Question 1

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

Accepted Answer

A)  holders of the local currency will see the price of foreign goods decrease. 
B)  it is equivalent to an increase in the price of the foreign currency. 
C)  the demand for foreign currency will decrease. 
D)  there will be a greater quantity of local currency supplied to the market. 
A)  holders of the local currency will see the price of foreign goods decrease. 
B)  it is equivalent to an increase in the price of the foreign currency. 
C)  the demand for foreign currency will decrease. 
D)  there will be a greater quantity of local currency supplied to the market.

Question 2

A central bank may seek to influence its country's currency by:

Accepted Answer

A)  imposing limits on the number of goods that may be imported. 
B)  restricting the outflow of funds from the home country. 
C)  intervening directly in the FX market to support the currency. 
D)  all of the given answers. 
A)  imposing limits on the number of goods that may be imported. 
B)  restricting the outflow of funds from the home country. 
C)  intervening directly in the FX market to support the currency. 
D)  all of the given answers.

Question 3

If the exchange rate of yen/AUD rises,we should expect Australian exports to Japan to:

Accepted Answer

A)  increase in quantity. 
B)  decrease in quantity. 
C)  remain the same, but imports from Japan should increase. 
D)  remain the same, but imports from Japan should decrease. 
A)  increase in quantity. 
B)  decrease in quantity. 
C)  remain the same, but imports from Japan should increase. 
D)  remain the same, but imports from Japan should decrease.

Question 4

The regime whereby the value of a currency is determined by demand and supply conditions in the FX markets is called:

Accepted Answer

A)  fixed. 
B)  floating. 
C)  pegged. 
D)  variable. 
A)  fixed. 
B)  floating. 
C)  pegged. 
D)  variable.

Question 5

On a foreign exchange diagram of the equilibrium exchange rate,there is equilibrium at AUD 0.94 per USD.At AUD0.97,there would be excess _____ the dollar and the dollar would _____ in the return to equilibrium.

Accepted Answer

A)  demand for, appreciate 
B)  supply of, depreciate 
C)  supply of, appreciate 
D)  demand for, depreciate 
A)  demand for, appreciate 
B)  supply of, depreciate 
C)  supply of, appreciate 
D)  demand for, depreciate

Question 6

The relationship between the exchange rate and changes in the relative growth rates in national income operates through:

Accepted Answer

A)  changes in the real exchange rate. 
B)  changes in the demand for exports and imports. 
C)  variations in the inflation differentials between countries. 
D)  changes in interest-rate differentials between countries. 
A)  changes in the real exchange rate. 
B)  changes in the demand for exports and imports. 
C)  variations in the inflation differentials between countries. 
D)  changes in interest-rate differentials between countries.

Question 7

Under the theory of purchasing power parity,an increase in the Australian price level of 5%,relative to the Japanese price level,should result in a:

Accepted Answer

A)  5% rise in the Australian dollar. 
B)  5% rise in the Japanese yen. 
C)  rise in the yen by an amount depending on what happens to the real exchange rate. 
D)  rise in the Australian dollar by an amount depending on what happens to the real exchange rate. 
A)  5% rise in the Australian dollar. 
B)  5% rise in the Japanese yen. 
C)  rise in the yen by an amount depending on what happens to the real exchange rate. 
D)  rise in the Australian dollar by an amount depending on what happens to the real exchange rate.

Question 8

If the regression analysis of the relationship between exchange rates and changes in the factor inflation has the coefficient 0.85,this suggests:

Accepted Answer

A)  a negative relationship between the exchange rate and inflation. 
B)  that the theory of purchasing power parity (PPP) does not hold. 
C)  positive support for the theory of PPP. 
D)  that the relationship is not clear. 
A)  a negative relationship between the exchange rate and inflation. 
B)  that the theory of purchasing power parity (PPP) does not hold. 
C)  positive support for the theory of PPP. 
D)  that the relationship is not clear.

Question 9

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

Accepted Answer

A)  falls, causing it to appreciate. 
B)  rises, causing it to appreciate. 
C)  rises, causing it to depreciate. 
D)  falls, causing it to depreciate. 
A)  falls, causing it to appreciate. 
B)  rises, causing it to appreciate. 
C)  rises, causing it to depreciate. 
D)  falls, causing it to depreciate.

Question 10

If the interest rate in Australia falls,overseas investors:

Accepted Answer

A)  increase their demand for Australian dollars and the Australian exchange rate falls. 
B)  increase their demand for Australian dollars and the Australian exchange rate increases. 
C)  decrease their demand for Australian dollars and the Australian exchange rate rises. 
D)  decrease their demand for Australian dollars and the Australian exchange rate falls. 
A)  increase their demand for Australian dollars and the Australian exchange rate falls. 
B)  increase their demand for Australian dollars and the Australian exchange rate increases. 
C)  decrease their demand for Australian dollars and the Australian exchange rate rises. 
D)  decrease their demand for Australian dollars and the Australian exchange rate falls.

Question 11

Discuss how a central bank or government may directly intervene in the FX markets.

Accepted Answer

A central bank may intervene to dampen v

Question 12

If Australia puts a quota on the importing of cars,the:

Accepted Answer

A)  Australian dollar will rise. 
B)  Australian dollar will fall. 
C)  price of Australian-made cars will fall. 
D)  efficiency of the Australian economy will be improved. 
A)  Australian dollar will rise. 
B)  Australian dollar will fall. 
C)  price of Australian-made cars will fall. 
D)  efficiency of the Australian economy will be improved.

Question 13

A decrease in inflation in the USA relative to that in another country could be expected to result in increased demand for goods from the USA and the demand curve would move to the right.

Accepted Answer

A) True 
 B)False

Question 14

When a government prohibits exports or imports of specified goods this is called a/an:

Accepted Answer

A)  quota. 
B)  embargo. 
C)  entry tax. 
D)  tariff. 
A)  quota. 
B)  embargo. 
C)  entry tax. 
D)  tariff.

Question 15

In the _______ run,lower quotas and tariffs cause a country's currency to _______.

Accepted Answer

A)  short; depreciate 
B)  short; appreciate 
C)  long; depreciate 
D)  long; appreciate 
A)  short; depreciate 
B)  short; appreciate 
C)  long; depreciate 
D)  long; appreciate

Question 16

If the inflation rate in one country is higher than that of Australia and productivity is growing at a slower rate in that country relative to Australia,that country's foreign currency should appreciate,relative to the Australian dollar.

Accepted Answer

A) True 
 B)False

Question 17

If the demand for _______ goods falls,relative to ______ goods,the domestic currency will depreciate.

Accepted Answer

A)  foreign; foreign 
B)  foreign; domestic 
C)  domestic; domestic 
D)  domestic; foreign 
A)  foreign; foreign 
B)  foreign; domestic 
C)  domestic; domestic 
D)  domestic; foreign

Question 18

Two identical items are manufactured in both Australia and the USA.Using your knowledge of the purchasing power parity theory and the following data,forecast the AUD/USD exchange rate in years 2 and 3. $$\begin{array} { | l | l | l | l | } 
\hline & \text { Price (AUD) } & \text { Price (USD) } & \text { AUD/USD } \
\hline \text { Year 1 } & \$ 17.50 & \$ 13.60 & 0.7680 \
\hline \text { Year 2 } & \$ 19.25 & \$ 14.28 & ? \
\hline \text { Year 3 } & \$ 19.25 & \$ 14.99 & ? \
\hline
\end{array}$$

Accepted Answer

A)  0.7296 and 0.7661 
B)  0.8064 and 0.7661 
C)  0.8064 and 0.8467 
D)  0.8448 and 0.8870 
A)  0.7296 and 0.7661 
B)  0.8064 and 0.7661 
C)  0.8064 and 0.8467 
D)  0.8448 and 0.8870

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

A central bank may seek to influence its country's currency by:

If the exchange rate of yen/AUD rises,we should expect Australian exports to Japan to:

The regime whereby the value of a currency is determined by demand and supply conditions in the FX markets is called:

On a foreign exchange diagram of the equilibrium exchange rate,there is equilibrium at AUD 0.94 per USD.At AUD0.97,there would be excess _ the dollar and the dollar would _ in the return to equilibrium.

The relationship between the exchange rate and changes in the relative growth rates in national income operates through:

Under the theory of purchasing power parity,an increase in the Australian price level of 5%,relative to the Japanese price level,should result in a:

If the regression analysis of the relationship between exchange rates and changes in the factor inflation has the coefficient 0.85,this suggests:

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

If the interest rate in Australia falls,overseas investors:

Discuss how a central bank or government may directly intervene in the FX markets.

If Australia puts a quota on the importing of cars,the:

A decrease in inflation in the USA relative to that in another country could be expected to result in increased demand for goods from the USA and the demand curve would move to the right.

When a government prohibits exports or imports of specified goods this is called a/an:

In the _ run,lower quotas and tariffs cause a country's currency to _.

If the inflation rate in one country is higher than that of Australia and productivity is growing at a slower rate in that country relative to Australia,that country's foreign currency should appreciate,relative to the Australian dollar.

If the demand for _ goods falls,relative to goods,the domestic currency will depreciate.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

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

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

A central bank may seek to influence its country's currency by:

If the exchange rate of yen/AUD rises,we should expect Australian exports to Japan to:

The regime whereby the value of a currency is determined by demand and supply conditions in the FX markets is called:

On a foreign exchange diagram of the equilibrium exchange rate,there is equilibrium at AUD 0.94 per USD.At AUD0.97,there would be excess _____ the dollar and the dollar would _____ in the return to equilibrium.

The relationship between the exchange rate and changes in the relative growth rates in national income operates through:

Under the theory of purchasing power parity,an increase in the Australian price level of 5%,relative to the Japanese price level,should result in a:

If the regression analysis of the relationship between exchange rates and changes in the factor inflation has the coefficient 0.85,this suggests:

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

If the interest rate in Australia falls,overseas investors:

Discuss how a central bank or government may directly intervene in the FX markets.

If Australia puts a quota on the importing of cars,the:

A decrease in inflation in the USA relative to that in another country could be expected to result in increased demand for goods from the USA and the demand curve would move to the right.

When a government prohibits exports or imports of specified goods this is called a/an:

In the _______ run,lower quotas and tariffs cause a country's currency to _______.

If the inflation rate in one country is higher than that of Australia and productivity is growing at a slower rate in that country relative to Australia,that country's foreign currency should appreciate,relative to the Australian dollar.

If the demand for _______ goods falls,relative to ______ goods,the domestic currency will depreciate.

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters

On a foreign exchange diagram of the equilibrium exchange rate,there is equilibrium at AUD 0.94 per USD.At AUD0.97,there would be excess _ the dollar and the dollar would _ in the return to equilibrium.

In the _ run,lower quotas and tariffs cause a country's currency to _.

If the demand for _ goods falls,relative to goods,the domestic currency will depreciate.