Question 1

For the following 15 cases, compare the dollar rates of return on dollar and euro deposits:

Accepted Answer

The answer of For the following 15 cases, compare the...

Question 2

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 2.00 dollars per British pound?

Accepted Answer

A)  22.5 British pounds 
B)  32.5 British pounds 
C)  12.5 British pounds 
D)  40 British pounds 
E)  30 British pounds 
A)  22.5 British pounds 
B)  32.5 British pounds 
C)  12.5 British pounds 
D)  40 British pounds 
E)  30 British pounds

Question 3

Exxon Mobil want 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

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 5

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.80 dollars per British pound?

Accepted Answer

A)  10 British pounds 
B)  25 British pounds 
C)  20 British pounds 
D)  30 British pounds 
E)  40 British pounds 
A)  10 British pounds 
B)  25 British pounds 
C)  20 British pounds 
D)  30 British pounds 
E)  40 British pounds

Question 6

In the beginning of 2009, you pay $100 for a share of stock that pays you a dividend of $1 at the beginning of 2010. If the stock price rises from $100 to $109 per share over the year:

Accepted Answer

A)  then you have earned a rate of 5 percent over 2009. 
B)  then you have earned a rate of 1 percent over 2009. 
C)  then you have earned a rate of 9 percent over 2009. 
D)  then you have earned a rate of 4 percent over 2009. 
E)  then you have earned a rate of 10 percent over 2009. 
A)  then you have earned a rate of 5 percent over 2009. 
B)  then you have earned a rate of 1 percent over 2009. 
C)  then you have earned a rate of 9 percent over 2009. 
D)  then you have earned a rate of 4 percent over 2009. 
E)  then you have earned a rate of 10 percent over 2009.

Question 7

An appreciation of a country's currency,

Accepted Answer

A)  decreases the relative price of its exports and lowers the relative price of its imports. 
B)  raises the relative price of its exports and raises the relative price of its imports. 
C)  lowers the relative price of its exports and raises the relative price of its imports. 
D)  raises the relative price of its exports and lowers the relative price of its imports. 
E)  raises the relative price of its exports and does not affect the relative price of its imports. 
A)  decreases the relative price of its exports and lowers the relative price of its imports. 
B)  raises the relative price of its exports and raises the relative price of its imports. 
C)  lowers the relative price of its exports and raises the relative price of its imports. 
D)  raises the relative price of its exports and lowers the relative price of its imports. 
E)  raises the relative price of its exports and does not affect the relative price of its imports.

Question 8

Which one of the following statements is the most accurate?

Accepted Answer

A)  For a fixed interest rate, a rise in the expected future exchange rate causes a rise in the current exchange rate. 
B)  For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current exchange rate. 
C)  For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in the current exchange rate. 
D)  For a given dollar interest rate and a constant expected exchange rate, a rise in the interest rate of the euro causes the dollar to depreciate. 
E)  For a fixed interest rate, a fall in the expected future exchange rate causes a rise in the current exchange rate. 
A)  For a fixed interest rate, a rise in the expected future exchange rate causes a rise in the current exchange rate. 
B)  For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current exchange rate. 
C)  For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in the current exchange rate. 
D)  For a given dollar interest rate and a constant expected exchange rate, a rise in the interest rate of the euro causes the dollar to depreciate. 
E)  For a fixed interest rate, a fall in the expected future exchange rate causes a rise in the current exchange rate.

Question 9

Discuss the effects of a rise in the interest rate paid by euro deposits on the exchange rate.

Accepted Answer

There are two effects to consider. If we

Question 10

Show graphically a drop in the interest rate paid by euro deposits. What is the effect on the dollar?

Accepted Answer

A drop in the interest rate fr

Question 11

In 2004

Accepted Answer

A)  20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
B)  10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
C)  30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
D)  40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
E)  90 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
A)  20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
B)  10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
C)  30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
D)  40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. 
E)  90 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.

Question 12

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 an investor should invest only in dollars if the expected dollar depreciation 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 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 an investor should invest only in dollars if the expected dollar depreciation 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 depreciation against the euro is 4 percent. 
D)  an investor should invest only in dollars. 
E)  an investor should invest only in euros.

Question 13

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 14

Find the exchange rate between the dollar and the British pounds for the following cases:

Accepted Answer

The answer of Find the exchange rate between the dollar...

Question 15

Assume the U.S. interest rate is 10 percent, and the interest rate on euro deposits is 5 percent. For the following exchange rates, find the forward exchange rates.

Accepted Answer

Using the covered in

Question 16

Which one of the following statements is the most accurate?

Accepted Answer

A)  A depreciation of a country's currency makes its goods cheaper for foreigners. 
B)  A depreciation of a country's currency makes its goods more expensive for foreigners. 
C)  A depreciation of a country's currency makes its goods cheaper for its own residents. 
D)  A depreciation of a country's currency makes its goods cheaper. 
E)  An appreciation of a country's currency makes its goods more expensive. 
A)  A depreciation of a country's currency makes its goods cheaper for foreigners. 
B)  A depreciation of a country's currency makes its goods more expensive for foreigners. 
C)  A depreciation of a country's currency makes its goods cheaper for its own residents. 
D)  A depreciation of a country's currency makes its goods cheaper. 
E)  An appreciation of a country's currency makes its goods more expensive.

Question 17

Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium.

Accepted Answer

The foreign exchange market is in equili

Question 18

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 19

If the goods' money prices do not change, a depreciation 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)  makes American jeans more expensive in terms of British sweaters. 
D)  doesn't change the relative price of sweaters and jeans. 
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)  makes American jeans more expensive in terms of British sweaters. 
D)  doesn't change the relative price of sweaters and jeans. 
E)  makes British jeans more expensive in Britain.

Question 20

What is the interest parity condition?

Accepted Answer

The condition that the expected returns

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

For the following 15 cases, compare the dollar rates of return on dollar and euro deposits:

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 2.00 dollars per British pound?

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

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.80 dollars per British pound?

In the beginning of 2009, you pay $100 for a share of stock that pays you a dividend of $1 at the beginning of 2010. If the stock price rises from $100 to $109 per share over the year:

An appreciation of a country's currency,

Which one of the following statements is the most accurate?

Discuss the effects of a rise in the interest rate paid by euro deposits on the exchange rate.

Show graphically a drop in the interest rate paid by euro deposits. What is the effect on the dollar?

In 2004

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

The action of arbitrage is

Find the exchange rate between the dollar and the British pounds for the following cases:

Assume the U.S. interest rate is 10 percent, and the interest rate on euro deposits is 5 percent. For the following exchange rates, find the forward exchange rates.

Which one of the following statements is the most accurate?

Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium.

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

If the goods' money prices do not change, a depreciation of the dollar against the pound

What is the interest parity condition?

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

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

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