Exam 19: The World of International Finance

If the dollar depreciates against the British pound, U.S. goods sold in ________ would become less expensive and British goods sold in ________ would become more expensive.

The dollar will depreciate against the euro when the European Central Bank raises interest rates.

The financial account is defined as

The exchange rate of currencies between countries affects the prices of the goods purchased and sold between them.

A depreciation is

Compare and contrast the financial crises in Mexico in 1994 and in Asia in 1997.

Purchasing power parity suggests that the exchange rate between two currencies reflects differences in the overall price levels in the two countries.

An increase in Swiss prices will cause

If the current exchange rate is 0.65 British pounds per dollar, what is the dollar price of one British pound? If the exchange rate changes to 0.70 British pounds per dollar, what is the new dollar value of one British pound?

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

The Bretton Woods exchange rate system was replaced by a gold standard.

A country facing a balance of payments deficit will change the pegged value of its currency; this is called a revaluation.

In a balance of payments statement, the current account plus the financial account must equal the capital account.

Figure 19.1 -Referring to Figure 19.1, if the exchange rate is currently 11 pesos per dollar, then we expect the dollar to ________ and the peso to ________.

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

The U.S. dollar will appreciate if inflation rises from 3 percent to 7 percent in the United States.

A decrease in Swiss interest rates will cause

The U.S. dollar will depreciate if the Canadian inflation rate falls from 5 percent to 3 percent.

Recall the Application about the price of Big Macs in China and around the world to answer the following question(s). The following table is taken from the Application. For several years, The Economist has measured the prices of Big Macs throughout the world and compared the price differences to exchange rates. -According to the table, the Big Mac would cost the same in China and the United States at an exchange rate of ________ yuan for every one U.S. dollar.

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