Question 1

Though useful,purchasing power parity does NOT completely explain long-run movements in exchange rates due to

Accepted Answer

A)  some goods being nontradeable. 
B)  changes in the real exchange rate. 
C)  differentiated products. 
D)  all of the above 
A)  some goods being nontradeable. 
B)  changes in the real exchange rate. 
C)  differentiated products. 
D)  all of the above

Question 2

Which of the following is NOT an implication of the theory of purchasing power parity?

Accepted Answer

A)  Exchange rates move to equalize the purchasing power of different currencies. 
B)  Exchange rates should be at a level that makes it possible to buy the same amount of goods and services with the equivalent amount of any country's currency in the long run. 
C)  A country with a higher inflation rate should experience an appreciation of its currency. 
D)  The real exchange rate should equal one. 
A)  Exchange rates move to equalize the purchasing power of different currencies. 
B)  Exchange rates should be at a level that makes it possible to buy the same amount of goods and services with the equivalent amount of any country's currency in the long run. 
C)  A country with a higher inflation rate should experience an appreciation of its currency. 
D)  The real exchange rate should equal one.

Question 3

If oranges sell for $100 per crate in the United States and 4,000 pesos per crate in Mexico,the law of one price indicates that you should be able to exchange $1 for

Accepted Answer

A)  0.025 peso. 
B)  4 pesos. 
C)  40 pesos. 
D)  400 pesos. 
A)  0.025 peso. 
B)  4 pesos. 
C)  40 pesos. 
D)  400 pesos.

Question 4

Suppose that a slice of pepperoni pizza costs £1 in London and $2 in San Francisco.If the real exchange rate is one-third of a slice of U.S.pizza for one slice of British pizza,how many pounds should you receive in exchange for $1?

Accepted Answer

A)  1/3 
B)  1.5 
C)  2 
D)  3 
A)  1/3 
B)  1.5 
C)  2 
D)  3

Question 5

Suppose a Nintendo Wii U has a price of 24,000 yen in Japan and the yen-dollar exchange rate changes from 80 yen to the dollar to 100 yen to the dollar.What happens to the price of the Wii U measured in dollars?

Accepted Answer

At 80 yen = $1,the dollar pric

Question 6

The daily turnover in the foreign exchange market is

Accepted Answer

A)  millions of dollars. 
B)  billions of dollars. 
C)  trillions of dollars. 
D)  declining in the last decade. 
A)  millions of dollars. 
B)  billions of dollars. 
C)  trillions of dollars. 
D)  declining in the last decade.

Question 7

A substantial appreciation of the U.S.dollar will likely result in,all else equal

Accepted Answer

A)  lower demand for U.S. products and layoffs of U.S. workers. 
B)  increased demand for U.S. products and increased employment of U.S. workers. 
C)  lower foreign currency prices of U.S. products in foreign countries. 
D)  higher U.S. dollar prices of foreign products in the United States. 
A)  lower demand for U.S. products and layoffs of U.S. workers. 
B)  increased demand for U.S. products and increased employment of U.S. workers. 
C)  lower foreign currency prices of U.S. products in foreign countries. 
D)  higher U.S. dollar prices of foreign products in the United States.

Question 8

Suppose the Federal Reserve reduces interest rates while interest rates in Europe do not change.Make use of a graph of the foreign exchange market to show how this will affect the value of the dollar.

Accepted Answer

Lower interest rates in the U.

Question 9

Suppose that you expect during the next year the dollar will appreciate against the pound from 0.5 pound to the dollar to 0.75 pound to the dollar.How much will you expect to make on an investment of $10,000 in British government securities that will mature in one year and pay interest of 8%?

Accepted Answer

A)  -59.5% 
B)  -28% 
C)  8% 
D)  28% 
A)  -59.5% 
B)  -28% 
C)  8% 
D)  28%

Question 10

Suppose the exchange rate is 10 pesos per dollar and you use $1,000 to purchase a one-year Mexican bond that pays 10% interest.Next year,the exchange rate is 11 pesos per dollar.Assuming you convert your funds back to U.S.dollars,how much money will you have in one year?

Accepted Answer

A)  $1,000 
B)  $1,100 
C)  $91 
D)  $0 
A)  $1,000 
B)  $1,100 
C)  $91 
D)  $0

Question 11

Which of the following is most likely to lead to an increase in the value of the dollar?

Accepted Answer

A)  decline in U.S. interest rates 
B)  increase in imports to the United States 
C)  decrease in exports from the United States 
D)  increase in U.S. interest rates compared to foreign interest rates 
A)  decline in U.S. interest rates 
B)  increase in imports to the United States 
C)  decrease in exports from the United States 
D)  increase in U.S. interest rates compared to foreign interest rates

Question 12

In 2010,fears were growing that the dollar would experience a significant decline in value.What are the likely implications for the euro-dollar exchange rate?

Accepted Answer

If people expect the dollar to

Question 13

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate

Accepted Answer

A)  inflation must be lower in the United States than in Britain. 
B)  inflation must be higher in the United States than in Britain. 
C)  market participants must be expecting the dollar to appreciate against the pound. 
D)  market participants must be expecting the dollar to depreciate against the pound. 
A)  inflation must be lower in the United States than in Britain. 
B)  inflation must be higher in the United States than in Britain. 
C)  market participants must be expecting the dollar to appreciate against the pound. 
D)  market participants must be expecting the dollar to depreciate against the pound.

Question 14

A Big Mac costs $4 in the United States and 3 euros in Portugal.If the actual exchange rate is 1 euro = $1.33,we can conclude that in this case

Accepted Answer

A)  the law of one price holds and the numbers are consistent with the theory of purchasing power parity. 
B)  the law of one price does not hold and the numbers are not consistent with the theory of purchasing power parity. 
C)  the law of one price holds but the numbers are not consistent with the theory of purchasing power parity. 
D)  the law of one price does not hold but the numbers are consistent with the theory of purchasing power parity. 
A)  the law of one price holds and the numbers are consistent with the theory of purchasing power parity. 
B)  the law of one price does not hold and the numbers are not consistent with the theory of purchasing power parity. 
C)  the law of one price holds but the numbers are not consistent with the theory of purchasing power parity. 
D)  the law of one price does not hold but the numbers are consistent with the theory of purchasing power parity.

Question 15

The exchange rate between the U.S.dollar and other currencies is dependent in the short run on all of the following EXCEPT

Accepted Answer

A)  the level of interest rates in the United States relative to foreign interest rates. 
B)  the foreign demand for U.S. produced goods. 
C)  the law of one price. 
D)  the desirability of U.S. financial securities. 
A)  the level of interest rates in the United States relative to foreign interest rates. 
B)  the foreign demand for U.S. produced goods. 
C)  the law of one price. 
D)  the desirability of U.S. financial securities.

Question 16

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

Accepted Answer

A)  The supply of dollars will decrease. 
B)  The demand for dollars will decrease. 
C)  The demand for dollars will increase. 
D)  The dollar will decrease in value. 
A)  The supply of dollars will decrease. 
B)  The demand for dollars will decrease. 
C)  The demand for dollars will increase. 
D)  The dollar will decrease in value.

Question 17

All else being equal,an increase in the U.S.demand for foreign goods causes the supply of dollars to ________ and the dollar will ________ relative to foreign currencies.

Accepted Answer

A)  increase; appreciate 
B)  increase; depreciate 
C)  decrease; appreciate 
D)  decrease; depreciate 
A)  increase; appreciate 
B)  increase; depreciate 
C)  decrease; appreciate 
D)  decrease; depreciate

Question 18

When deciding between domestic and foreign financial investments,investors typically consider

Accepted Answer

A)  domestic and foreign inflation rates and expected changes in the exchange rate. 
B)  domestic and foreign budget deficits. 
C)  shifts in the relative demand for foreign and domestic goods. 
D)  domestic and foreign interest rates and expected changes in the exchange rate. 
A)  domestic and foreign inflation rates and expected changes in the exchange rate. 
B)  domestic and foreign budget deficits. 
C)  shifts in the relative demand for foreign and domestic goods. 
D)  domestic and foreign interest rates and expected changes in the exchange rate.

Question 19

If the interest rate in the United States rises

Accepted Answer

A)  investors increase their demand for dollars and the U.S. exchange rate appreciates. 
B)  investors increase their demand for dollars and the U.S. exchange rate depreciates. 
C)  investors decrease their demand for dollars and the U.S. exchange rate appreciates. 
D)  investors decrease their demand for dollars and the U.S. exchange rate depreciates. 
A)  investors increase their demand for dollars and the U.S. exchange rate appreciates. 
B)  investors increase their demand for dollars and the U.S. exchange rate depreciates. 
C)  investors decrease their demand for dollars and the U.S. exchange rate appreciates. 
D)  investors decrease their demand for dollars and the U.S. exchange rate depreciates.

Question 20

The process by which identical products that are tradeable converge to the same price is called

Accepted Answer

A)  arbitrage. 
B)  hedging. 
C)  speculation. 
D)  risk aversion. 
A)  arbitrage. 
B)  hedging. 
C)  speculation. 
D)  risk aversion.

Though useful,purchasing power parity does NOT completely explain long-run movements in exchange rates due to

Which of the following is NOT an implication of the theory of purchasing power parity?

If oranges sell for $100 per crate in the United States and 4,000 pesos per crate in Mexico,the law of one price indicates that you should be able to exchange $1 for

Suppose that a slice of pepperoni pizza costs £1 in London and $2 in San Francisco.If the real exchange rate is one-third of a slice of U.S.pizza for one slice of British pizza,how many pounds should you receive in exchange for $1?

Suppose a Nintendo Wii U has a price of 24,000 yen in Japan and the yen-dollar exchange rate changes from 80 yen to the dollar to 100 yen to the dollar.What happens to the price of the Wii U measured in dollars?

The daily turnover in the foreign exchange market is

A substantial appreciation of the U.S.dollar will likely result in,all else equal

Suppose the Federal Reserve reduces interest rates while interest rates in Europe do not change.Make use of a graph of the foreign exchange market to show how this will affect the value of the dollar.

Suppose that you expect during the next year the dollar will appreciate against the pound from 0.5 pound to the dollar to 0.75 pound to the dollar.How much will you expect to make on an investment of $10,000 in British government securities that will mature in one year and pay interest of 8%?

Suppose the exchange rate is 10 pesos per dollar and you use $1,000 to purchase a one-year Mexican bond that pays 10% interest.Next year,the exchange rate is 11 pesos per dollar.Assuming you convert your funds back to U.S.dollars,how much money will you have in one year?

Which of the following is most likely to lead to an increase in the value of the dollar?

In 2010,fears were growing that the dollar would experience a significant decline in value.What are the likely implications for the euro-dollar exchange rate?

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate

A Big Mac costs $4 in the United States and 3 euros in Portugal.If the actual exchange rate is 1 euro = $1.33,we can conclude that in this case

The exchange rate between the U.S.dollar and other currencies is dependent in the short run on all of the following EXCEPT

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

All else being equal,an increase in the U.S.demand for foreign goods causes the supply of dollars to and the dollar will relative to foreign currencies.

When deciding between domestic and foreign financial investments,investors typically consider

If the interest rate in the United States rises

The process by which identical products that are tradeable converge to the same price is called

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 8: The Market for Foreign Exchange

Though useful,purchasing power parity does NOT completely explain long-run movements in exchange rates due to

Which of the following is NOT an implication of the theory of purchasing power parity?

If oranges sell for $100 per crate in the United States and 4,000 pesos per crate in Mexico,the law of one price indicates that you should be able to exchange $1 for

Suppose that a slice of pepperoni pizza costs £1 in London and $2 in San Francisco.If the real exchange rate is one-third of a slice of U.S.pizza for one slice of British pizza,how many pounds should you receive in exchange for $1?

Suppose a Nintendo Wii U has a price of 24,000 yen in Japan and the yen-dollar exchange rate changes from 80 yen to the dollar to 100 yen to the dollar.What happens to the price of the Wii U measured in dollars?

The daily turnover in the foreign exchange market is

A substantial appreciation of the U.S.dollar will likely result in,all else equal

Suppose the Federal Reserve reduces interest rates while interest rates in Europe do not change.Make use of a graph of the foreign exchange market to show how this will affect the value of the dollar.

Suppose that you expect during the next year the dollar will appreciate against the pound from 0.5 pound to the dollar to 0.75 pound to the dollar.How much will you expect to make on an investment of $10,000 in British government securities that will mature in one year and pay interest of 8%?

Suppose the exchange rate is 10 pesos per dollar and you use $1,000 to purchase a one-year Mexican bond that pays 10% interest.Next year,the exchange rate is 11 pesos per dollar.Assuming you convert your funds back to U.S.dollars,how much money will you have in one year?

Which of the following is most likely to lead to an increase in the value of the dollar?

In 2010,fears were growing that the dollar would experience a significant decline in value.What are the likely implications for the euro-dollar exchange rate?

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate

A Big Mac costs $4 in the United States and 3 euros in Portugal.If the actual exchange rate is 1 euro = $1.33,we can conclude that in this case

The exchange rate between the U.S.dollar and other currencies is dependent in the short run on all of the following EXCEPT

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

All else being equal,an increase in the U.S.demand for foreign goods causes the supply of dollars to ________ and the dollar will ________ relative to foreign currencies.

When deciding between domestic and foreign financial investments,investors typically consider

If the interest rate in the United States rises

The process by which identical products that are tradeable converge to the same price is called

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

All else being equal,an increase in the U.S.demand for foreign goods causes the supply of dollars to and the dollar will relative to foreign currencies.