Exam 30: International Finance

All else equal, a depreciation of the dollar makes

Differences in prices between two countries explain exchange rate movements in the long run.

The Eurozone is an example of a combination of both fixed and flexible exchange rate system.

The United States has maintained a fixed exchange rate policy throughout its history.

A government can apply a policy of devaluation to adjust its exchange rate if it believes its currency is overvalued.

Suppose the U.S. dollar has appreciated against the Canadian dollar. What will this dollar appreciation affects U.S. and Canadian net exports? Explain your answer.

All else equal, an increase in the U.S. interest rate will likely lead to

An appreciation of the dollar relative to the peso means that

When the U.S. dollar appreciates, foreign goods are cheaper in the U.S. and U.S. goods are more expensive abroad.

Sustained undervaluation of a country's currency results in

Purchasing power parity more likely occurs under all the following conditions except

An appreciation of Mexico's peso

When the central bank of the United States increases the interest rate,

A foreign exchange rate refers to

If interest rates in other countries remain unchanged, then an increase in the U.S. interest rate will lead to an appreciation of the dollar.

Suppose you peg your currency to the U.S. dollar. Now interest rates in the United States have increased. To maintain the fixed exchange rate, you can

All else equal, net exports of a country will increase the most if

The theory of purchasing power parity predicts that a country's currency will depreciate if its inflation is higher, all else equal.

Exchange market devaluation or revaluation has been shown to have large and long-lasting effect on the exchange rate.

To avoid changing your interest rate to put it in line with the country to whose currency your own currency is pegged, you can attempt to buy and sell foreign currency in the exchange market as an alternative.