Question 1

About what percentage of the goods and services purchased by U.S.consumers,businesses,and governments in 2016 were produced by foreigners?

Accepted Answer

A)  5% 
B)  13% 
C)  16% 
D)  40% 
A)  5% 
B)  13% 
C)  16% 
D)  40%

Question 2

Suppose that short-term real interest rates fall in Japan.Is this likely to be good news or bad news for the tourism industry in Hawaii?

Accepted Answer

Good news,unless short-term real interes

Question 3

Purchasing power parity's assumption that the real exchange is constant

Accepted Answer

A)  is correct in nearly all instances. 
B)  would be correct were it not for the existence of trade barriers. 
C)  is not reasonable. 
D)  is correct for trade between the United States and Japan, but incorrect in most other bilateral trading relations. 
A)  is correct in nearly all instances. 
B)  would be correct were it not for the existence of trade barriers. 
C)  is not reasonable. 
D)  is correct for trade between the United States and Japan, but incorrect in most other bilateral trading relations.

Question 4

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

Accepted Answer

Options contracts have the advantage to

Question 5

What is an advantage of using forward contracts instead of options to hedge against exchange-rate risk?

Accepted Answer

Option prices are hi

Question 6

What would happen to the value of the dollar if prices in the United States increased more rapidly relative to prices in other countries?

Accepted Answer

The value of the dollar will d

Question 7

All else being equal,a decrease in foreign interest rates relative to U.S.interest rates 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 8

Which of the following is an advantage of hedging with options instead of forward contracts?

Accepted Answer

A)  Options prices tend to be lower than forward prices. 
B)  If the price moves in the opposite direction to the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
C)  If the price moves in the direction of the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
D)  Options allow investors to purchase a forward contract at a later date. 
A)  Options prices tend to be lower than forward prices. 
B)  If the price moves in the opposite direction to the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
C)  If the price moves in the direction of the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
D)  Options allow investors to purchase a forward contract at a later date.

Question 9

The relation between the nominal and real exchange rates is given by which of the following equations?

Accepted Answer

A)  E = (e × PDomestic) / PForeign 
B)  e = E × (PDomestic / PForeign) 
C)  E = (e × PForeign) / PDomestic 
D)  e = (E × PForeign) / PDomestic 
A)  E = (e × PDomestic) / PForeign 
B)  e = E × (PDomestic / PForeign) 
C)  E = (e × PForeign) / PDomestic 
D)  e = (E × PForeign) / PDomestic

Question 10

If the price level in the United States increases more slowly than the price level in Canada,we would expect

Accepted Answer

A)  interest rates in the United States to be higher than interest rates in Canada. 
B)  the U.S. dollar to depreciate against the Canadian dollar. 
C)  the Canadian dollar to depreciate against the U.S. dollar. 
D)  U.S. productivity to have increased more slowly than Canadian productivity. 
A)  interest rates in the United States to be higher than interest rates in Canada. 
B)  the U.S. dollar to depreciate against the Canadian dollar. 
C)  the Canadian dollar to depreciate against the U.S. dollar. 
D)  U.S. productivity to have increased more slowly than Canadian productivity.

Question 11

When a country's nominal exchange rate appreciates,the price of

Accepted Answer

A)  that country's goods abroad increases. 
B)  that country's goods abroad decreases. 
C)  foreign goods sold in the country increases. 
D)  that country's goods produced and sold at home increases. 
A)  that country's goods abroad increases. 
B)  that country's goods abroad decreases. 
C)  foreign goods sold in the country increases. 
D)  that country's goods produced and sold at home increases.

Question 12

A Big Mac costs 400 yen in Japan and 50 pesos in Mexico.If the actual exchange rate is 1 yen = 8 pesos,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 13

Differences in price levels

Accepted Answer

A)  explain well actual exchange rate movements. 
B)  are not capable of explaining well actual exchange rate movements, particularly in the short run. 
C)  have been small for most countries in the post-World War II period. 
D)  only can be explained by the fact that little foreign trade actually takes place. 
A)  explain well actual exchange rate movements. 
B)  are not capable of explaining well actual exchange rate movements, particularly in the short run. 
C)  have been small for most countries in the post-World War II period. 
D)  only can be explained by the fact that little foreign trade actually takes place.

Question 14

If pepperoni pizzas sell for $10 in Berkeley,California,and £10 in London,England,and the exchange rate is $1.35 = £1

Accepted Answer

A)  the law of one price has been violated. 
B)  either the British government or the American government must be interfering with the market determination of the exchange rate. 
C)  the value of the dollar versus the pound is likely to rise. 
D)  there is no contradiction in the information given because pizza is not a tradeable good. 
A)  the law of one price has been violated. 
B)  either the British government or the American government must be interfering with the market determination of the exchange rate. 
C)  the value of the dollar versus the pound is likely to rise. 
D)  there is no contradiction in the information given because pizza is not a tradeable good.

Question 15

The demand for U.S.dollars represents

Accepted Answer

A)  the demand for U.S. goods and financial assets by households and firms outside the United States. 
B)  the demand for foreign goods and financial assets by households and firms within the United States. 
C)  the demand for U.S. goods and financial assets by households and firms within the United States. 
D)  the willingness of households and firms that own dollars to exchange them for foreign currency. 
A)  the demand for U.S. goods and financial assets by households and firms outside the United States. 
B)  the demand for foreign goods and financial assets by households and firms within the United States. 
C)  the demand for U.S. goods and financial assets by households and firms within the United States. 
D)  the willingness of households and firms that own dollars to exchange them for foreign currency.

About what percentage of the goods and services purchased by U.S.consumers,businesses,and governments in 2016 were produced by foreigners?

Suppose that short-term real interest rates fall in Japan.Is this likely to be good news or bad news for the tourism industry in Hawaii?

Purchasing power parity's assumption that the real exchange is constant

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

What is an advantage of using forward contracts instead of options to hedge against exchange-rate risk?

What would happen to the value of the dollar if prices in the United States increased more rapidly relative to prices in other countries?

All else being equal,a decrease in foreign interest rates relative to U.S.interest rates causes the supply of dollars to and the dollar will relative to foreign currencies.

Which of the following is an advantage of hedging with options instead of forward contracts?

The relation between the nominal and real exchange rates is given by which of the following equations?

If the price level in the United States increases more slowly than the price level in Canada,we would expect

When a country's nominal exchange rate appreciates,the price of

A Big Mac costs 400 yen in Japan and 50 pesos in Mexico.If the actual exchange rate is 1 yen = 8 pesos,we can conclude that in this case

Differences in price levels

If pepperoni pizzas sell for $10 in Berkeley,California,and £10 in London,England,and the exchange rate is $1.35 = £1

The demand for U.S.dollars represents

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

About what percentage of the goods and services purchased by U.S.consumers,businesses,and governments in 2016 were produced by foreigners?

Suppose that short-term real interest rates fall in Japan.Is this likely to be good news or bad news for the tourism industry in Hawaii?

Purchasing power parity's assumption that the real exchange is constant

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

What is an advantage of using forward contracts instead of options to hedge against exchange-rate risk?

What would happen to the value of the dollar if prices in the United States increased more rapidly relative to prices in other countries?

All else being equal,a decrease in foreign interest rates relative to U.S.interest rates causes the supply of dollars to ________ and the dollar will ________ relative to foreign currencies.

Which of the following is an advantage of hedging with options instead of forward contracts?

The relation between the nominal and real exchange rates is given by which of the following equations?

If the price level in the United States increases more slowly than the price level in Canada,we would expect

When a country's nominal exchange rate appreciates,the price of

A Big Mac costs 400 yen in Japan and 50 pesos in Mexico.If the actual exchange rate is 1 yen = 8 pesos,we can conclude that in this case

Differences in price levels

If pepperoni pizzas sell for $10 in Berkeley,California,and £10 in London,England,and the exchange rate is $1.35 = £1

The demand for U.S.dollars represents

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,a decrease in foreign interest rates relative to U.S.interest rates causes the supply of dollars to and the dollar will relative to foreign currencies.