Question 1

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 2

Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in:

Accepted Answer

A)  An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar 
B)  An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar 
C)  A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar 
D)  A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

Question 3

If Mexico applies tariffs to imports of manufactured goods, Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.

Accepted Answer

A) True 
 B)False

Question 4

Given floating exchange rates, a simultaneous decrease in the Canadian demand for British products and increase in the British desire to invest in Canadian government securities would cause a (an):

Accepted Answer

A)  Appreciation of the pound against the dollar 
B)  Depreciation of the pound against the dollar 
C)  Unchanged pound/dollar exchange rate 
D)  None of the above

Question 5

The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates.
Figure 12.2. The Market for Swiss Francs
 
-Refer to Figure 12.2. If the rate of inflation in the United States is higher than the rate of inflation in Switzerland, the demand for francs decreases, the supply of francs increases, and the dollar's exchange value appreciates.

Accepted Answer

A) True 
 B)False

Question 6

Figure 12.3 Market for British Pounds
 
-Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose the US government raises tariffs for UK made goods, which supply and demand curves depict the new situation?

Accepted Answer

A)  S1 and D2 
B)  S2 and D1 
C)  S0 and D2 
D)  S0 and D1

Question 7

If Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise and the yen's exchange value will appreciate under a system of floating exchange rates.

Accepted Answer

A) True 
 B)False

Question 8

Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.

Accepted Answer

A) True 
 B)False

Question 9

Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent while tight monetary policy in Switzerland leads to interest rates rising to 8 percent. With floating exchange rates, the dollar would appreciate against the franc.

Accepted Answer

A) True 
 B)False

Question 10

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 11

The purchasing- power-parity theory predicts that if the U.S. inflation rate exceeds the Japanese inflation rate by 4 percent, the dollar's exchange value will appreciate by 4 percent against the yen.

Accepted Answer

A) True 
 B)False

Question 12

The supply of francs, would shift to the right for all of the following reasons$\underline {  \text { except: }  }$

Accepted Answer

A)  An increase in Swiss real income 
B)  An increase in Swiss prices 
C)  An increase in the Swiss population 
D)  An increase in Swiss interest rates

Question 13

Concerning exchange rate forecasting, fundamental analysis involves consideration of a variety of macroeconomic variables and policies that tend to affect currency values.

Accepted Answer

A) True 
 B)False

Question 14

Exchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as central banks do not intervene in the foreign exchange markets.

Accepted Answer

A) True 
 B)False

Question 15

If the United States experiences an enormous wheat crop failure, it will have to import more wheat and the dollar's exchange value will depreciate under a system of floating exchange rates.

Accepted Answer

A) True 
 B)False

Question 16

The $\underline {  \text { appreciation }  }$in the value of the dollar in the early 1980s is explained by all of the following $\underline {  \text { except: }  }$

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 17

Over the long run, foreign exchange rates are determined by transfers of bank deposits that respond to differences in real interest rates and to shifting expectations of future exchange rates.

Accepted Answer

A) True 
 B)False

Question 18

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 preferences for imports rise in the United States and fall in Switzerland, there would occur a (an):

Accepted Answer

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

Question 19

The purchasing-power parity theory suffers from the problem

Accepted Answer

A)  Of choosing the appropriate price index 
B)  That it overlooks the influence of capital flows 
C)  That government policy may modify exchange rates 
D)  All of the above

Question 20

Given a system of floating exchange rates, $\underline { \text { stronger }   }$ U.S. preferences for imports would trigger:

Accepted Answer

A)  An increase in the demand for imports and an increase in the demand for foreign currency 
B)  An increase in the demand for imports and a decrease in the demand for foreign currency 
C)  A decrease in the demand for imports and an increase in the demand for foreign currency 
D)  A decrease in the demand for imports and a decrease in the demand for foreign currency

Exam 12: Exchange-Rate Determination

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) :

Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in:

If Mexico applies tariffs to imports of manufactured goods, Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.

Given floating exchange rates, a simultaneous decrease in the Canadian demand for British products and increase in the British desire to invest in Canadian government securities would cause a (an) :

Figure 12.3 Market for British Pounds -Consider Figure 12.3. The market is initially governed by demand curve D₀ and supply curve S₀. Suppose the US government raises tariffs for UK made goods, which supply and demand curves depict the new situation?

If Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise and the yen's exchange value will appreciate under a system of floating exchange rates.

Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.

Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent while tight monetary policy in Switzerland leads to interest rates rising to 8 percent. With floating exchange rates, the dollar would appreciate against the franc.

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

The purchasing- power-parity theory predicts that if the U.S. inflation rate exceeds the Japanese inflation rate by 4 percent, the dollar's exchange value will appreciate by 4 percent against the yen.

The supply of francs, would shift to the right for all of the following reasons $\underline { \text { except: } }$

Concerning exchange rate forecasting, fundamental analysis involves consideration of a variety of macroeconomic variables and policies that tend to affect currency values.

Exchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as central banks do not intervene in the foreign exchange markets.

If the United States experiences an enormous wheat crop failure, it will have to import more wheat and the dollar's exchange value will depreciate under a system of floating exchange rates.

The $\underline { \text { appreciation } }$ in the value of the dollar in the early 1980s is explained by all of the following $\underline { \text { except: } }$

Over the long run, foreign exchange rates are determined by transfers of bank deposits that respond to differences in real interest rates and to shifting expectations of future exchange rates.

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 preferences for imports rise in the United States and fall in Switzerland, there would occur a (an) :

The purchasing-power parity theory suffers from the problem

Given a system of floating exchange rates, $\underline { \text { stronger } }$ U.S. preferences for imports would trigger:

Exam 12: Exchange-Rate Determination

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) :

Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in:

If Mexico applies tariffs to imports of manufactured goods, Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.

Given floating exchange rates, a simultaneous decrease in the Canadian demand for British products and increase in the British desire to invest in Canadian government securities would cause a (an) :

Figure 12.3 Market for British Pounds -Consider Figure 12.3. The market is initially governed by demand curve D0 and supply curve S0. Suppose the US government raises tariffs for UK made goods, which supply and demand curves depict the new situation?

If Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise and the yen's exchange value will appreciate under a system of floating exchange rates.

Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.

Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent while tight monetary policy in Switzerland leads to interest rates rising to 8 percent. With floating exchange rates, the dollar would appreciate against the franc.

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

The purchasing- power-parity theory predicts that if the U.S. inflation rate exceeds the Japanese inflation rate by 4 percent, the dollar's exchange value will appreciate by 4 percent against the yen.

The supply of francs, would shift to the right for all of the following reasons except: ‾\underline { \text { except: } } except: ​

Concerning exchange rate forecasting, fundamental analysis involves consideration of a variety of macroeconomic variables and policies that tend to affect currency values.

Exchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as central banks do not intervene in the foreign exchange markets.

If the United States experiences an enormous wheat crop failure, it will have to import more wheat and the dollar's exchange value will depreciate under a system of floating exchange rates.

The appreciation ‾\underline { \text { appreciation } } appreciation ​ in the value of the dollar in the early 1980s is explained by all of the following except: ‾\underline { \text { except: } } except: ​

Over the long run, foreign exchange rates are determined by transfers of bank deposits that respond to differences in real interest rates and to shifting expectations of future exchange rates.

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 preferences for imports rise in the United States and fall in Switzerland, there would occur a (an) :

The purchasing-power parity theory suffers from the problem

Given a system of floating exchange rates, stronger ‾\underline { \text { stronger } } stronger ​ U.S. preferences for imports would trigger:

Figure 12.3 Market for British Pounds -Consider Figure 12.3. The market is initially governed by demand curve D₀ and supply curve S₀. Suppose the US government raises tariffs for UK made goods, which supply and demand curves depict the new situation?

The supply of francs, would shift to the right for all of the following reasons $\underline { \text { except: } }$

The $\underline { \text { appreciation } }$ in the value of the dollar in the early 1980s is explained by all of the following $\underline { \text { except: } }$

Given a system of floating exchange rates, $\underline { \text { stronger } }$ U.S. preferences for imports would trigger: