Exam 15: The International Financial System

If one Canadian dollar could be exchanged for one Australian dollar in 1970, and one Canadian dollar can now be exchanged for 0.98 Australian dollars, which of the following is true?

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

If, at the current exchange rate between the dollar and the Norwegian kroner of 5.78 kroner per dollar, the dollar is "overvalued," how do you expect demand and supply in the foreign exchange markets to respond?

Under the Bretton Woods system, U.S.dollars were redeemable for ________ only if the dollars were presented by a foreign central bank.

The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.In July 2011, the Economist reported that the average price of a Big Mac in the United States was $4.07.In Mexico, the average price of a Big Mac at that time was 32 pesos.If the exchange rate between the dollar and the peso was 13.60 pesos per dollar, how would purchasing power parity predict the exchange rate will change in the long run? Support your answer graphically.

Figure 15.3 Alt text for Figure 15.3: In figure 15.3, a graph illustrates the quantity of bahts traded against the exchange rate. Long description for Figure 15.3: The x-axis is labelled, quantity of bahts traded, with value 180 marked.The y-axis is labelled exchange rate, Canadian dollar against the baht, with value 0.03 marked.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.A straight line demand curve, D, slopes down from the top left corner to the bottom right corner.Curves S and D intersect at point (160, 0.30), which is connected to the corresponding x and y-axes values with dotted lines. -Refer to Figure 15.3.At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to Canada?

If the U.S.government places tariffs on imports from countries that have been accused of deliberately undervaluing their currencies, the price of these imports will ________ and the demand for the undervalued currency will ________.

European governments removed many restrictions on flows of capital into and out of Europe in the ________.This policy increased both Canadian investment in European stocks and bonds and European investment in Canadian stocks and bonds.

When the value of a currency is determined ________, the exchange rate system is defined as a managed float.

Figure 15.3 Alt text for Figure 15.3: In figure 15.3, a graph illustrates the quantity of bahts traded against the exchange rate. Long description for Figure 15.3: The x-axis is labelled, quantity of bahts traded, with value 180 marked.The y-axis is labelled exchange rate, Canadian dollar against the baht, with value 0.03 marked.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.A straight line demand curve, D, slopes down from the top left corner to the bottom right corner.Curves S and D intersect at point (160, 0.30), which is connected to the corresponding x and y-axes values with dotted lines. -Refer to Figure 15.3.Which of the following is not true?

Figure 15.4 Alt text for Figure 15.4: In figure 15.4, a graph illustrates the quantity of pounds traded against the exchange rate. Long description for Figure 15.4: The x-axis is labelled, quantity of pounds traded in millions per day.The y-axis is labelled, exchange rate, Canadian dollar against the pound.A straight line supply curve, S, slopes up from the middle left to the top right corner.2 straight line demand curves, D1 and D2, have 2 slightly different slopes.Both curves slope down from the top left corner to the bottom right corner.Curve D2 is plotted to the left of curve D1.The difference between the curves is indicated by a left pointing arrow.Curve S intersects curves D1 and D2 at points A (500, 3.00)and B (300, 2.00).Point (300, 4.00)is plotted near the top of curve D1, and point (100, 4.00)is plotted near the top of curve D2.All points are connected to their corresponding values on the x and y-axes with dotted lines. -Refer to Figure 15.4.The equilibrium exchange rate is at A, $3/pound.Suppose the British government pegs its currency at $4/pound.At the pegged exchange rate,

If the average productivity of Indian firms is rising more quickly than the average productivity of Canadian firms, which of the following would you expect to see? (India's currency is the rupee.)

In order to maintain an undervalued yuan to encourage a trade surplus, the Chinese government must buy U.S.dollars and increase the supply of yuan.

South Korea, Indonesia, Malaysia, and Thailand all pegged their currencies to the dollar at one point in time.Because some of these currencies were overvalued at the pegged rate, speculators anticipated these countries would abandon the peg and speculators began selling those currencies.Explain how this speculation would affect the ability of a country to maintain a pegged exchange rate.

If interest rates in Canada fall,

The currency adopted by most countries in ________ is referred to as the euro.

One reason purchasing power parity does not exactly hold is that many goods are not traded internationally.

How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?

South Korea suffered a destabilizing speculation in the late 1990s.This had the effect of decreasing ________ the won.The South Korean government tried to counteract this by ________ interest rates, which should have increased ________ the won.

If the implied exchange rate between Big Mac prices in Canada and the Philippines is 68 pesos per Canadian dollar, but the actual exchange rate between Canada and the Philippines is 43 pesos per Canadian dollar, which of the following would you expect to see?