Exam 9: The Exchange Rate and the Balance of Payments

In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen current and markets.

Epsilon is a country whose unit of currency is the omega. New information leads people to expect that the omega will appreciate next year. The demand curve for omegas shifts , the supply curve of omegas shifts _ , and the omega _ _.

Suppose that the price of an identical sport- utility vehicle is $32,000 in U.S. dollars in the United States and $32,000 in Canadian dollars in Canada. Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals $0.75 U.S. dollar. Based on this information what will happen to the exchange rate between the United States and Canada?

Other things remaining the same, the _ _ the exchange rate for dollars, the greater the In the foreign exchange market.

If nothing else changes, the the current exchange rate, the is the expected profit from holding dollars, all other things remaining the same.

The average exchange rate of the U.S. dollar against other currencies, weighted by their importance in U.S. international trade is

-Using the above figure, an increase in the demand for Dutch goods by U. S. consumers will lead to

Which of the following statements is true?

The term "foreign currency" refers to foreign I. coins. II. notes. III. bank deposits.

How do the capital account and the current account differ?

If the exchange rate is above equilibrium, there will be _ in the foreign exchange market.

What is purchasing power parity?

Over a month in late 2008, the Federal Reserve Bank reduced the interest rate by 1 percentage point. Given that the United States operates under a exchange rate regimes, the primary purpose of these changes was _ exchange rate of each currency.

-In the figure above, suppose the economy is initially at point B. If people come to believe that the exchange rate will fall in the future, the supply of dollars and the market moves to point such as .

If the U.S. interest rate differential increases, people will demand _ dollars and supply Dollars.

-Using the data in the above table, suppose imports equals $250 billion and investment equals $1,000 billion. Hence government expenditure equals

Explain the effect on the demand for dollars in the foreign exchange market of an increase in the U.S. interest rate differential.

Which of the following exchange rate policies uses a target exchange rate, but allows the target to change?

-In the figure above, the demand curve for U.S. dollars is represented in the diagram by

The lower the exchange rate today, ceteris paribus, the