Question 1

The IMF mostly receives its funds from:

Accepted Answer

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 2

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 3

What is the interest rate on a 12-month U.K.certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?

Accepted Answer

A) 15 percent 
B) 13 percent 
C) 9 percent 
D) 5 percent 
E) 4 percent

Question 4

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:
DS1U1B11S1U1B0 and DS1U1B12S1U1B0: Demand for Brazilian reals
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Supply of Brazilian reals
-Refer to Figure 22.1.The demand curves shown for Brazilian reals are based on:

Accepted Answer

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 5

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 6

Under a floating exchange-rate system,a country needs to pay more attention to the economic policies of the rest of the world.

Accepted Answer

A) True 
 B)False

Question 7

The dollar return on a foreign investment is less than the interest rate on the foreign asset,if the foreign currency depreciates against the U.S.dollar between the purchase date and the maturity date.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the 12-month interest rate on a U.S.Treasury bill is 16 percent,and the one-year interest rate on a comparable British Treasury bill is 6 percent.The exchange rate today is $2.00 per pound.What must be the expected exchange rate at maturity for interest rate parity to hold?

Accepted Answer

A) $1.00 = 0.50 pound 
B) $1.00 = 0.75 pound 
C) 1 pound = $2.20 
D) 1 pound = $1.80 
E) 1 pound = $2.50

Question 9

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:

Accepted Answer

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 10

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 11

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:

Accepted Answer

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 12

An Australian investor buys a U.S.Treasury bond that has a price of $10,000,pays 5 percent interest,and matures in a year.Between the purchase date and the maturity date,the exchange rate changes from $1 = AUD 5.0 to $1= AUD 5.2.What will be the Australian investor's rate of return from the U.S.bond?

Accepted Answer

A) 4 percent 
B) 7 percent 
C) 9.2 percent 
D) 12 percent 
E) 25 percent

Exam 22: Exchange Rates and Financial Links Between Countries

The IMF mostly receives its funds from:

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.

What is the interest rate on a 12-month U.K.certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?

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.

Under a floating exchange-rate system,a country needs to pay more attention to the economic policies of the rest of the world.

The dollar return on a foreign investment is less than the interest rate on the foreign asset,if the foreign currency depreciates against the U.S.dollar between the purchase date and the maturity date.

Suppose the 12-month interest rate on a U.S.Treasury bill is 16 percent,and the one-year interest rate on a comparable British Treasury bill is 6 percent.The exchange rate today is $2.00 per pound.What must be the expected exchange rate at maturity for interest rate parity to hold?

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:

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

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:

Exam 22: Exchange Rates and Financial Links Between Countries

The IMF mostly receives its funds from:

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.

What is the interest rate on a 12-month U.K.certificate of deposit if the dollar return on the certificate is 4 percent and the dollar has appreciated 9 percent against the British pound?

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.

Under a floating exchange-rate system,a country needs to pay more attention to the economic policies of the rest of the world.

The dollar return on a foreign investment is less than the interest rate on the foreign asset,if the foreign currency depreciates against the U.S.dollar between the purchase date and the maturity date.

Suppose the 12-month interest rate on a U.S.Treasury bill is 16 percent,and the one-year interest rate on a comparable British Treasury bill is 6 percent.The exchange rate today is $2.00 per pound.What must be the expected exchange rate at maturity for interest rate parity to hold?

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:

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

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:

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:

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: