Exam 9: The Exchange Rate and the Balance of Payments

An increase in the U.S. interest rate differential increases the demand for dollars.

With everything else the same, in the foreign exchange market the

Which of the following statements is INCORRECT?

If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with

The official settlements account of a country measures

-In the figure above, the shift in the supply curve for U.S. dollars from S? to S? could occur when

The exchange rate is the price at which the ________ of one country exchanges for the ________ of another country.

Which of the following contributes to a current account surplus for a country?

Which of the following will lead to an appreciation of the U.S. dollar against the British pound?

Name three factors in the foreign exchange market that affect either the quantity of dollars demanded or the demand for dollars. Discuss whether the factor increases or decreases the number of dollars people want to hold.

If the current account balance is $235 billion and U.S. official reserves increased by $35 billion, what is the official settlements account balance and the capital account balance?

If the nominal exchange rate rises and price levels stay constant, the real exchange rate will

In October 2008, Iceland's central bank increased its lending rate to 18% in an "effort to prop up the country's frozen currency and markets." (www.nytimes.com, October, 29, 2008) As a result, the ________ and demand curve for Icelandic krona shifted ________, holding all else the same.

What is the relationship between net borrower, net lender, debtor nation, and creditor nation?

How does the Fed intervene in the foreign exchange market and what the effects are of the Fed's actions?

If the Fed raises the U.S. interest rate, the demand for dollars ________ and the exchange rate ________.

Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar. If interest rates in the United States increase and interest rates in Europe remain unchanged then

Epsilon is a country whose unit of currency is the omega. New information leads people to expect that the omega will appreciate next year. To keep the foreign exchange value of the omega fairly steady, the Bank of Epsilon will ________ enough omegas on the foreign exchange market so that the ________ omegas will ________.

Suppose that the price of an identical sport-utility vehicle is $32,000 in U.S. dollars in the United States and $32,000 in Canadian dollars in Canada. Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals $0.75 U.S. dollar. Does purchasing power parity hold for SUVs between the United States and Canada?

-The figure above shows the demand and supply of dollars in the foreign exchange market. At a price of 1.20 Brazilian reals per dollar