Question 1

You go on vacation to Mexico and take $1,000 with you.During your time in Mexico,the peso appreciates in value relative to the dollar.It follows that

Accepted Answer

A)  you will be able to buy more goods and services in Mexico. 
B)  you will be able to buy fewer goods and services in Mexico. 
C)  the purchasing power parity theory is incorrect. 
D)  Mexican workers, paid in pesos, will be able to buy fewer goods and services in Mexico. 
A)  you will be able to buy more goods and services in Mexico. 
B)  you will be able to buy fewer goods and services in Mexico. 
C)  the purchasing power parity theory is incorrect. 
D)  Mexican workers, paid in pesos, will be able to buy fewer goods and services in Mexico.

Question 2

If Americans demand goods produced in Mexico,it leads to a demand for Mexican pesos and a supply of U.S.dollars on the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 3

The U.S.real interest rate rises relative to Japan's.As a result,

Accepted Answer

A)  the yen will depreciate and the dollar will appreciate. 
B)  the yen will appreciate and the dollar will depreciate. 
C)  both the dollar and the yen will depreciate. 
D)  both the dollar and the yen will appreciate. 
A)  the yen will depreciate and the dollar will appreciate. 
B)  the yen will appreciate and the dollar will depreciate. 
C)  both the dollar and the yen will depreciate. 
D)  both the dollar and the yen will appreciate.

Question 4

If $1 is equal to 126 yen,then 1 yen is equal to approximately

Accepted Answer

A)  $1.26 
B)  $0.94 
C)  $115.00 
D)  $0.0079 
E)  none of the above 
A)  $1.26 
B)  $0.94 
C)  $115.00 
D)  $0.0079 
E)  none of the above

Question 5

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

Accepted Answer

A)  has been appreciated. 
B)  is overvalued. 
C)  is undervalued. 
D)  is devalued. 
E)  is revalued. 
A)  has been appreciated. 
B)  is overvalued. 
C)  is undervalued. 
D)  is devalued. 
E)  is revalued.

Question 6

If the equilibrium exchange rate between U.S.dollars and Japanese yen is $0.007 = 1 yen,but currently the exchange rate is $0.009 = 1 yen,then with flexible exchange rates the dollar price of a yen will __________,and the yen will __________.

Accepted Answer

A)  increase; appreciate 
B)  decrease; appreciate 
C)  increase; depreciate 
D)  decrease; depreciate 
A)  increase; appreciate 
B)  decrease; appreciate 
C)  increase; depreciate 
D)  decrease; depreciate

Question 7

Suppose that prices in the United States rise relative to prices in France.We expect that (on the foreign exchange market)the demand for U.S.dollars will __________ and the supply of dollars will __________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 8

Suppose that the exchange rate between the U.S.dollar and the Mexican peso starts out at $0.11 per peso. If the exchange rate then changes to $0.08 per peso,there will be a(n)__________ in the quantity demanded of dollars by Mexicans,and therefore there will be a(n)__________ in the quantity supplied of pesos to the foreign exchange market.

Accepted Answer

A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase 
A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase

Question 9

In a foreign exchange market diagram with dollars per peso 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.

Accepted Answer

A)  dollars; demand 
B)  dollars; supply 
C)  pesos; demand 
D)  pesos; supply 
A)  dollars; demand 
B)  dollars; supply 
C)  pesos; demand 
D)  pesos; supply

Question 10

The exchange rate is $1 = 110 yen.If the price of a Japanese good is 37,500 yen,what is the approximate price of the good in dollars?

Accepted Answer

A)  $29.45 
B)  $4,125,000 
C)  $294.49 
D)  $340.91 
E)  none of the above 
A)  $29.45 
B)  $4,125,000 
C)  $294.49 
D)  $340.91 
E)  none of the above

Question 11

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 the United States rises 25 percent at a time when the Mexican price level is stable.According to the purchasing power parity theory,what will be the new equilibrium exchange rate?

Accepted Answer

A)  $0.15 = 1 peso 
B)  $0.09 = 1 peso 
C)  $0.13 = 1 peso 
D)  $0.08 = 1 peso 
A)  $0.15 = 1 peso 
B)  $0.09 = 1 peso 
C)  $0.13 = 1 peso 
D)  $0.08 = 1 peso

Question 12

Under a fixed exchange rate system,if the dollar price of Mexican pesos is above its equilibrium level,the peso is referred to as overvalued and the dollar is necessarily undervalued.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that prices in Japan increase by 15 percent while prices in the United States remain stable.We would expect that

Accepted Answer

A)  the dollar will appreciate and the yen will depreciate. 
B)  the dollar will depreciate and the yen will appreciate. 
C)  both the dollar and the yen will appreciate. 
D)  both the dollar and the yen will depreciate. 
A)  the dollar will appreciate and the yen will depreciate. 
B)  the dollar will depreciate and the yen will appreciate. 
C)  both the dollar and the yen will appreciate. 
D)  both the dollar and the yen will depreciate.

Question 14

Suppose that labor is mobile between countries A and B. If the relative demand for goods rises in country A,then labor can flow from ______________. It may be possible in this situation for countries A and B to __________________ which would help to___________________.

Accepted Answer

A)  country A to country B; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate. 
B)  country B to country A; impose trade restrictions upon one another; increase employment in country A 
C)  country B to country A; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate 
D)  country A to country B; adopt flexible exchange rates; reduce the risk of exchange rate fluctuations 
A)  country A to country B; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate. 
B)  country B to country A; impose trade restrictions upon one another; increase employment in country A 
C)  country B to country A; fix the exchange rate between the two countries (or have a common currency); eliminate the risks associated with having a flexible exchange rate 
D)  country A to country B; adopt flexible exchange rates; reduce the risk of exchange rate fluctuations

Question 15

Suppose that an increase in a nation's income causes the nation's residents to buy more domestic and foreign goods.Given this,if U.S.residents experience an increase in income,but Mexican residents do not,it is likely that,ceteris paribus,

Accepted Answer

A)  both the U.S. dollar and the Mexican peso will depreciate. 
B)  both the U.S. dollar and the Mexican peso will appreciate. 
C)  the U.S. dollar will depreciate and the Mexican peso will appreciate. 
D)  the U.S. dollar will appreciate and the Mexican peso will depreciate. 
A)  both the U.S. dollar and the Mexican peso will depreciate. 
B)  both the U.S. dollar and the Mexican peso will appreciate. 
C)  the U.S. dollar will depreciate and the Mexican peso will appreciate. 
D)  the U.S. dollar will appreciate and the Mexican peso will depreciate.

Question 16

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 the United States rises 15 percent at a time when the Mexican price level is stable.According to the purchasing power parity theory,what will be the new equilibrium exchange rate?

Accepted Answer

A)  $0.085 = 1 peso 
B)  $0.13 = 1 peso 
C)  $0.15 = 1 peso 
D)  $0.115 = 1 peso 
E)  none of the above 
A)  $0.085 = 1 peso 
B)  $0.13 = 1 peso 
C)  $0.15 = 1 peso 
D)  $0.115 = 1 peso 
E)  none of the above

Question 17

All economists agree that the European Union is an example of a true a optimal currency area.

Accepted Answer

A) True 
 B)False

Question 18

The current international monetary system is best described as a

Accepted Answer

A)  fixed exchange rate system. 
B)  flexible exchange rate system. 
C)  managed flexible exchange rate system. 
D)  dollar standard. 
E)  gold standard. 
A)  fixed exchange rate system. 
B)  flexible exchange rate system. 
C)  managed flexible exchange rate system. 
D)  dollar standard. 
E)  gold standard.

Question 19

Describe the type of international monetary system that is currently in use.What advantages do proponents of this type of system cite in support of its use? What disadvantages do its opponents cite?

Accepted Answer

The international monetary system curren

Exam 35: International Finance

You go on vacation to Mexico and take $1,000 with you.During your time in Mexico,the peso appreciates in value relative to the dollar.It follows that

If Americans demand goods produced in Mexico,it leads to a demand for Mexican pesos and a supply of U.S.dollars on the foreign exchange market.

The U.S.real interest rate rises relative to Japan's.As a result,

If $1 is equal to 126 yen,then 1 yen is equal to approximately

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

If the equilibrium exchange rate between U.S.dollars and Japanese yen is $0.007 = 1 yen,but currently the exchange rate is $0.009 = 1 yen,then with flexible exchange rates the dollar price of a yen will __________,and the yen will __________.

Suppose that prices in the United States rise relative to prices in France.We expect that (on the foreign exchange market)the demand for U.S.dollars will __________ and the supply of dollars will __________.

In a foreign exchange market diagram with dollars per peso 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.

The exchange rate is $1 = 110 yen.If the price of a Japanese good is 37,500 yen,what is the approximate price of the good in dollars?

Under a fixed exchange rate system,if the dollar price of Mexican pesos is above its equilibrium level,the peso is referred to as overvalued and the dollar is necessarily undervalued.

Suppose that prices in Japan increase by 15 percent while prices in the United States remain stable.We would expect that

Suppose that labor is mobile between countries A and B. If the relative demand for goods rises in country A,then labor can flow from ______________. It may be possible in this situation for countries A and B to __________________ which would help to___________________.

Suppose that an increase in a nation's income causes the nation's residents to buy more domestic and foreign goods.Given this,if U.S.residents experience an increase in income,but Mexican residents do not,it is likely that,ceteris paribus,

All economists agree that the European Union is an example of a true a optimal currency area.

The current international monetary system is best described as a

Describe the type of international monetary system that is currently in use.What advantages do proponents of this type of system cite in support of its use? What disadvantages do its opponents cite?

What Economics Is About

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If the equilibrium exchange rate between U.S.dollars and Japanese yen is $0.007 = 1 yen,but currently the exchange rate is $0.009 = 1 yen,then with flexible exchange rates the dollar price of a yen will ,and the yen will .

Suppose that prices in the United States rise relative to prices in France.We expect that (on the foreign exchange market)the demand for U.S.dollars will and the supply of dollars will .

In a foreign exchange market diagram with dollars per peso 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.

Suppose that labor is mobile between countries A and B. If the relative demand for goods rises in country A,then labor can flow from . It may be possible in this situation for countries A and B to which would help to_______.