Question 1

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:

Accepted Answer

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

Question 2

Assume that a one-year Malaysian bond yields 10 percent interest and that the dollar return on maturity is 5 percent.If the exchange rate at maturity is $1 = MYR 4.00 (Malaysian ringgit), what was the exchange rate at the time the bond was purchased?

Accepted Answer

A)  $1 = MYR 4.2
B)  $1 = MYR 3.8
C)  $1 = MYR 3.6
D)  MYR 1 = $0.26
E)  MYR 1 = $0.4 B

Question 3

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

Accepted Answer

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. C

Question 4

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:

Accepted Answer

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 5

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

Accepted Answer

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 6

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 7

To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 8

What is a currency board?

Accepted Answer

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 9

Fixed exchange rates serve as a constraint on inflationary government policies.

Accepted Answer

A) True 
 B)False

Question 10

Suppose a U.S.citizen purchases a one-year Norwegian bond that yields 10 percent interest.Between the purchase date and the maturity date, the exchange rate changes from  to  How much was initially invested in the bond if the dollar value of the proceeds at maturity is $3, 500? (roundoff up to the nearest whole number)

Accepted Answer

A)  $2, 916
B)  $3, 150
C)  $3, 500
D)  $3, 850
E)  $4, 200

Question 11

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 12

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

Accepted Answer

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 13

The gold standard fixes the:

Accepted Answer

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 14

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 36.1  In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 36.1.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:

Accepted Answer

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 15

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:

Accepted Answer

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 16

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

Question 17

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.

Question 18

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:

Accepted Answer

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 19

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

Exam 57: Exchange Rates and Financial Links Between Countries

Assume that a one-year Malaysian bond yields 10 percent interest and that the dollar return on maturity is 5 percent.If the exchange rate at maturity is $1 = MYR 4.00 (Malaysian ringgit) , what was the exchange rate at the time the bond was purchased?

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

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:

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

The focal point of the Bretton Woods system was the:

To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S.dollar.

What is a currency board?

Fixed exchange rates serve as a constraint on inflationary government policies.

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.

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

The gold standard fixes the:

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:

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.

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

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:

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

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