Question 1

According to the theory of purchasing power parity, if the inflation rate in England is greater than the inflation rate in Japan,

Accepted Answer

A) the law of one price has been violated. 
B) the nominal value of the pound will appreciate against the yen. 
C) the nominal value of the yen will appreciate against the pound. 
D) the nominal value of the pound will appreciate against the yen, but only if the two countries are on the gold standard. 
A) the law of one price has been violated. 
B) the nominal value of the pound will appreciate against the yen. 
C) the nominal value of the yen will appreciate against the pound. 
D) the nominal value of the pound will appreciate against the yen, but only if the two countries are on the gold standard.

Question 2

A depreciating nominal exchange rate results from

Accepted Answer

A) a depreciating real exchange rate. 
B) a low domestic inflation rate relative to the foreign inflation rate. 
C) an appreciating real exchange rate. 
D) a large government budget deficit. 
A) a depreciating real exchange rate. 
B) a low domestic inflation rate relative to the foreign inflation rate. 
C) an appreciating real exchange rate. 
D) a large government budget deficit.

Question 3

Which of the following would cause the nominal exchange rate to appreciate?

Accepted Answer

A) The real exchange rate depreciates. 
B) The domestic inflation rate decreases. 
C) The domestic inflation rate increases. 
D) The government budget deficit decreases. 
A) The real exchange rate depreciates. 
B) The domestic inflation rate decreases. 
C) The domestic inflation rate increases. 
D) The government budget deficit decreases.

Question 4

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

Accepted Answer

A) The supply of dollars will decrease. 
B) The demand for dollars will decrease. 
C) The demand for dollars will increase. 
D) The dollar will decrease in value. 
A) The supply of dollars will decrease. 
B) The demand for dollars will decrease. 
C) The demand for dollars will increase. 
D) The dollar will decrease in value.

Question 5

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate,

Accepted Answer

A) inflation must be lower in the United States than in Britain. 
B) inflation must be higher in the United States than in Britain. 
C) market participants must be expecting the dollar to appreciate against the pound. 
D) market participants must be expecting the dollar to depreciate against the pound. 
A) inflation must be lower in the United States than in Britain. 
B) inflation must be higher in the United States than in Britain. 
C) market participants must be expecting the dollar to appreciate against the pound. 
D) market participants must be expecting the dollar to depreciate against the pound.

Question 6

A change in the dollar value of the British pound from $1.60 to $1.50 represents

Accepted Answer

A) an increase in the pound price of British goods. 
B) an appreciation of the dollar relative to the pound. 
C) an appreciation of the pound relative to the dollar. 
D) an increase in the dollar price of British goods. 
A) an increase in the pound price of British goods. 
B) an appreciation of the dollar relative to the pound. 
C) an appreciation of the pound relative to the dollar. 
D) an increase in the dollar price of British goods.

Question 7

When a country's nominal exchange rate depreciates, the price of

Accepted Answer

A) that country's goods abroad increases. 
B) that country's goods abroad decreases. 
C) foreign goods sold in the country decreases. 
D) that country's goods produced and sold at home decreases. 
A) that country's goods abroad increases. 
B) that country's goods abroad decreases. 
C) foreign goods sold in the country decreases. 
D) that country's goods produced and sold at home decreases.

Question 8

What would happen to the value of the dollar if prices in the U.S. increased more rapidly relative to prices in other countries?

Accepted Answer

The value of the dollar will d

Question 9

A quota refers to:

Accepted Answer

A) a tax on imported goods 
B) a limit on the amount of a good that can be imported 
C) the range within which an exchange rate is allowed to fluctuate 
D) a limit on the size of a trade deficit 
A) a tax on imported goods 
B) a limit on the amount of a good that can be imported 
C) the range within which an exchange rate is allowed to fluctuate 
D) a limit on the size of a trade deficit

Question 10

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

Accepted Answer

Options contracts have the advantage to

Question 11

What would happen in the foreign exchange market if the European Central Bank raises European interest rates?

Accepted Answer

A) There will be a decline in the value of the euro. 
B) There will be a decline in the value of the dollar. 
C) There will be an increase in the value of the dollar. 
D) U)S. interest rates will decline. 
A) There will be a decline in the value of the euro. 
B) There will be a decline in the value of the dollar. 
C) There will be an increase in the value of the dollar. 
D) U)S. interest rates will decline.

Question 12

If pepperoni pizzas sell for $10 in Berkeley, California, and £10 in London, England, and the exchange rate is $1.35 = £1,

Accepted Answer

A) the law of one price has been violated. 
B) either the British government or the American government must be interfering with the market determination of the exchange rate. 
C) the value of the dollar versus the pound is likely to rise. 
D) there is no contradiction in the information given because pizza is not a tradeable good. 
A) the law of one price has been violated. 
B) either the British government or the American government must be interfering with the market determination of the exchange rate. 
C) the value of the dollar versus the pound is likely to rise. 
D) there is no contradiction in the information given because pizza is not a tradeable good.

Question 13

In the spot foreign exchange market,

Accepted Answer

A) only dollars, yen, and pounds may be traded. 
B) only dollars and yen may be traded. 
C) currencies or bank deposits are exchanged immediately. 
D) currencies or bank deposits are exchanged at a fixed date (or spot)in the future. 
A) only dollars, yen, and pounds may be traded. 
B) only dollars and yen may be traded. 
C) currencies or bank deposits are exchanged immediately. 
D) currencies or bank deposits are exchanged at a fixed date (or spot)in the future.

Question 14

The theory of purchasing power parity assumes that

Accepted Answer

A) movements in nominal exchange rates are the result of movements in relative price levels. 
B) real exchange rates are volatile. 
C) movements in nominal exchange rates are the result of movements in real exchange rates. 
D) inflation rates are roughly the same in most countries. 
A) movements in nominal exchange rates are the result of movements in relative price levels. 
B) real exchange rates are volatile. 
C) movements in nominal exchange rates are the result of movements in real exchange rates. 
D) inflation rates are roughly the same in most countries.

Question 15

The relation between the nominal and real exchange rates is given by which of the following equations?

Accepted Answer

A) EX = (   × P)/   
B)    = (EX × P)/   
C) EX = (   ×   )/P 
D)    = (EX ×   )/P 
A) EX = (   × P)/   
B)    = (EX × P)/   
C) EX = (   ×   )/P 
D)    = (EX ×   )/P

Question 16

About what percentage of U.S. output was exported to foreigners in 2012?

Accepted Answer

A) 1% 
B) 14% 
C) 18% 
D) 25% 
A) 1% 
B) 14% 
C) 18% 
D) 25%

Question 17

If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange rate,

Accepted Answer

A) Japanese interest rates must be higher than U.S. interest rates. 
B) U)S. interest rates must be higher than Japanese interest rates. 
C) market participants must be expecting the dollar to appreciate against the yen. 
D) market participants must be expecting the dollar to depreciate against the yen. 
A) Japanese interest rates must be higher than U.S. interest rates. 
B) U)S. interest rates must be higher than Japanese interest rates. 
C) market participants must be expecting the dollar to appreciate against the yen. 
D) market participants must be expecting the dollar to depreciate against the yen.

Question 18

Under the theory of purchasing power parity, an increase in the U.S. price level of 10% relative to the Japanese price level will result in

Accepted Answer

A) a 10% appreciation of the yen. 
B) a 10% appreciation of the dollar. 
C) an appreciation of the yen by an amount that depends upon what happens to the real exchange rate. 
D) an appreciation of the dollar by an amount that depends upon what happens to the real exchange rate. 
A) a 10% appreciation of the yen. 
B) a 10% appreciation of the dollar. 
C) an appreciation of the yen by an amount that depends upon what happens to the real exchange rate. 
D) an appreciation of the dollar by an amount that depends upon what happens to the real exchange rate.

Question 19

If a British automobile sells for £20,000 and the British pound is worth $1.50, then the dollar price of the automobile is

Accepted Answer

A) $1.60. 
B) $12,500. 
C) $20,000. 
D) $30,000. 
A) $1.60. 
B) $12,500. 
C) $20,000. 
D) $30,000.

Question 20

Differences in price levels

Accepted Answer

A) explain well actual exchange rate movements. 
B) are not capable of explaining well actual exchange rate movements, particularly in the short run. 
C) have been small for most countries in the post-World War II period. 
D) only can be explained by the fact that little foreign trade actually takes place. 
A) explain well actual exchange rate movements. 
B) are not capable of explaining well actual exchange rate movements, particularly in the short run. 
C) have been small for most countries in the post-World War II period. 
D) only can be explained by the fact that little foreign trade actually takes place.

According to the theory of purchasing power parity, if the inflation rate in England is greater than the inflation rate in Japan,

A depreciating nominal exchange rate results from

Which of the following would cause the nominal exchange rate to appreciate?

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate,

A change in the dollar value of the British pound from $1.60 to $1.50 represents

When a country's nominal exchange rate depreciates, the price of

What would happen to the value of the dollar if prices in the U.S. increased more rapidly relative to prices in other countries?

A quota refers to:

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

What would happen in the foreign exchange market if the European Central Bank raises European interest rates?

If pepperoni pizzas sell for $10 in Berkeley, California, and £10 in London, England, and the exchange rate is $1.35 = £1,

In the spot foreign exchange market,

The theory of purchasing power parity assumes that

The relation between the nominal and real exchange rates is given by which of the following equations?

About what percentage of U.S. output was exported to foreigners in 2012?

If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange rate,

Under the theory of purchasing power parity, an increase in the U.S. price level of 10% relative to the Japanese price level will result in

If a British automobile sells for £20,000 and the British pound is worth $1.50, then the dollar price of the automobile is

Differences in price levels

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters

Exam 8: The Market for Foreign Exchange

According to the theory of purchasing power parity, if the inflation rate in England is greater than the inflation rate in Japan,

A depreciating nominal exchange rate results from

Which of the following would cause the nominal exchange rate to appreciate?

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate,

A change in the dollar value of the British pound from $1.60 to $1.50 represents

When a country's nominal exchange rate depreciates, the price of

What would happen to the value of the dollar if prices in the U.S. increased more rapidly relative to prices in other countries?

A quota refers to:

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

What would happen in the foreign exchange market if the European Central Bank raises European interest rates?

If pepperoni pizzas sell for $10 in Berkeley, California, and £10 in London, England, and the exchange rate is $1.35 = £1,

In the spot foreign exchange market,

The theory of purchasing power parity assumes that

The relation between the nominal and real exchange rates is given by which of the following equations?

About what percentage of U.S. output was exported to foreigners in 2012?

If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange rate,

Under the theory of purchasing power parity, an increase in the U.S. price level of 10% relative to the Japanese price level will result in

If a British automobile sells for £20,000 and the British pound is worth $1.50, then the dollar price of the automobile is

Differences in price levels

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters