Exam 17: The Foreign Exchange Market

Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States,3% for Canada; 4% for Mexico,and 5% for Brazil. According to the purchasing power parity and everything else held constant,which of the following would we expect to happen?

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

The starting point for understanding how exchange rates are determined is a simple idea called ________,which states: if two countries produce an identical good,the price of the good should be the same throughout the world no matter which country produces it.

When the value of the dollar changes from £0.5 to £0.75,then the British pound has ________ and the U.S.dollar has ________.

________ in the foreign interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________,everything else held constant.

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

With a 10 percent interest rate on dollar deposits,and an expected appreciation of 7 percent over the coming year,the expected return on dollar deposits in terms of the dollar is

The theory of purchasing power parity cannot fully explain exchange rate movements because

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

Evidence from the United States during the period 1973-2002 indicates that the value of the dollar and the measure of the ________ interest rate rose and fell together.

A decrease in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.

An increase in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

In a world with few impediments to capital mobility,the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency,a situation known as the

Lower tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

Everything else held constant,when the current value of the domestic currency increases,the ________ domestic assets ________.

If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar,the real depreciates from ________ per real to ________ per real.

During the beginning on the global financial crisis in the United States when the effects of the crisis were mostly confined within the United States,the U.S.dollar ________ because demand for U.S.assets ________.

The expected return on dollar deposits in terms of foreign currency can be written as the ________ of the interest rate on dollar deposits and the expected appreciation of the dollar.