Question 1

The real exchange rate is defined as

Accepted Answer

A) the market exchange rate adjusted for price differences. 
B) the purchasing power parity exchange rate. 
C) the exchange rate that causes interest parity to hold. 
D) the exchange rate that exists in major currency centers. 
A) the market exchange rate adjusted for price differences. 
B) the purchasing power parity exchange rate. 
C) the exchange rate that causes interest parity to hold. 
D) the exchange rate that exists in major currency centers.

Question 2

A rise in the nominal exchange rate ($/€)represents a depreciation of the dollar relative to the euro,but a rise in the real exchange rate ($/€)represent an appreciation of the dollar.Explain why this is true.

Accepted Answer

The nominal exchange rate represents the

Question 3

Currently the NAFTA nations do not meet the conditions for an optimal currency area.What are the two main reasons why?

Accepted Answer

Historically Mexico's business

Question 4

In order to protect against foreign exchange risk,firms can use

Accepted Answer

A) the spot market for foreign exchange. 
B) interest rate arbitrage. 
C) the forward market for foreign exchange. 
D) the J-curve. 
A) the spot market for foreign exchange. 
B) interest rate arbitrage. 
C) the forward market for foreign exchange. 
D) the J-curve.

Question 5

A forward exchange market contract obligates the owner to make a trade at a specified exchange rate a fixed number of days in the future.

Accepted Answer

A) True 
 B)False

Question 6

Explain the three rules that countries must follow to maintain a gold standard.

Accepted Answer

First,they must fix the value of their c

Question 7

Explain Mundell's four conditions for adopting a single currency.

Accepted Answer

The first condition is that the business

Question 8

The biggest disadvantage of a fixed exchange rate is the

Accepted Answer

A) increased probability of high inflation. 
B) tradeoff between supporting the exchange rate and adjusting the trade balance. 
C) tradeoff between supporting the exchange rate and maintaining economic growth. 
D) tradeoff between supporting the exchange rate and maintaining a balanced budget. 
A) increased probability of high inflation. 
B) tradeoff between supporting the exchange rate and adjusting the trade balance. 
C) tradeoff between supporting the exchange rate and maintaining economic growth. 
D) tradeoff between supporting the exchange rate and maintaining a balanced budget.

Question 9

The majority of countries in the world have some type of fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 10

If inflation in the rest of the world is lower than inflation in Brazil,Brazil's currency (the real)would tend to appreciate.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following defines a soft peg?

Accepted Answer

A) An exchange rate determined by the market 
B) An exchange rate that fluctuates within a set band 
C) An exchange rate that is not allowed to vary 
D) An exchange rate that is backed by gold 
A) An exchange rate determined by the market 
B) An exchange rate that fluctuates within a set band 
C) An exchange rate that is not allowed to vary 
D) An exchange rate that is backed by gold

Question 12

Which of the following is true?

Accepted Answer

A) If an exchange rate is allowed to vary across a fixed basket of currencies, it is called a hard peg. 
B) If an exchange rate is not allowed to vary against the target currency, it is called a soft peg. 
C) If an exchange is only allowed to fluctuate within a set band, it is considered to be a flexible exchange rate system. 
D) A soft peg is when a currency's exchange rate is only allowed to fluctuate within a set band. 
A) If an exchange rate is allowed to vary across a fixed basket of currencies, it is called a hard peg. 
B) If an exchange rate is not allowed to vary against the target currency, it is called a soft peg. 
C) If an exchange is only allowed to fluctuate within a set band, it is considered to be a flexible exchange rate system. 
D) A soft peg is when a currency's exchange rate is only allowed to fluctuate within a set band.

Question 13

Economic research using data from the 1990s has shown that

Accepted Answer

A) floating rate systems are better for economic growth. 
B) fixed rate systems are better for economic growth. 
C) gold standards are better for economic growth. 
D) there is no clear relationship between the exchange rate system and growth. 
A) floating rate systems are better for economic growth. 
B) fixed rate systems are better for economic growth. 
C) gold standards are better for economic growth. 
D) there is no clear relationship between the exchange rate system and growth.

Question 14

A country that experiences higher real interest rates than other countries would expect its currency to depreciate.

Accepted Answer

A) True 
 B)False

Question 15

The nominal interest rate in the U.S.is 5% and the nominal interest rate in Canada is 3%.The spot value of the U.S.dollar is 1 ($/Canadian dollar)and the forward rate is 1.2 ($/Canadian dollar).Calculate the forward discount or premium for the dollar.Does the interest parity condition hold? If not explain what is likely to occur in foreign exchange markets.Assume that interest rates cannot change.

Accepted Answer

The dollar is trading at a forward disco

Question 16

An increase in the U.S.demand for the Mexican peso

Accepted Answer

A) causes an increase in the U.S. dollar price of a Mexican peso. 
B) causes the Mexican peso to appreciate. 
C) causes the U.S. dollar to depreciate. 
D) causes Mexican goods to be cheaper. 
A) causes an increase in the U.S. dollar price of a Mexican peso. 
B) causes the Mexican peso to appreciate. 
C) causes the U.S. dollar to depreciate. 
D) causes Mexican goods to be cheaper.

Question 17

If Mexicans increasingly lose confidence in their domestic financial markets and move their assets to other countries,the peso will depreciate.

Accepted Answer

A) True 
 B)False

Question 18

A rise in the real exchange rate represents an increase in the purchasing power of the home currency.

Accepted Answer

A) True 
 B)False

Question 19

When most shocks originate in the monetary sector,it is generally better to have

Accepted Answer

A) a flexible rate system. 
B) a fixed rate system. 
C) a gold standard. 
D) a managed float. 
A) a flexible rate system. 
B) a fixed rate system. 
C) a gold standard. 
D) a managed float.

Question 20

A single currency area requires

Accepted Answer

A) mobile labor and synchronized business cycles. 
B) immobile labor and synchronized business cycles. 
C) immobile labor and mobile capital. 
D) mobile labor and unsynchronized business cycles. 
A) mobile labor and synchronized business cycles. 
B) immobile labor and synchronized business cycles. 
C) immobile labor and mobile capital. 
D) mobile labor and unsynchronized business cycles.

The real exchange rate is defined as

A rise in the nominal exchange rate ($/€)represents a depreciation of the dollar relative to the euro,but a rise in the real exchange rate ($/€)represent an appreciation of the dollar.Explain why this is true.

Currently the NAFTA nations do not meet the conditions for an optimal currency area.What are the two main reasons why?

In order to protect against foreign exchange risk,firms can use

A forward exchange market contract obligates the owner to make a trade at a specified exchange rate a fixed number of days in the future.

Explain the three rules that countries must follow to maintain a gold standard.

Explain Mundell's four conditions for adopting a single currency.

The biggest disadvantage of a fixed exchange rate is the

The majority of countries in the world have some type of fixed exchange rate system.

If inflation in the rest of the world is lower than inflation in Brazil,Brazil's currency (the real)would tend to appreciate.

Which of the following defines a soft peg?

Which of the following is true?

Economic research using data from the 1990s has shown that

A country that experiences higher real interest rates than other countries would expect its currency to depreciate.

An increase in the U.S.demand for the Mexican peso

If Mexicans increasingly lose confidence in their domestic financial markets and move their assets to other countries,the peso will depreciate.

A rise in the real exchange rate represents an increase in the purchasing power of the home currency.

When most shocks originate in the monetary sector,it is generally better to have

A single currency area requires

The United States in a Global Economy

International Economic Institutions Since World War II

Comparative Advantage and the Gains From Trade

Comparative Advantage and Factor Endowments

Beyond Comparative Advantage

The Theory of Tariffs and Quotas

Commercial Policy

International Trade and Labor and Environmental Standards

Trade and the Balance of Payments

An Introduction to Open Economy Macroeconomics

International Financial Crises

The United States in the World Economy

The European Union: Many Markets Into One

Trade and Policy Reform in Latin America

Export-Oriented Growth in East Asia

China and India in the World Economy

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Exam 10: Exchange Rates and Exchange Rate Systems

The real exchange rate is defined as

A rise in the nominal exchange rate ($/€)represents a depreciation of the dollar relative to the euro,but a rise in the real exchange rate ($/€)represent an appreciation of the dollar.Explain why this is true.

Currently the NAFTA nations do not meet the conditions for an optimal currency area.What are the two main reasons why?

In order to protect against foreign exchange risk,firms can use

A forward exchange market contract obligates the owner to make a trade at a specified exchange rate a fixed number of days in the future.

Explain the three rules that countries must follow to maintain a gold standard.

Explain Mundell's four conditions for adopting a single currency.

The biggest disadvantage of a fixed exchange rate is the

The majority of countries in the world have some type of fixed exchange rate system.

If inflation in the rest of the world is lower than inflation in Brazil,Brazil's currency (the real)would tend to appreciate.

Which of the following defines a soft peg?

Which of the following is true?

Economic research using data from the 1990s has shown that

A country that experiences higher real interest rates than other countries would expect its currency to depreciate.

An increase in the U.S.demand for the Mexican peso

If Mexicans increasingly lose confidence in their domestic financial markets and move their assets to other countries,the peso will depreciate.

A rise in the real exchange rate represents an increase in the purchasing power of the home currency.

When most shocks originate in the monetary sector,it is generally better to have

A single currency area requires

The United States in a Global Economy

International Economic Institutions Since World War II

Comparative Advantage and the Gains From Trade

Comparative Advantage and Factor Endowments

Beyond Comparative Advantage

The Theory of Tariffs and Quotas

Commercial Policy

International Trade and Labor and Environmental Standards

Trade and the Balance of Payments

An Introduction to Open Economy Macroeconomics

International Financial Crises

The United States in the World Economy

The European Union: Many Markets Into One

Trade and Policy Reform in Latin America

Export-Oriented Growth in East Asia

China and India in the World Economy

Filters