Question 1

If prices rise within a country, then, other things equal, the value of a unit of domestic currency will:

Accepted Answer

A)  rise in both the domestic and the foreign exchange markets. 
B)  fall in both the domestic and the foreign exchange markets. 
C)  rise in the domestic market and fall in the foreign exchange market. 
D)  fall in the domestic market and rise in the foreign exchange market. 
E)  fluctuate unpredictably in both domestic and foreign exchange markets. 
A)  rise in both the domestic and the foreign exchange markets. 
B)  fall in both the domestic and the foreign exchange markets. 
C)  rise in the domestic market and fall in the foreign exchange market. 
D)  fall in the domestic market and rise in the foreign exchange market. 
E)  fluctuate unpredictably in both domestic and foreign exchange markets.

Question 2

Which of the following statements concerning the International Monetary Fund is true?

Accepted Answer

A)  The IMF was created to help finance economic development in poor countries. 
B)  One of the principal aims of the IMF is to discourage international trade and encourage countries to become self-sufficient. 
C)  The IMF lends money to countries experiencing large balance-of-payments surpluses. 
D)  When the IMF lends currencies, it always insists on the borrowing country taking action to reduce its balance-of-payments surplus. 
E)  The IMF obtains funds from annual membership fees charged to member countries. 
A)  The IMF was created to help finance economic development in poor countries. 
B)  One of the principal aims of the IMF is to discourage international trade and encourage countries to become self-sufficient. 
C)  The IMF lends money to countries experiencing large balance-of-payments surpluses. 
D)  When the IMF lends currencies, it always insists on the borrowing country taking action to reduce its balance-of-payments surplus. 
E)  The IMF obtains funds from annual membership fees charged to member countries.

Question 3

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.
Figure 21.2
  
-Refer to Figure 21.2. At the initial equilibrium point, with demand curve D and supply curve S1:

Accepted Answer

A)  the price of dollar per British pound is $1.50 and the quantity of British pounds being traded is 225. 
B)  the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 225. 
C)  the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 300. 
D)  the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 350. 
E)  the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 300. 
A)  the price of dollar per British pound is $1.50 and the quantity of British pounds being traded is 225. 
B)  the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 225. 
C)  the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 300. 
D)  the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 350. 
E)  the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 300.

Question 4

Suppose the price of an ounce of silver is 100 nuevos soles in Peru and $400 in the United States. This implies:

Accepted Answer

A)  the Peruvian nuevo sol is worth four times the value of a U.S. dollar. 
B)  the Peruvian nuevo sol is worth one-fourth the value of a U.S. dollar. 
C)  Peru's economy must be four times larger than the U.S. economy. 
D)  the U.S. economy must be four times larger than that of Peru. 
E)  the U.S. dollar is worth four times the value of a Peruvian nuevo sol. 
A)  the Peruvian nuevo sol is worth four times the value of a U.S. dollar. 
B)  the Peruvian nuevo sol is worth one-fourth the value of a U.S. dollar. 
C)  Peru's economy must be four times larger than the U.S. economy. 
D)  the U.S. economy must be four times larger than that of Peru. 
E)  the U.S. dollar is worth four times the value of a Peruvian nuevo sol.

Question 5

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Accepted Answer

A) True 
 B)False

Question 6

Because of their greediness, speculators are considered bad for exchange-rate markets.

Accepted Answer

A) True 
 B)False

Question 7

Under the flexible exchange rate system, when a country tries to stimulate economic growth and improve its employment rates, it is likely to cause:

Accepted Answer

A)  the domestic inflation rate to rise and the domestic currency to depreciate. 
B)  the domestic inflation rate to rise and the domestic currency to appreciate. 
C)  the domestic inflation rate and the value of the domestic currency to remain constant. 
D)  the domestic inflation rate to fall and the domestic currency to appreciate. 
E)  the domestic inflation rate to fall and the domestic currency to depreciate. 
A)  the domestic inflation rate to rise and the domestic currency to depreciate. 
B)  the domestic inflation rate to rise and the domestic currency to appreciate. 
C)  the domestic inflation rate and the value of the domestic currency to remain constant. 
D)  the domestic inflation rate to fall and the domestic currency to appreciate. 
E)  the domestic inflation rate to fall and the domestic currency to depreciate.

Question 8

To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S. dollar.

Accepted Answer

A) True 
 B)False

Question 9

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Accepted Answer

A) True 
 B)False

Question 10

If you receive a dollar return of 6 percent on a one-year Korean bond that yields 10 percent annually, this means that between the purchase date and the time of maturity:

Accepted Answer

A)  the Korean won (KRW) has depreciated 4 percent against the U.S. dollar. 
B)  the dollar price of the Korean won (KRW) has risen by 10 percent. 
C)  the percentage change in the dollar per Korean won exchange rate is 6 percent. 
D)  the dollar proceeds from the Korean bond are 4 percent higher than the initial dollar investment. 
E)  the dollar has depreciated 16 percent against the Korean won. 
A)  the Korean won (KRW) has depreciated 4 percent against the U.S. dollar. 
B)  the dollar price of the Korean won (KRW) has risen by 10 percent. 
C)  the percentage change in the dollar per Korean won exchange rate is 6 percent. 
D)  the dollar proceeds from the Korean bond are 4 percent higher than the initial dollar investment. 
E)  the dollar has depreciated 16 percent against the Korean won.

Question 11

Suppose that the price of an ounce of gold is 120 pesos in Mexico and 2,400 yen in Japan. Then the Japanese yen is worth two hundred times the value of a Mexican peso.

Accepted Answer

A) True 
 B)False

Question 12

Given a one-year Canadian bond with a yield of 8 percent, what will be the U.S. investor's rate of return at maturity if the Canadian dollar appreciates 10 percent against the U.S. dollar?

Accepted Answer

A)  2 percent 
B)  8 percent 
C)  10 percent 
D)  18 percent 
E)  25 percent 
A)  2 percent 
B)  8 percent 
C)  10 percent 
D)  18 percent 
E)  25 percent

Question 13

Assume that a country's government influences the exchange rate through active central bank intervention, with no pre-announced path. This policy is known as a(n):

Accepted Answer

A)  floating exchange-rate policy. 
B)  managed floating exchange-rate policy. 
C)  fixed exchange-rate policy. 
D)  crawling-peg exchange-rate policy. 
E)  interventionist exchange-rate policy. 
A)  floating exchange-rate policy. 
B)  managed floating exchange-rate policy. 
C)  fixed exchange-rate policy. 
D)  crawling-peg exchange-rate policy. 
E)  interventionist exchange-rate policy.

Question 14

Suppose a U.S. firm buys a one-year U.K. bond for 6,000 British pounds when 1 British pound is worth $1.50 on the foreign exchange market. What is the firm's approximate rate of return on the bond if the interest rate on the bond is 15 percent and the exchange rate is 1 British pound is worth $1.93 at maturity?

Accepted Answer

A)  11 percent 
B)  15 percent 
C)  25 percent 
D)  33 percent 
E)  48 percent 
A)  11 percent 
B)  15 percent 
C)  25 percent 
D)  33 percent 
E)  48 percent

Question 15

If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan, then it implies that:

Accepted Answer

A)  purchasing power parity exists. 
B)  the exchange market is in equilibrium. 
C)  the dollar/yen exchange rate is fixed. 
D)  interest rate parity exists. 
E)  both the currencies are pegged to a fixed amount of gold. 
A)  purchasing power parity exists. 
B)  the exchange market is in equilibrium. 
C)  the dollar/yen exchange rate is fixed. 
D)  interest rate parity exists. 
E)  both the currencies are pegged to a fixed amount of gold.

Question 16

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market. Assume that the market operates under a flexible exchange rate regime.
Figure 21.1
  
In the figure:
DS1U1B11S1U1B0 and DS1U1B12S1U1B0: Demand for Brazilian reals
SS1U1B11S1U1B0 and SS1U1B12S1U1B0: Supply of Brazilian reals

-Refer to Figure 21.1. The demand curves shown for Brazilian reals are based on:

Accepted Answer

A)  the supply of Brazilian reals in the market. 
B)  the demand for Mexican pesos. 
C)  Brazilian demand for Brazilian products. 
D)  Brazilian demand for Mexican products. 
E)  Mexican demand for Brazilian products. 
A)  the supply of Brazilian reals in the market. 
B)  the demand for Mexican pesos. 
C)  Brazilian demand for Brazilian products. 
D)  Brazilian demand for Mexican products. 
E)  Mexican demand for Brazilian products.

Question 17

The annual membership fees of the 185 member countries of the IMF are called:

Accepted Answer

A)  annuities. 
B)  quotas. 
C)  vetos. 
D)  conditionalities. 
E)  petrodollars. 
A)  annuities. 
B)  quotas. 
C)  vetos. 
D)  conditionalities. 
E)  petrodollars.

Question 18

An Australian investor buys a U.S. Treasury bond that has a price of $10,000, pays 5 percent interest, and matures in a year. Between the purchase date and the maturity date, the exchange rate changes from $1 = AUD 5.0 to $1= AUD 5.2. What will be the Australian investor's rate of return from the U.S. bond?

Accepted Answer

A)  4 percent 
B)  7 percent 
C)  9.2 percent 
D)  12 percent 
E)  25 percent 
A)  4 percent 
B)  7 percent 
C)  9.2 percent 
D)  12 percent 
E)  25 percent

Question 19

In effect, during the period immediately following World War II, the world was on a(n):

Accepted Answer

A)  gold standard. 
B)  flexible-exchange-rate standard. 
C)  U.S. dollar standard. 
D)  exchange-rate standard dictated by Germany 
E)  pegged-exchange rate standard. 
A)  gold standard. 
B)  flexible-exchange-rate standard. 
C)  U.S. dollar standard. 
D)  exchange-rate standard dictated by Germany 
E)  pegged-exchange rate standard.

Question 20

What is a currency board?

Accepted Answer

A)  A fixed exchange rate that, by law, exchanges domestic currency for a specified foreign currency at a fixed exchange rate. 
B)  A floating exchange rate. 
C)  A managed floating exchange-rate policy that the government adjusts periodically according to some economic indicator. 
D)  A laissez-faire exchange-rate policy. 
E)  An interventionist exchange-rate policy. 
A)  A fixed exchange rate that, by law, exchanges domestic currency for a specified foreign currency at a fixed exchange rate. 
B)  A floating exchange rate. 
C)  A managed floating exchange-rate policy that the government adjusts periodically according to some economic indicator. 
D)  A laissez-faire exchange-rate policy. 
E)  An interventionist exchange-rate policy.

If prices rise within a country, then, other things equal, the value of a unit of domestic currency will:

Which of the following statements concerning the International Monetary Fund is true?

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars. Figure 21.2 -Refer to Figure 21.2. At the initial equilibrium point, with demand curve D and supply curve S1:

Suppose the price of an ounce of silver is 100 nuevos soles in Peru and $400 in the United States. This implies:

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Because of their greediness, speculators are considered bad for exchange-rate markets.

Under the flexible exchange rate system, when a country tries to stimulate economic growth and improve its employment rates, it is likely to cause:

To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S. dollar.

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

If you receive a dollar return of 6 percent on a one-year Korean bond that yields 10 percent annually, this means that between the purchase date and the time of maturity:

Suppose that the price of an ounce of gold is 120 pesos in Mexico and 2,400 yen in Japan. Then the Japanese yen is worth two hundred times the value of a Mexican peso.

Given a one-year Canadian bond with a yield of 8 percent, what will be the U.S. investor's rate of return at maturity if the Canadian dollar appreciates 10 percent against the U.S. dollar?

Assume that a country's government influences the exchange rate through active central bank intervention, with no pre-announced path. This policy is known as a(n):

If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan, then it implies that:

The annual membership fees of the 185 member countries of the IMF are called:

In effect, during the period immediately following World War II, the world was on a(n):

What is a currency board?

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Filters

Exam 21: Exchange Rates and Financial Links Between Countries

If prices rise within a country, then, other things equal, the value of a unit of domestic currency will:

Which of the following statements concerning the International Monetary Fund is true?

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars. Figure 21.2 -Refer to Figure 21.2. At the initial equilibrium point, with demand curve D and supply curve S1:

Suppose the price of an ounce of silver is 100 nuevos soles in Peru and $400 in the United States. This implies:

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Because of their greediness, speculators are considered bad for exchange-rate markets.

Under the flexible exchange rate system, when a country tries to stimulate economic growth and improve its employment rates, it is likely to cause:

To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a greater expected appreciation of the Japanese yen against the U.S. dollar.

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

If you receive a dollar return of 6 percent on a one-year Korean bond that yields 10 percent annually, this means that between the purchase date and the time of maturity:

Suppose that the price of an ounce of gold is 120 pesos in Mexico and 2,400 yen in Japan. Then the Japanese yen is worth two hundred times the value of a Mexican peso.

Given a one-year Canadian bond with a yield of 8 percent, what will be the U.S. investor's rate of return at maturity if the Canadian dollar appreciates 10 percent against the U.S. dollar?

Assume that a country's government influences the exchange rate through active central bank intervention, with no pre-announced path. This policy is known as a(n):

If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan, then it implies that:

The annual membership fees of the 185 member countries of the IMF are called:

In effect, during the period immediately following World War II, the world was on a(n):

What is a currency board?

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Filters