Exam 19: The World of International Finance

If the yen to dollar exchange rate is 115, the U.S. price index is 140, and the Japanese price index is 165, what is the U.S. real exchange rate?

Suppose the United States is experiencing a balance of payments deficit. To prevent the exchange rate from depreciating, the U.S. Treasury must

-Refer to Figure 19.3. At the exchange rate of 120 yen per dollar, the United States is experiencing a

The purchase of a U.S. asset by a foreign resident is a

In the first quarter of 2009, the United States trade deficit fell to its lowest level in a decade. This means that

A(n)________ in U.S. prices will cause a decrease in the demand for U.S. dollars and a(n)________ in the (per dollar)exchange rate.

Under a fixed exchange rate system, if the inflation rate in the United States is 5 percent a year and the inflation rate in Australia is 0 percent a year, then the U.S. real exchange rate will

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, if the United States is running a current account deficit, then the United States

What will happen to the exchange rate between the euro and the U.S. dollar if U.S. interest rates increase?

Historically, the key role in assisting countries that ran into financial difficulties was played by

If, for the United States, exports are $450, imports are $320, net income from foreign investments is -$60, and net transfers from abroad is -$50, then the U.S. current account has a

Figure 19.1 -Referring to Figure 19.1, if the exchange rate is currently 14 pesos per dollar, then we expect the dollar to ________ and the peso to ________.

Since 1982, the United States has run a current account surplus every year.

An exchange rate system in which governments try to keep currency values from fluctuating against one another is a fixed exchange rate system.

As the dollar depreciates relative to the Russian ruble, U.S. goods become cheaper for Russians to purchase. Therefore, in the foreign exchange market, the

In a fixed exchange rate system, an increase in the exchange rate at which a currency is pegged is called a(n)

According to the theory of purchasing power parity, the exchange rate between two countries reflects

Recall the Application about how the collapse of the housing boom and the worldwide recession of 2007 led to problems for some countries in the Euro-zone to answer the following question(s). When the euro was launched in 1999, the vision of its founders was to use the monetary union to further unify Europe economically and politically. They envisioned a large economic market, comparable to the United States with integrated goods and financial markets. They believed that by moving to a single currency with agreements on a number of fiscal rules that they could achieve economic stability and growth. -Recall the Application. The European nations that adopted the euro as a common currency no longer have their own central banks and are therefore no longer able to conduct their own independent

The rate at which one currency can be traded for another is called the

Explain what is meant by a revaluation of a currency. Under what circumstances would a country devalue its currency?