Exam 9: The Exchange Rate and the Balance of Payments

Suppose that the U.S. interest rate is 5 percent and the Turkish interest rate is 50 percent. The effect of this difference in the foreign exchange market is that

Purchasing power parity means equal rates of return.

The real exchange rate is

What is the relationship between net exports, the government sector surplus or deficit, and the private sector surplus or deficit?

Suppose the exchange rate between the U.S. dollar and the French franc is 0.25 francs per dollar. If a television sells for 100 francs in France, what is the dollar price of the television set?

Suppose that the price of a Big Mac is a good approximation of the price level in the country. A Big Mac costs £2 in London and $3 in New York. a) If purchasing power parity holds, what is the exchange rate between the U.S. dollar and the British pound? b) If the current exchange rate is $1.6 per pound, what is the dollar price of a Big Mac in London? What do you predict will happen to the exchange rate? Explain. c) The exchange rate between the U.S. dollar and the Russian ruble is 30 rubles per dollar. If purchasing power parity holds, what is the price of a Big Mac in Moscow?

In the foreign exchange market, how does a fall in the U.S. interest rate affect the supply of dollars?

-In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D₁. To maintain the target exchange rate, the Fed

In June 2008, $1 bought 0.5 pounds and in October, $1 bought 0.65 pounds. As a result of this change, ________ between June and October.

The private sector surplus or deficit equals

Consider the market for euros. Suppose the exchange rate is_________ its equilibrium. This means that the quantity of euros_________ is greater than the quantity of euros _________and the exchange rate will_________ .

The real exchange rate is the

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₂ could occur when

In the foreign exchange market, if the demand for dollars permanently decreases, the Fed can maintain the exchange rate at its old equilibrium level indefinitely by buying dollars.

-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₁ could occur when

If the U.S. government increased its holdings of British pounds, definitely

During this year a country reports imports of $1,000 billion, exports of $1,100 billion, foreign investment in the country of $900 billion, investment abroad of $1,200 billion, net interest and net transfers of zero. What is the countryʹs current account balance?

If the current account has a positive balance of $100 and the capital and financial account has a negative balance of $90, there will be_________ in official reserves of _________.

If the Japanese yen was 123 per dollar and now is 114 yen per dollar, it can be said that

In June 2008, the dollar bought 1.6 Brazilian reals and in October, the dollar bought 2.4 reals. This resulted in a