Exam 18: The Foreign Exchange Market

If the real exchange rate between Canada and Japan is ________, then it is cheaper to buy goods in Japan than in Canada.

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.

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

Although foreign exchange market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of ________.

Everything else held constant, if a factor decreases the demand for ________ goods relative to ________ goods, the domestic currency will depreciate.

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

According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then the expected ________ of the foreign currency must be ________ percent.

________ 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.

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

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

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

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price, everything else held constant.

Suppose that the Bank of Canada enacts expansionary policy. Everything else held constant, this will cause the demand for Canadian assets to ________ and the Canadian dollar to ________.

When Canadians or foreigners expect the return on ________ assets to be high relative to the return on ________ assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

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

Exchange rates are determined in ________.

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

If the Canadian dollar appreciates from 1.25 Swiss franc per Canadian dollar to 1.5 francs per dollar, then the franc depreciates from ________ Canadian dollars per franc to ________ Canadian dollars per franc.

In the model of the demand and supply of dollar assets use a graph to explain how a change in the foreign interest rate affects the equilibrium exchange rate.

When the effects of the subprime crisis started to spread more quickly throughout the rest of the world, the U.S. dollar ________ because demand for U.S. assets ________.