Question 1

According to the theory of purchasing power parity,if the inflation rate in England is greater than the inflation rate in Japan,

Accepted Answer

A)  the law of one price has been violated. 
B)  the nominal value of the pound will appreciate against the yen. 
C)  the nominal value of the yen will appreciate against the pound. 
D)  the nominal value of the pound will appreciate against the yen, but only if the two countries are on the gold standard. 
A)  the law of one price has been violated. 
B)  the nominal value of the pound will appreciate against the yen. 
C)  the nominal value of the yen will appreciate against the pound. 
D)  the nominal value of the pound will appreciate against the yen, but only if the two countries are on the gold standard.

Question 2

When deciding between domestic and foreign financial investments,investors typically consider

Accepted Answer

A)  domestic and foreign inflation rates and expected changes in the exchange rate. 
B)  domestic and foreign budget deficits. 
C)  shifts in the relative demand for foreign and domestic goods. 
D)  domestic and foreign interest rates and expected changes in the exchange rate. 
A)  domestic and foreign inflation rates and expected changes in the exchange rate. 
B)  domestic and foreign budget deficits. 
C)  shifts in the relative demand for foreign and domestic goods. 
D)  domestic and foreign interest rates and expected changes in the exchange rate.

Question 3

If foreign interest rates rise

Accepted Answer

A)  the demand for domestic currency rises, causing it to appreciate. 
B)  the demand for domestic currency falls, causing it to depreciate. 
C)  the demand for domestic currency rises, causing it to depreciate. 
D)  the demand for domestic currency falls, causing it to appreciate. 
A)  the demand for domestic currency rises, causing it to appreciate. 
B)  the demand for domestic currency falls, causing it to depreciate. 
C)  the demand for domestic currency rises, causing it to depreciate. 
D)  the demand for domestic currency falls, causing it to appreciate.

Question 4

In the spot foreign exchange market,

Accepted Answer

A)  only dollars, yen, and pounds may be traded. 
B)  only dollars and yen may be traded. 
C)  currencies or bank deposits are exchanged immediately. 
D)  currencies or bank deposits are exchanged at a fixed date (or spot) in the future. 
A)  only dollars, yen, and pounds may be traded. 
B)  only dollars and yen may be traded. 
C)  currencies or bank deposits are exchanged immediately. 
D)  currencies or bank deposits are exchanged at a fixed date (or spot) in the future.

Question 5

When a country's nominal exchange rate depreciates,the price of

Accepted Answer

A)  that country's goods abroad increases. 
B)  that country's goods abroad decreases. 
C)  foreign goods sold in the country decreases. 
D)  that country's goods produced and sold at home decreases. 
A)  that country's goods abroad increases. 
B)  that country's goods abroad decreases. 
C)  foreign goods sold in the country decreases. 
D)  that country's goods produced and sold at home decreases.

Question 6

A change in the dollar value of the British pound from $1.60 to $1.50 represents

Accepted Answer

A)  an increase in the pound price of British goods. 
B)  an appreciation of the dollar relative to the pound. 
C)  an appreciation of the pound relative to the dollar. 
D)  an increase in the dollar price of British goods. 
A)  an increase in the pound price of British goods. 
B)  an appreciation of the dollar relative to the pound. 
C)  an appreciation of the pound relative to the dollar. 
D)  an increase in the dollar price of British goods.

Question 7

In the foreign-exchange market,trading

Accepted Answer

A)  is restricted to the hours 10 A.M. to 3 P.M. New York time. 
B)  may not take place after 5 P.M. London time. 
C)  takes place at any hour of the night or day. 
D)  takes place at prices set by the U.S. government in consultation with the governments of other leading countries. 
A)  is restricted to the hours 10 A.M. to 3 P.M. New York time. 
B)  may not take place after 5 P.M. London time. 
C)  takes place at any hour of the night or day. 
D)  takes place at prices set by the U.S. government in consultation with the governments of other leading countries.

Question 8

Suppose interest rates in the US are 3% while interest rates on comparable bonds in Japan are 1%.By how much is the exchange rate between the yen and dollar expected to change according to the interest-rate parity condition?

Accepted Answer

The expected change in the val

Question 9

Suppose that short-term real interest rates fall in Japan.Is this likely to be good news or bad news for the tourism industry in Hawaii?

Accepted Answer

Good news,unless short-term real interes

Question 10

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

Accepted Answer

A)  The supply of dollars will decrease. 
B)  The demand for dollars will decrease. 
C)  The demand for dollars will increase. 
D)  The dollar will decrease in value. 
A)  The supply of dollars will decrease. 
B)  The demand for dollars will decrease. 
C)  The demand for dollars will increase. 
D)  The dollar will decrease in value.

Question 11

If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange rate,

Accepted Answer

A)  Japanese interest rates must be higher than U.S. interest rates. 
B)  U.S. interest rates must be higher than Japanese interest rates. 
C)  market participants must be expecting the dollar to appreciate against the yen. 
D)  market participants must be expecting the dollar to depreciate against the yen. 
A)  Japanese interest rates must be higher than U.S. interest rates. 
B)  U.S. interest rates must be higher than Japanese interest rates. 
C)  market participants must be expecting the dollar to appreciate against the yen. 
D)  market participants must be expecting the dollar to depreciate against the yen.

Question 12

If the German interest rate is 4% and the U.S.interest rate is 5%,what is the expected change in the value of the dollar in terms of the euro?

Accepted Answer

A)  1% 
B)  -1% 
C)  9% 
D)  -9% 
A)  1% 
B)  -1% 
C)  9% 
D)  -9%

Question 13

If you are indifferent between investing $1000 for one year in a U.S.Treasury security that has an interest rate of 5% or in a Canadian government security that has an interest rate of 8%,you must be expecting

Accepted Answer

A)  the inflation rate in the United States will be higher than the inflation rate in Canada during the year. 
B)  the U.S. dollar to depreciate against the Canadian dollar by 3% during the year. 
C)  the U.S. dollar to appreciate against the Canadian dollar by 3% during the year. 
D)  productivity growth in Canada to be greater than productivity growth in the United States during the year. 
A)  the inflation rate in the United States will be higher than the inflation rate in Canada during the year. 
B)  the U.S. dollar to depreciate against the Canadian dollar by 3% during the year. 
C)  the U.S. dollar to appreciate against the Canadian dollar by 3% during the year. 
D)  productivity growth in Canada to be greater than productivity growth in the United States during the year.

Question 14

The currency premium in foreign-exchange markets

Accepted Answer

A)  helps to offset anticipated declines in exchange rates. 
B)  helps to offset anticipated increases in exchange rates. 
C)  indicates investors' collective preference for financial instruments denominated in one currency relative to those denominated in another. 
D)  rises as domestic interest rates fall. 
A)  helps to offset anticipated declines in exchange rates. 
B)  helps to offset anticipated increases in exchange rates. 
C)  indicates investors' collective preference for financial instruments denominated in one currency relative to those denominated in another. 
D)  rises as domestic interest rates fall.

Question 15

Most foreign exchange is bought and sold

Accepted Answer

A)  by governments. 
B)  by tourists. 
C)  in over-the-counter markets. 
D)  on the New York Stock Exchange. 
A)  by governments. 
B)  by tourists. 
C)  in over-the-counter markets. 
D)  on the New York Stock Exchange.

Question 16

The nominal interest rate parity condition states that

Accepted Answer

A)  domestic and foreign assets must have nominal returns that are identical, irrespective of the characteristics of the assets. 
B)  when domestic and foreign assets have identical risk, liquidity, and information characteristics, their nominal returns must also be identical. 
C)  while nominal returns are equalized across all foreign and domestic assets, real returns may vary widely. 
D)  while real returns are equalized across all foreign and domestic assets, nominal returns may vary widely. 
A)  domestic and foreign assets must have nominal returns that are identical, irrespective of the characteristics of the assets. 
B)  when domestic and foreign assets have identical risk, liquidity, and information characteristics, their nominal returns must also be identical. 
C)  while nominal returns are equalized across all foreign and domestic assets, real returns may vary widely. 
D)  while real returns are equalized across all foreign and domestic assets, nominal returns may vary widely.

Question 17

Which of the following is NOT a primary center of foreign-exchange trading?

Accepted Answer

A)  New York 
B)  London 
C)  Munich 
D)  Tokyo 
A)  New York 
B)  London 
C)  Munich 
D)  Tokyo

Question 18

Which of the following would cause the nominal exchange rate to depreciate?

Accepted Answer

A)  The real exchange rate appreciates. 
B)  The domestic inflation rate increases. 
C)  The foreign inflation rate increases. 
D)  The government budget deficit increases. 
A)  The real exchange rate appreciates. 
B)  The domestic inflation rate increases. 
C)  The foreign inflation rate increases. 
D)  The government budget deficit increases.

Question 19

The process by which identical products that are tradeable converge to the same price is called

Accepted Answer

A)  arbitrage. 
B)  hedging. 
C)  speculation. 
D)  risk aversion. 
A)  arbitrage. 
B)  hedging. 
C)  speculation. 
D)  risk aversion.

Question 20

When a country's real exchange rate appreciates,

Accepted Answer

A)  its nominal exchange rate must also have appreciated. 
B)  its nominal exchange rate must have depreciated. 
C)  it can trade its goods for fewer units of foreign goods. 
D)  it can trade its goods for more units of foreign goods. 
A)  its nominal exchange rate must also have appreciated. 
B)  its nominal exchange rate must have depreciated. 
C)  it can trade its goods for fewer units of foreign goods. 
D)  it can trade its goods for more units of foreign goods.

According to the theory of purchasing power parity,if the inflation rate in England is greater than the inflation rate in Japan,

When deciding between domestic and foreign financial investments,investors typically consider

If foreign interest rates rise

In the spot foreign exchange market,

When a country's nominal exchange rate depreciates,the price of

A change in the dollar value of the British pound from $1.60 to $1.50 represents

In the foreign-exchange market,trading

Suppose interest rates in the US are 3% while interest rates on comparable bonds in Japan are 1%.By how much is the exchange rate between the yen and dollar expected to change according to the interest-rate parity condition?

Suppose that short-term real interest rates fall in Japan.Is this likely to be good news or bad news for the tourism industry in Hawaii?

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange rate,

If the German interest rate is 4% and the U.S.interest rate is 5%,what is the expected change in the value of the dollar in terms of the euro?

If you are indifferent between investing $1000 for one year in a U.S.Treasury security that has an interest rate of 5% or in a Canadian government security that has an interest rate of 8%,you must be expecting

The currency premium in foreign-exchange markets

Most foreign exchange is bought and sold

The nominal interest rate parity condition states that

Which of the following is NOT a primary center of foreign-exchange trading?

Which of the following would cause the nominal exchange rate to depreciate?

The process by which identical products that are tradeable converge to the same price is called

When a country's real exchange rate appreciates,

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 8: The Market for Foreign Exchange

According to the theory of purchasing power parity,if the inflation rate in England is greater than the inflation rate in Japan,

When deciding between domestic and foreign financial investments,investors typically consider

If foreign interest rates rise

In the spot foreign exchange market,

When a country's nominal exchange rate depreciates,the price of

A change in the dollar value of the British pound from $1.60 to $1.50 represents

In the foreign-exchange market,trading

Suppose interest rates in the US are 3% while interest rates on comparable bonds in Japan are 1%.By how much is the exchange rate between the yen and dollar expected to change according to the interest-rate parity condition?

Suppose that short-term real interest rates fall in Japan.Is this likely to be good news or bad news for the tourism industry in Hawaii?

Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United States?

If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange rate,

If the German interest rate is 4% and the U.S.interest rate is 5%,what is the expected change in the value of the dollar in terms of the euro?

If you are indifferent between investing $1000 for one year in a U.S.Treasury security that has an interest rate of 5% or in a Canadian government security that has an interest rate of 8%,you must be expecting

The currency premium in foreign-exchange markets

Most foreign exchange is bought and sold

The nominal interest rate parity condition states that

Which of the following is NOT a primary center of foreign-exchange trading?

Which of the following would cause the nominal exchange rate to depreciate?

The process by which identical products that are tradeable converge to the same price is called

When a country's real exchange rate appreciates,

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters