Exam 16: Foreign Exchange: Factors That Influence the Exchange Rate

If the Japanese buy more Australian goods,they _____ more yen and _____ more dollars in the foreign exchange market.

In the long run,if purchasing power parity (PPP)is maintained,a rise in a country's price level (relative to the foreign price level)should cause its currency to _______,while a fall in the country's relative price should cause its currency to _______.

Exchange rate expectations may play an important role in the determination of an equilibrium exchange rate.Given that a very high percentage of turnover in the Australian FX market is not associated with payments for imports and exports,what would you expect to happen if speculators believed that the AUD was about to depreciate?

If the price of a local currency increases,then it follows:

If currency traders are anticipating a currency's foreign exchange value to fall,the:

Consider a textbook situation in which Australia and the USA are experiencing similar inflation rates.If the rate of inflation were to increase significantly in Australia,relative to the USA,which of the following impacts would be expected to occur?

If German demand for Australian exports increases at the same time as Australian productivity increases,relative to German productivity,in the long run:

Consider the following five statements: i.There is conclusive evidence that an increase in national output growth and income will result in an immediate and sustained appreciation of the exchange rate. ii.There is no relationship between interest rates and exchange rate,because interest rates reflect the current yield on financial assets,whereas exchange rates are the relative prices of different currencies. iii.All else being constant,it is to be expected that a currency will appreciate if there is an increase in real rates of return,relative to those in other countries. iv.Movements in commodity prices within Australia typically provide a reasonable indicator of AUD/USD exchange rate movements. v.As Australia maintains a fixed exchange rate,tied to the USD,there is no need for the Reserve Bank to intervene in the FX market. How many of these statements are true and how many are false?

In a floating exchange rate regime,the exchange rate is the equilibrium price of the currency.Changes in demand for a currency will cause changes in the equilibrium exchange rate.Which of these statements in relation to the AUD demand curve in the FX market is incorrect?

All else being equal,a significant appreciation of the Australian dollar is likely to result in:

Consider a textbook situation in which Australia and the USA are experiencing similar low rates of inflation.Then if the rate of inflation were to increase significantly in USA,relative to the Australia,which of the following impacts would be expected to occur?

On a foreign exchange diagram of the equilibrium exchange rate,there is equilibrium at AUD 0.94 per USD.If the actual exchange rate is AUD/USD0.90 at AUD 0.90,there would be excess _____ the dollar and the AUD dollar would _____ in the return to equilibrium.

With the USD/AUD currency pair,an increase in the demand for the USD is equivalent to an increase in the supply of AUD in the FX markets and would result in the supply curve moving upwards and to the right.

If the currency AUD/USD moves from 0.9527-32 to 0.9555-60,there has been:

In a floating exchange rate regime,the exchange rate is the equilibrium price of the currency.Changes in supply for a currency will cause changes in the equilibrium exchange rate.Which of these statements in relation to the AUD supply curve in the FX market is incorrect?

If foreign interest rates increase relative to Australian rates,the demand for domestic currency:

If one country is experiencing prolonged lower inflation than another country,the currency of the first country should,in general,_______ with respect to the currency of the second country.

According to the text,if Australia's national income begins to grow quite rapidly while the rate of growth in USA remains constant,then:

The theory of purchasing power parity seeks to explain how exchange rates are determined in the:

In determining the equilibrium exchange rate,the supply curve is upward sloping,representing an increase in supply of the local currency when the price of the local currency increases in the FX markets relative to the foreign currencies.