Question 1

What are the three factors that affect the demand for foreign currency?

Accepted Answer

The three factors that affect

Question 2

If the goods' money prices do not change,an appreciation of the dollar against the pound

Accepted Answer

A) makes British sweaters cheaper in terms of American jeans. 
B) makes British sweaters more expensive in terms of American jeans. 
C) doesn't change the relative price of sweaters and jeans. 
D) makes American jeans cheaper in terms of British sweaters. 
E) makes British jeans more expensive in Britain. 
A) makes British sweaters cheaper in terms of American jeans. 
B) makes British sweaters more expensive in terms of American jeans. 
C) doesn't change the relative price of sweaters and jeans. 
D) makes American jeans cheaper in terms of British sweaters. 
E) makes British jeans more expensive in Britain.

Question 3

Exxon Mobil wants to pay   160,000 to a German supplier.They get an exchange rate quotation from its own commercial bank and instructs it to debit their dollar account and pay   160,000 to the supplier's German account.If the exchange rate quoted is $1.2 per euro,how much is debited to Exxon Mobil's account?

Accepted Answer

A) $160,000 
B) $172,000 
C) $180,000 
D) $192,000 
E) $150,000 
A) $160,000 
B) $172,000 
C) $180,000 
D) $192,000 
E) $150,000

Question 4

If the dollar interest rate is 10 percent,the euro interest rate is 6 percent,then

Accepted Answer

A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent. 
B) an investor should invest only in euros if the expected dollar depreciation against the euro is 4 percent. 
C) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 4 percent. 
D) an investor should invest only in dollars. 
E) an investor should invest only in euros. 
A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent. 
B) an investor should invest only in euros if the expected dollar depreciation against the euro is 4 percent. 
C) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 4 percent. 
D) an investor should invest only in dollars. 
E) an investor should invest only in euros.

Question 5

Calculate the interest rate in the euro zone if interest parity condition holds,for the following 15 cases.

Accepted Answer

The answer of Calculate the interest rate in the euro...

Question 6

When a country's currency depreciates

Accepted Answer

A) foreigners find that its exports are more expensive,and domestic residents find that imports from abroad are more expensive. 
B) foreigners find that its exports are more expensive,and domestic residents find that imports from abroad are cheaper. 
C) foreigners find that its exports are cheaper;however,domestic residents are not affected. 
D) foreigners are not affected,but domestic residents find that imports from abroad are more expensive. 
E) foreigners find that its exports are cheaper and domestic residents find that imports from abroad are more expensive. 
A) foreigners find that its exports are more expensive,and domestic residents find that imports from abroad are more expensive. 
B) foreigners find that its exports are more expensive,and domestic residents find that imports from abroad are cheaper. 
C) foreigners find that its exports are cheaper;however,domestic residents are not affected. 
D) foreigners are not affected,but domestic residents find that imports from abroad are more expensive. 
E) foreigners find that its exports are cheaper and domestic residents find that imports from abroad are more expensive.

Question 7

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.60 dollars per British pound?

Accepted Answer

A) 38.125 British pounds 
B) 28.125 British pounds 
C) 48.125 British pounds 
D) 58.125 British pounds 
E) 18.125 British pounds 
A) 38.125 British pounds 
B) 28.125 British pounds 
C) 48.125 British pounds 
D) 58.125 British pounds 
E) 18.125 British pounds

Question 8

Forward and spot exchange rates

Accepted Answer

A) are necessarily equal. 
B) do not move closely together. 
C) are always such that the forward exchange rate is higher. 
D) move closely together and are equal on the value date. 
E) are unrelated to the value date. 
A) are necessarily equal. 
B) do not move closely together. 
C) are always such that the forward exchange rate is higher. 
D) move closely together and are equal on the value date. 
E) are unrelated to the value date.

Question 9

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.80 dollars per one British pound?

Accepted Answer

A) 40 dollars 
B) 90 dollars 
C) 50 dollars 
D) 100 dollars 
E) 95 dollars 
A) 40 dollars 
B) 90 dollars 
C) 50 dollars 
D) 100 dollars 
E) 95 dollars

Question 10

Which of the following statements is TRUE about a vehicle currency?

Accepted Answer

A) It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle currency. 
B) The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange deals. 
C) There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar. 
D) The pound sterling,once second only to the dollar as a key international currency,is beginning to rise in importance. 
E) Vehicle currencies include nondeliverable currencies like the renminbi. 
A) It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle currency. 
B) The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange deals. 
C) There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar. 
D) The pound sterling,once second only to the dollar as a key international currency,is beginning to rise in importance. 
E) Vehicle currencies include nondeliverable currencies like the renminbi.

Question 11

Show graphically a drop in the interest rate offered by dollar deposits,R$,and the effect on the exchange rate,   .

Accepted Answer

A drop in the interest rate pa

Question 12

The action of arbitrage is

Accepted Answer

A) the process of buying a currency cheap and selling it dear. 
B) the process of buying a currency dear and selling it cheap. 
C) the process of buying and selling currency at the same price. 
D) the process of selling currency at different prices in different markets. 
E) the process of buying a currency and holding onto it to take it off the market. 
A) the process of buying a currency cheap and selling it dear. 
B) the process of buying a currency dear and selling it cheap. 
C) the process of buying and selling currency at the same price. 
D) the process of selling currency at different prices in different markets. 
E) the process of buying a currency and holding onto it to take it off the market.

Question 13

Which one of the following statements is the MOST accurate?

Accepted Answer

A) A rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
B) A rise in the interest rate offered by dollar deposits causes the dollar to depreciate. 
C) A rise in the interest rate offered by dollar deposits does not affect the U.S.dollar. 
D) For a given euro interest rate and constant expected exchange rate,a rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
E) A rise in the interest rate offered by the dollar causes the euro to appreciate. 
A) A rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
B) A rise in the interest rate offered by dollar deposits causes the dollar to depreciate. 
C) A rise in the interest rate offered by dollar deposits does not affect the U.S.dollar. 
D) For a given euro interest rate and constant expected exchange rate,a rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
E) A rise in the interest rate offered by the dollar causes the euro to appreciate.

Question 14

If the dollar interest rate is 10 percent,the euro interest rate is 12 percent,then

Accepted Answer

A) an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
B) an investor should invest only in euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
C) an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
D) an investor should invest only in dollars. 
E) an investor should invest only in euros. 
A) an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
B) an investor should invest only in euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
C) an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. 
D) an investor should invest only in dollars. 
E) an investor should invest only in euros.

Question 15

Futures contracts differ from forward contracts in that

Accepted Answer

A) future contracts ensures you will receive a certain amount of foreign currency at a specified future date. 
B) future contracts bind you into your end of the deal. 
C) future contracts allow you to sell your contract on an organized futures exchange. 
D) future contracts are a disadvantage if your views about the future spot exchange rate are to change. 
E) futures contracts don't allow you to realize a profit of a loss right away. 
A) future contracts ensures you will receive a certain amount of foreign currency at a specified future date. 
B) future contracts bind you into your end of the deal. 
C) future contracts allow you to sell your contract on an organized futures exchange. 
D) future contracts are a disadvantage if your views about the future spot exchange rate are to change. 
E) futures contracts don't allow you to realize a profit of a loss right away.

Question 16

Which major actor is at the center of the foreign exchange market?

Accepted Answer

A) corporations 
B) central banks 
C) commercial banks 
D) non-bank financial institutions 
E) individual firms 
A) corporations 
B) central banks 
C) commercial banks 
D) non-bank financial institutions 
E) individual firms

Question 17

Explain the purpose of the following figure.

Accepted Answer

To show that spot an

Question 18

The following is an example of Radio Shack hedging its foreign currency risk

Accepted Answer

A) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack makes a forward-exchange deal to buy yen. 
B) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack makes a forward-exchange deal to sell yen. 
C) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack buys yen at a spot-exchange 1 month from now. 
D) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack sells yen at a spot-exchange 1 month from now. 
E) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack sells yen in a forward-exchange deal. 
A) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack makes a forward-exchange deal to buy yen. 
B) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack makes a forward-exchange deal to sell yen. 
C) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack buys yen at a spot-exchange 1 month from now. 
D) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack sells yen at a spot-exchange 1 month from now. 
E) needing to pay 9,000 yen per radio to its suppliers in a month,Radio Shack sells yen in a forward-exchange deal.

Question 19

The Japanese currency is called the

Accepted Answer

A) DM. 
B) Yen. 
C) Euro. 
D) Dollar. 
E) Pound. 
A) DM. 
B) Yen. 
C) Euro. 
D) Dollar. 
E) Pound.

Question 20

Calculate the Expected Dollar Depreciation Rate against the euro and the expected dollar return on euro deposits if the expected exchange rate is $1.10 per euro.

Accepted Answer

The answer of Calculate the Expected Dollar Depreciation Rate against...

Exam 14: Exchange Rates and the Foreign Exchange Market: An Asset Approach

What are the three factors that affect the demand for foreign currency?

If the goods' money prices do not change,an appreciation of the dollar against the pound

If the dollar interest rate is 10 percent,the euro interest rate is 6 percent,then

Calculate the interest rate in the euro zone if interest parity condition holds,for the following 15 cases.

When a country's currency depreciates

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.60 dollars per British pound?

Forward and spot exchange rates

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.80 dollars per one British pound?

Which of the following statements is TRUE about a vehicle currency?

Show graphically a drop in the interest rate offered by dollar deposits,R$,and the effect on the exchange rate, .

The action of arbitrage is

Which one of the following statements is the MOST accurate?

If the dollar interest rate is 10 percent,the euro interest rate is 12 percent,then

Futures contracts differ from forward contracts in that

Which major actor is at the center of the foreign exchange market?

Explain the purpose of the following figure.

The following is an example of Radio Shack hedging its foreign currency risk

The Japanese currency is called the

Calculate the Expected Dollar Depreciation Rate against the euro and the expected dollar return on euro deposits if the expected exchange rate is $1.10 per euro.

Introduction

World Trade: An Overview

Labor Productivity and Comparative Advantage: The Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Money,Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: An Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Show graphically a drop in the interest rate offered by dollar deposits,R_$,and the effect on the exchange rate, .