Exam 35: International Finance

The answer is: "A geographic area in which exchange rates can be fixed or a common currency used without sacrificing domestic economic goals." What is the question?

There is demand for and supply of dollars and a demand for and supply of pesos.Under a flexible exchange rate system,if income growth in the United States is greater than income growth in Mexico,then

Americans buying Japanese cars

Exhibit 35-4 -Refer to Exhibit 35-4.Under a fixed exchange rate system,at the exchange rate of E₁,the dollar is __________ and there is a __________ of pesos.

Proponents of the fixed exchange rate system argue that

In a foreign exchange market diagram with pesos per dollar on the vertical axis,the quantity of __________ would be on the horizontal axis,and the U.S.demand for Mexican goods would help to determine the __________ curve.

When exports of American goods increase,this __________ the demand for U.S.dollars and at the same time __________ foreign currencies.

Suppose that on Monday,a Big Mac cost $3.00 in the United States and 310 Japanese yen in Japan.On Monday,the exchange rate was $1 = 85 yen.According to the purchasing power parity theory,the yen was __________ by approximately __________ percent.

Which of the following points would not be used as an argument in support of the current international monetary system?

Advocates of a fixed exchange rate system argue that fixed exchange rates promote international trade.

If it takes 118 Japanese yen to buy one dollar,then how many dollars does it take to buy one euro?

Those economists who argue that the European Union is not a true optimal currency area cite _______________ and __________________ as justifications for this position.

Exhibit 35-5 -Refer to Exhibit 35-5. Based on the information provided in this table,between Monday and Tuesday,the U.S.dollar ____________ against the Japanese yen and the yen _____________ against the U.S.dollar.

When the equilibrium dollar price of a foreign currency decreases due to changes in demand for or supply of the foreign currency,the foreign currency

If the income of U.S.citizens falls relative to the income of Japanese citizens,the dollar will __________ in terms of the yen,and the yen will __________ in terms of the dollar.

The purchasing power parity theory predicts better in the __________ run,and when there __________ in inflation rates across countries.

We start with a 3 percent real interest rate in the United States and in Japan.Next,the real interest rate in Japan falls to 2 percent,and the U.S.real interest remains constant.As a result,

If world markets change so that the U.S.dollar is no longer the primary reserve currency,the exchange rate value of the dollar would rise.

If the equilibrium exchange rate between U.S.dollars and Japanese yen is $0.008 = 1 yen,but currently the exchange rate is $0.007 = 1 yen,then with flexible exchange rates the dollar price of a yen will __________,and the dollar will __________.

The concept of an optimal currency area arose from the debate over whether fixed or flexible exchange rates are better.