Exam 25: The Exchange Rate and the Balance of Payments

Suppose that people expect that the Canadian exchange rate will decrease in the near future. How will this situation affect the Canadian exchange rate?

Appreciation of a currency means

Which one of the following would result in the dollar depreciating against the Japanese yen?

If the current account is in surplus and the capital and financial account is also in surplus, then the official settlements account balance is

Which of the following quotations best describes purchasing power parity?

Use the information below to answer the following questions. Fact 25.3.1 Aussie Dollar Hit by Interest Rate Talk The Australian dollar fell against the U.S. dollar to its lowest value in the past two weeks. The CPI inflation rate was reported to be generally as expected but not high enough to justify previous expectations for an aggressive interest rate rise by Australia's central bank next week. Source: Reuters, October 28, 2009 -Consider Fact 25.3.1. Australia's exchange rate policy is a flexible exchange rate. An expected rise in the Australian interest rate with no change in the Canadian interest rate, everything else remaining the same, ________ the demand for Australian dollars and ________ the supply of Australian dollars.