Exam 19: The World of International Finance

Spending on goods from a country will ________ as the value of its currency gets cheaper against the U.S. dollar.

Purchasing power parity does not provide accurate predictions of exchange rates because

Figure 19.2 -Referring to Figure 19.2, the effect of a decrease in Japanese prices is represented by a movement from point

If the dollar appreciates against the peso it means that U.S. goods become more expensive in Mexico.

Figure 19.1 -Referring to Figure 19.1, U.S. goods will become more expensive in Mexico if the exchange rate goes from ________ to ________ pesos to the dollar.

Figure 19.1 -Referring to Figure 19.1, the dollar is likely to appreciate if the exchange rate is either ________ or ________ pesos to the dollar.

Recall the Application about the factors which allow the United States to continue to run large current account trade deficits with the rest of the world to answer the following question(s). The 2006 Economic Report of the President addressed the issue of whether the United States can continue to run large current account deficits. The report stated that the current account deficits would eventually be reduced and highlighted a number of factors that suggested the deficits could continue for a long period of time. -According to this Application, in order for the United States to continue to run large current account deficits

In the United States, the ________ has the official responsibility for foreign exchange intervention.

The efforts of nations to influence exchange rates are known as

A currency system in which governments try to keep constant the values of their currencies against another is called a ________ exchange rate system.

Explain when a country would face a balance of payments deficit and when it would face a balance of payments surplus if it was operating under a fixed exchange rate system.

Figure 19.2 -Referring to Figure 19.2, the effect of an increase in Japanese prices is represented by a movement from point

Mexico pegged its exchange rate to the U.S. dollar in the 1980s

If the price of watermelons is 5 pesos in Argentina and the exchange rate is 4 pesos per dollar, then what is the dollar price of watermelons?

Figure 19.2 -Referring to Figure 19.2, a depreciation of the dollar is represented by a movement from point

If the U.S. real exchange rate is 125, the U.S. price index is 140, and the Japanese price index is 165, what is the yen to dollar exchange rate?

Holding everything else constant, the U.S. real exchange rate with Thailand will increase if the dollar depreciates.

The net international investment position reflects the domestic holding of foreign assets minus foreign holdings of domestic assets.

Recall the Application about the causes of the Argentinean financial crisis to answer the following question(s). During the late 1980s, Argentina suffered from hyperinflation. As part of its financial reforms, Argentina pegged its currency to the U.S. dollar, making pesos "convertible" into dollars. The financial and other institutional reforms worked well in the early 1990s, but then problems developed. As the dollar appreciated sharply on world markets after 1995, Argentina began to suffer from a large trade deficit because its currency was pegged to the dollar. Then in 1999, Brazil devalued its currency, putting additional pressure on neighboring Argentina. Eventually, Argentina was forced to default on its international debt in 2002 and freeze bank accounts, and a severe depression ensued. -According to this Application, during the late 1980s, Argentina pegged its currency to the U.S. dollar. After 1995, the U.S. dollar appreciated sharply on world markets. Since the Argentinean peso was pegged to the U.S. dollar, the appreciation of the dollar essentially caused

Recall the Application about the causes of the Argentinean financial crisis to answer the following question(s). During the late 1980s, Argentina suffered from hyperinflation. As part of its financial reforms, Argentina pegged its currency to the U.S. dollar, making pesos "convertible" into dollars. The financial and other institutional reforms worked well in the early 1990s, but then problems developed. As the dollar appreciated sharply on world markets after 1995, Argentina began to suffer from a large trade deficit because its currency was pegged to the dollar. Then in 1999, Brazil devalued its currency, putting additional pressure on neighboring Argentina. Eventually, Argentina was forced to default on its international debt in 2002 and freeze bank accounts, and a severe depression ensued. -According to this Application, during the late 1980s, Argentina pegged its currency to the U.S. dollar. When the dollar appreciated sharply on world markets after 1995, this caused a large trade deficit in Argentina because