Question 1

If the United States places a trade barrier on Brazilian steel, other things equal, in the long run

Accepted Answer

A) U.S. imports from Brazil will become less expensive. 
B) U.S. exports to Brazil will become less expensive. 
C) U.S. exports to Brazil will increase. 
D) the United States will import more steel from Brazil. 
A) U.S. imports from Brazil will become less expensive. 
B) U.S. exports to Brazil will become less expensive. 
C) U.S. exports to Brazil will increase. 
D) the United States will import more steel from Brazil.

Question 2

Suppose that the one-year Treasury bill rate in the United States is 6%, the one-year government bond rate in Canada is 4%, and investors expect the U.S. dollar to depreciate against the Canadian dollar by 4% over the coming year. Is the nominal interest rate parity condition violated?

Accepted Answer

Not if investors have a prefer

Question 3

Which of the following is the correct expression for the value of $1 invested in a foreign security for one year?

Accepted Answer

A) 1 - if - ΔE Xe/EX 
B) 1 - if + ΔE Xe /EX 
C) 1 + if - ΔE Xe /EX 
D) 1 + if + ΔE Xe /EX 
A) 1 - if - ΔE Xe/EX 
B) 1 - if + ΔE Xe /EX 
C) 1 + if - ΔE Xe /EX 
D) 1 + if + ΔE Xe /EX

Question 4

When deciding between domestic and foreign financial investments, investors typically consider

Accepted Answer

A) domestic and foreign inflation rates and expected changes in the exchange rate. 
B) domestic and foreign budget deficits. 
C) shifts in the relative demand for foreign and domestic goods. 
D) domestic and foreign interest rates and expected changes in the exchange rate. 
A) domestic and foreign inflation rates and expected changes in the exchange rate. 
B) domestic and foreign budget deficits. 
C) shifts in the relative demand for foreign and domestic goods. 
D) domestic and foreign interest rates and expected changes in the exchange rate.

Question 5

If foreign interest rates rise

Accepted Answer

A) the demand for domestic currency rises, causing it to appreciate. 
B) the demand for domestic currency falls, causing it to depreciate. 
C) the demand for domestic currency rises, causing it to depreciate. 
D) the demand for domestic currency falls, causing it to appreciate. 
A) the demand for domestic currency rises, causing it to appreciate. 
B) the demand for domestic currency falls, causing it to depreciate. 
C) the demand for domestic currency rises, causing it to depreciate. 
D) the demand for domestic currency falls, causing it to appreciate.

Question 6

The nominal exchange rate is

Accepted Answer

A) the difference between the interest rate in one country and the interest rate in another country. 
B) the rate at which a bond may be exchanged for currency. 
C) the rate at which a stock may be exchanged for currency. 
D) the price of one country's currency in terms of another's. 
A) the difference between the interest rate in one country and the interest rate in another country. 
B) the rate at which a bond may be exchanged for currency. 
C) the rate at which a stock may be exchanged for currency. 
D) the price of one country's currency in terms of another's.

Question 7

If oranges sell for $100 per crate in the United States and 4000 pesos per crate in Mexico, the law of one price indicates that you should be able to exchange $1 for

Accepted Answer

A) 0.025 peso. 
B) 4 pesos. 
C) 40 pesos. 
D) 400 pesos. 
A) 0.025 peso. 
B) 4 pesos. 
C) 40 pesos. 
D) 400 pesos.

Question 8

Which of the following countries did not join in the establishment of a common European currency beginning in 1999?

Accepted Answer

A) Germany 
B) France 
C) England 
D) Italy 
A) Germany 
B) France 
C) England 
D) Italy

Question 9

A tariff is a

Accepted Answer

A) limit on the volume of foreign goods that can be brought into the country. 
B) tax on goods purchased from other countries. 
C) tax on goods exported to other countries. 
D) subsidy by governments to firms that produce goods for export to other countries. 
A) limit on the volume of foreign goods that can be brought into the country. 
B) tax on goods purchased from other countries. 
C) tax on goods exported to other countries. 
D) subsidy by governments to firms that produce goods for export to other countries.

Question 10

The theory of purchasing power parity assumes that

Accepted Answer

A) movements in nominal exchange rates are the result of movements in relative price levels. 
B) real exchange rates are volatile. 
C) movements in nominal exchange rates are the result of movements in real exchange rates. 
D) inflation rates are roughly the same in most countries. 
A) movements in nominal exchange rates are the result of movements in relative price levels. 
B) real exchange rates are volatile. 
C) movements in nominal exchange rates are the result of movements in real exchange rates. 
D) inflation rates are roughly the same in most countries.

Question 11

A key assumption behind the explanation of exchange rate determination in the short run is

Accepted Answer

A) trade barriers are unimportant in the short run. 
B) changes in price levels are unimportant in the short run. 
C) exchange rates represent prices of financial assets in one currency relative to prices of similar financial assets in another currency. 
D) trade barriers and changes in price levels are unimportant in the short run. 
A) trade barriers are unimportant in the short run. 
B) changes in price levels are unimportant in the short run. 
C) exchange rates represent prices of financial assets in one currency relative to prices of similar financial assets in another currency. 
D) trade barriers and changes in price levels are unimportant in the short run.

Question 12

A Japanese television sells for ¥100,000 and a dollar is equal to ¥100. What is the dollar price of the television?

Accepted Answer

A) $1000 
B) $99,900 
C) $10,000,000 
D) $100,100 
A) $1000 
B) $99,900 
C) $10,000,000 
D) $100,100

Question 13

Suppose that short-term real interest rates fall in Japan. Is this likely to be good news or bad news for the tourism industry in Hawaii?

Accepted Answer

Good news, unless short-term real intere

Question 14

An increase in the expected inflation rate in the United States will

Accepted Answer

A) reduce the nominal interest rate in the United States. 
B) cause the U.S. exchange rate to depreciate. 
C) cause the U.S. exchange rate to appreciate. 
D) increase the budget deficit in the United States relative to the budget deficits of foreign governments. 
A) reduce the nominal interest rate in the United States. 
B) cause the U.S. exchange rate to depreciate. 
C) cause the U.S. exchange rate to appreciate. 
D) increase the budget deficit in the United States relative to the budget deficits of foreign governments.

Question 15

When a country's nominal exchange rate depreciates, the price of

Accepted Answer

A) that country's goods abroad increases. 
B) that country's goods abroad decreases. 
C) foreign goods sold in the country decreases. 
D) that country's goods produced and sold at home decreases. 
A) that country's goods abroad increases. 
B) that country's goods abroad decreases. 
C) foreign goods sold in the country decreases. 
D) that country's goods produced and sold at home decreases.

Question 16

Suppose that Canada has been experiencing high rates of inflation. If the Canadian government institutes a plausible new policy to lower inflation, what will be the effect on the value of the Canadian dollar?

Accepted Answer

A decrease in expected inflation should

Question 17

If pepperoni pizzas sell for $10 in Berkeley, California, and £10 in London, England, and the exchange rate is $1.35 = £1,

Accepted Answer

A) the law of one price has been violated. 
B) either the British government or the American government must be interfering with the market determination of the exchange rate. 
C) the value of the dollar versus the pound is likely to rise. 
D) there is no contradiction in the information given because pizza is not a tradeable good. 
A) the law of one price has been violated. 
B) either the British government or the American government must be interfering with the market determination of the exchange rate. 
C) the value of the dollar versus the pound is likely to rise. 
D) there is no contradiction in the information given because pizza is not a tradeable good.

Question 18

The daily turnover in the foreign exchange market is:

Accepted Answer

A) millions of dollars 
B) billions of dollars 
C) trillions of dollars 
D) declining in the last decade 
A) millions of dollars 
B) billions of dollars 
C) trillions of dollars 
D) declining in the last decade

Question 19

In a graph illustrating the determination of the exchange rate that has the yen-dollar exchange rate on the vertical axis and the expected rate of return, in dollars terms, from investing in a U.S. or Japanese asset on the horizontal axis, the line representing R, the return on a U.S. asset in dollar terms, is

Accepted Answer

A) a vertical line. 
B) a horizontal line. 
C) an upward-sloping line. 
D) a downward-sloping line. 
A) a vertical line. 
B) a horizontal line. 
C) an upward-sloping line. 
D) a downward-sloping line.

Question 20

A depreciating nominal exchange rate results from

Accepted Answer

A) a depreciating real exchange rate. 
B) a low domestic inflation rate relative to the foreign inflation rate. 
C) an appreciating real exchange rate. 
D) a large government budget deficit. 
A) a depreciating real exchange rate. 
B) a low domestic inflation rate relative to the foreign inflation rate. 
C) an appreciating real exchange rate. 
D) a large government budget deficit.

Exam 8: The Foreign-Exchange Market and Exchange Rates

If the United States places a trade barrier on Brazilian steel, other things equal, in the long run

Suppose that the one-year Treasury bill rate in the United States is 6%, the one-year government bond rate in Canada is 4%, and investors expect the U.S. dollar to depreciate against the Canadian dollar by 4% over the coming year. Is the nominal interest rate parity condition violated?

Which of the following is the correct expression for the value of $1 invested in a foreign security for one year?

When deciding between domestic and foreign financial investments, investors typically consider

If foreign interest rates rise

The nominal exchange rate is

If oranges sell for $100 per crate in the United States and 4000 pesos per crate in Mexico, the law of one price indicates that you should be able to exchange $1 for

Which of the following countries did not join in the establishment of a common European currency beginning in 1999?

A tariff is a

The theory of purchasing power parity assumes that

A key assumption behind the explanation of exchange rate determination in the short run is

A Japanese television sells for ¥100,000 and a dollar is equal to ¥100. What is the dollar price of the television?

Suppose that short-term real interest rates fall in Japan. Is this likely to be good news or bad news for the tourism industry in Hawaii?

An increase in the expected inflation rate in the United States will

When a country's nominal exchange rate depreciates, the price of

Suppose that Canada has been experiencing high rates of inflation. If the Canadian government institutes a plausible new policy to lower inflation, what will be the effect on the value of the Canadian dollar?

If pepperoni pizzas sell for $10 in Berkeley, California, and £10 in London, England, and the exchange rate is $1.35 = £1,

The daily turnover in the foreign exchange market is:

A depreciating nominal exchange rate results from

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters