Exam 12: Exchange-Rate Determination

A country having stronger preferences for imports than its trading partners have for its exports finds its demand for foreign exchange rising more rapidly than its supply of foreign exchange.

The purchasing-power-parity theory is used to predict exchange-rate movements in the short run.

Figure 12.3 Market for British Pounds -Consider Figure 12.3.The market is initially governed by demand curve D₀ and supply curve S₀.Suppose the US government raises tariffs for UK made goods,which supply and demand curves depict the new situation?

Figure 12.3 Market for British Pounds -Consider Figure 12.3.The market is initially governed by demand curve D₀ and supply curve S₀.Suppose the domestic price level rises rapidly in the United States but stays relatively constant in the United Kingdom,which supply and demand curves depict the new situation?

Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.

As the profitability of Japanese assets rises relative to the profitability of Australian assets,Australian residents will make additional investments in Japan; this results in an increased demand for yen and a depreciation of the dollar under a system of floating exchange rates.

Exchange rate determination in the short run is underlied by which of the following assumptions:

Suppose the exchange rate between the U.S.dollar and the Japanese yen is initially 90 yen per dollar.According to purchasing-power parity,if the price of traded goods rises by 5 percent in the United States and 15 percent in Japan,the exchange rate will become:

Given a floating exchange rate system an increase in ____ would cause the dollar to appreciate against the euro.

Day-to-day influences on foreign exchange rates always cause rates to move in the same direction as changes in long-term market fundamentals.

Concerning exchange rate forecasting,technical analysis extrapolates from past exchange-rate trends while ignoring economic and political determinants of exchange rates.

A primary reason that explains the appreciation in the value of the U.S.dollar in the 1980s is:

Low real interest rates in the United States tend to:

Which of the following is likely to result in long-run appreciation of the U.S.dollar relative to the peso?

Under a system of floating exchange rates,relatively low productivity and high inflation rates in the United States result in:

If you were considering hiring a forecasting firm to predict future spot rates of the yen,you would hope that the firm could predict better what would be implied by the yen's forward rate.

The Canadian dollar would depreciate on the foreign exchange market if:

A forward discount on Mexico's peso serves as a rough benchmark of the expected appreciation in the peso's spot rate.

If Mexico applies tariffs to imports of manufactured goods,Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.

If the United States experiences an enormous wheat crop failure,it will have to import more wheat and the dollar's exchange value will depreciate under a system of floating exchange rates.