,200 A

Question 3

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

Accepted Answer

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. C

Question 4

Suppose the yen value of a $100,000 wheat import contract rises from ¥12,000,000 to ¥13,000,000 between the contract and the payment date. This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S. goods.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

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

Question 6

The gold standard ended with the:

Accepted Answer

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 7

The gold standard ended in the 1970s because the gold supplies failed to keep pace with the increase in money supplies required for industrialization and rapid economic growth witnessed in this era.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

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 10

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:

Accepted Answer

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 11

Suppose a U.S. firm buys a one-year U.K. bond for 6,000 British pounds when 1 British pound is worth $1.50 on the foreign exchange market. What is the firm's approximate rate of return on the bond if the interest rate on the bond is 15 percent and the exchange rate is 1 British pound is worth $1.93 at maturity?

Accepted Answer

A)   11 percent
B)   15 percent
C)   25 percent
D)   33 percent
E)   48 percent

Question 12

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

Accepted Answer

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 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

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

Question 15

Foreign exchange market intervention is most effective when:

Accepted Answer

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 16

The focal point of the Bretton Woods system was the:

Accepted Answer

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

Question 17

A commodity money standard exists when exchange rates are:

Accepted Answer

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 18

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Accepted Answer

A) True 
 B)False

Question 19

If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian dollars per ounce, we can say that the Australian dollar has appreciated in value.

Accepted Answer

A) True 
 B)False

Question 20

If the euro per dollar exchange rate changes from $1 = 0.8 euros to $1 = 0.7 euros, it implies that the euro has depreciated against the dollar.

Accepted Answer

A) True 
 B)False

Exam 21: Exchapterange Rates and Financial Links Between Countries

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

Suppose a U.S. citizen invests $1,000 to purchase a one-year Japanese bond that has an interest yield of 10 percent. If the dollar appreciates 20 percent against the Japanese yen by the maturity date, the dollar value of the proceeds is _____.

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

Suppose the yen value of a $100,000 wheat import contract rises from ¥12,000,000 to ¥13,000,000 between the contract and the payment date. This implies that the yen value of 1 dollar has declined so that, other things equal, we can expect an increase in Japanese demand for U.S. goods.

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

The gold standard ended with the:

The gold standard ended in the 1970s because the gold supplies failed to keep pace with the increase in money supplies required for industrialization and rapid economic growth witnessed in this era.

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

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

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:

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

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

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

Foreign exchange market intervention is most effective when:

The focal point of the Bretton Woods system was the:

A commodity money standard exists when exchange rates are:

World Bank funds are largely acquired through interest earned on the deposits of member nations.

If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian dollars per ounce, we can say that the Australian dollar has appreciated in value.

If the euro per dollar exchange rate changes from $1 = 0.8 euros to $1 = 0.7 euros, it implies that the euro has depreciated against the dollar.