Exam 35: International Finance

There is a flexible exchange rate system and only two countries in the world,the United States and Mexico.An increase in income growth in Mexico relative to income growth in the United States will cause the

Suppose that on Monday,a Big Mac cost $3.00 in the United States and 320 Japanese yen in Japan.On Monday,the exchange rate was $1 = 90 yen.According to the purchasing power parity theory,the yen was __________ by approximately __________ percent.

The proponents of fixed exchange rates argue that flexible exchange rates

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 Mexican peso and the peso _____________ against the U.S.dollar.

If the average income per U.S.worker decreases while that of Japanese workers remains unchanged,then the demand curve for Japanese yen will shift __________,which will cause the equilibrium exchange rate of the dollar price per yen to __________,which is the same thing as saying that the dollar will __________.

According to the text,the _______________ is currently the primary reserve currency.

Suppose there are only two countries in the world,Mexico and the United States.On the foreign exchange market,it follows that the

If the equilibrium exchange rate between U.S.dollars and Japanese yen is $0.01 = 1 yen but currently the exchange rate is $0.0089 = 1 yen,then a __________ exists.

The purchasing power parity theory predicts that changes in the relative price levels of two countries will affect the exchange rate in such a way that

Suppose the current exchange rate between the U.S.dollar and the Mexican peso is $0.12 = 1 peso.Furthermore,suppose the price level in Mexico rises 25 percent while the U.S.price level remains constant.According to the purchasing power parity theory,what will be the equilibrium exchange rate?

Exhibit 35-4 -Refer to Exhibit 35-4.Under a fixed exchange rate system,at the exchange rate of E₃,the peso is __________ and there is a __________.

Suppose the current exchange rate between the U.S.dollar and the Mexican peso is $0.10 = 1 peso.Furthermore,suppose the price level in Mexico rises 15 percent while the U.S.price level remains constant.According to the purchasing power parity theory,which of the following exchange rates comes closest to being the equilibrium exchange rate?

The U.S.dollar currently serves as the "unit of account" of major global products.

If Japanese real interest rates fall relative to real interest rates in the U.S.,the yen will likely appreciate and the dollar will likely depreciate.

An overvalued dollar makes U.S.

If,under a fixed exchange rate system,the dollar price of a Mexican peso is above its equilibrium level,then the

When the official dollar price of a foreign currency is set below its equilibrium level,the foreign currency

Suppose the governments of Mexico and the United States agree to a fixed exchange rate. Describe some of the options available to the Mexican government if the peso was persistently overvalued,creating a surplus of pesos on the foreign exchange market. Be sure to explain how each of these options would be expected to impact the supply and/or demand for Mexican pesos.

Which of the following is false?

An American good with a price tag of $89 costs 809 pesos.The exchange rate must be approximately