Exam 15: The Foreign Exchange Market

According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then the expected ________ of the foreign currency must be ________ percent.

A decrease in the domestic interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to depreciate.

American firms became less competitive compared to foreign firms during the 1980s because

If the dollar depreciates relative to the Swiss franc,

Depreciation of a currency makes it easier for domestic manufacturers to sell their goods abroad and makes foreign goods less competitive in domestic markets.

With the start of the subprime financial crisis in August 2007, the dollar ________ in value against the euro as the Fed lowered interest rates. By December of 2008, with the financial crisis spreading throughout Europe, foreign central banks cut their interest rates, leading to a ________ in the value of the dollar relative to the euro.

If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar, the euro depreciates from ________ dollars to ________ dollars per euro.

The expected return on dollar deposits in terms of foreign currency is the ________ the interest rate on dollar deposits and the expected appreciation of the dollar.

If the exchange rate between the dollar and the Swiss franc changes from 1.8 to 1.5 francs per dollar, the franc depreciates and the dollar appreciates.

The theory of purchasing power parity cannot fully explain exchange rate movements because fiscal policy differs across countries.

If the demand for ________ goods decreases relative to ________ goods, the domestic currency will depreciate.

Quotas

A fall in the expected future exchange rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to depreciate.

If the interest rate on dollar deposits is 10 percent, and the dollar is expected to appreciate by 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is

If the dollar appreciates relative to the Swiss franc,

An increase in the foreign interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to depreciate.

When the value of the dollar changes from 0.50 pounds to 0.75 pounds, the pound has appreciated and the dollar has depreciated.

When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar, the euro has ________ and the dollar has ________.

When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar, the euro has ________ and the dollar has ________.

An increase in tariffs and quotas on imports causes a country's currency to appreciate.