Question 1

When the value of a currency is determined ________,the exchange rate system is defined as a floating exchange rate system.

Accepted Answer

A) only by supply and demand 
B) by its issuing government 
C) mostly by supply and demand,but with occasional government intervention 
D) by its issuing government,with occasional readjustments in value 
A) only by supply and demand 
B) by its issuing government 
C) mostly by supply and demand,but with occasional government intervention 
D) by its issuing government,with occasional readjustments in value

Question 2

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

Accepted Answer

A) none 
B) $1 worth of gold (based on the market price of an ounce of gold at the time you exchange the $1) 
C) 1 ounce of gold 
D) 1/35th of an ounce of gold 
A) none 
B) $1 worth of gold (based on the market price of an ounce of gold at the time you exchange the $1) 
C) 1 ounce of gold 
D) 1/35th of an ounce of gold

Question 3

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China had been reluctant to abandon the peg for fear that abandoning the peg would

Accepted Answer

A) increase exports and increase the current account deficit. 
B) reduce capital inflows. 
C) reduce exports and reduce economic growth. 
D) increase Chinese holdings of dollars. 
A) increase exports and increase the current account deficit. 
B) reduce capital inflows. 
C) reduce exports and reduce economic growth. 
D) increase Chinese holdings of dollars.

Question 4

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

Accepted Answer

A) will equalize nominal interest rates across countries. 
B) are valued inversely relative to the size of its GDP. 
C) should earn the same real rate of return. 
D) allow one to buy the same amount of goods and services. 
A) will equalize nominal interest rates across countries. 
B) are valued inversely relative to the size of its GDP. 
C) should earn the same real rate of return. 
D) allow one to buy the same amount of goods and services.

Question 5

All else being equal,if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States,the euro

Accepted Answer

A) will decrease in value relative the U.S.dollar. 
B) will increase in value relative to the U.S.dollar. 
C) will nominally appreciate against the dollar,but its real value relative to the dollar will remain unchanged. 
D) will nominally depreciate against the dollar,but its real value relative to the dollar will remain unchanged. 
A) will decrease in value relative the U.S.dollar. 
B) will increase in value relative to the U.S.dollar. 
C) will nominally appreciate against the dollar,but its real value relative to the dollar will remain unchanged. 
D) will nominally depreciate against the dollar,but its real value relative to the dollar will remain unchanged.

Question 6

Why might a developing country choose to peg the value of its currency to the dollar?

Accepted Answer

The dollar is a relatively stable curren

Question 7

Which of the following is a drawback to having a common currency across countries,as in the European Union?

Accepted Answer

A) A common currency increases barriers to trade across countries,reducing opportunities for economic growth. 
B) With a common currency,individual countries are no longer able to run independent monetary policies. 
C) Having a common currency implies that the prices of goods across countries must always be the same,regardless of consumer preferences for goods across countries. 
D) None of the above is a drawback to a common currency. 
A) A common currency increases barriers to trade across countries,reducing opportunities for economic growth. 
B) With a common currency,individual countries are no longer able to run independent monetary policies. 
C) Having a common currency implies that the prices of goods across countries must always be the same,regardless of consumer preferences for goods across countries. 
D) None of the above is a drawback to a common currency.

Question 8

How will the exchange rate (foreign currency per dollar)respond to an increase in preference for imported goods in the United States in the long run?

Accepted Answer

A) Exchange rates will rise. 
B) Exchange rates will fall. 
C) Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States,both in the short run and in the long run. 
D) The exchange rate will be affected in the short run,but not in the long run. 
A) Exchange rates will rise. 
B) Exchange rates will fall. 
C) Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States,both in the short run and in the long run. 
D) The exchange rate will be affected in the short run,but not in the long run.

Question 9

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2015,the Economist reported that the average price of a Big Mac in the U.S.was $4.79.In Sweden,the average price of a Big Mac at that time was 43.7 kronor.What is the "implied exchange rate" between Swedish kronor and U.S.dollars?

Accepted Answer

A) 0.11 kronor per dollar 
B) 1.90 kronor per dollar 
C) 9.12 kronor per dollar 
D) 46.2 kronor per dollar 
A) 0.11 kronor per dollar 
B) 1.90 kronor per dollar 
C) 9.12 kronor per dollar 
D) 46.2 kronor per dollar

Question 10

A currency pegged at a value below the market equilibrium exchange rate is

Accepted Answer

A) overvalued. 
B) undervalued. 
C) achieving purchasing power parity. 
D) None of the above are correct. 
A) overvalued. 
B) undervalued. 
C) achieving purchasing power parity. 
D) None of the above are correct.

Question 11

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Accepted Answer

A) 0.07 
B) 0.13 
C) 1.76 
D) 7.46 
A) 0.07 
B) 0.13 
C) 1.76 
D) 7.46

Question 12

By 2015,________ members of the European Union were using the euro as their currency.

Accepted Answer

A) 12 
B) 19 
C) 28 
D) 57 
A) 12 
B) 19 
C) 28 
D) 57

Question 13

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

Accepted Answer

A) $24 
B) $35 
C) $42 
D) $48 
A) $24 
B) $35 
C) $42 
D) $48

Question 14

You decide to work in London for the next 5 years,accumulate some savings,then move back to the United States and convert your savings from British pounds to dollars.At the time of your move,economists predict that consumers in the United States have lost their affinity for British products,and expect that this declining preference for British products will continue for the next decade.How should this influence your decision to work and save in London?

Accepted Answer

A) You should be discouraged as the declining U.S.preference for British goods should increase the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
B) You should be discouraged as the declining U.S.preference for British goods should decrease the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
C) You should be encouraged as the declining U.S.preference for British goods should decrease the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
D) You should be encouraged as the declining U.S.preference for British goods should increase the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
A) You should be discouraged as the declining U.S.preference for British goods should increase the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
B) You should be discouraged as the declining U.S.preference for British goods should decrease the value of the pound to the dollar and decrease the value of your savings when converted to dollars. 
C) You should be encouraged as the declining U.S.preference for British goods should decrease the value of the pound to the dollar and raise the value of your savings when converted to dollars. 
D) You should be encouraged as the declining U.S.preference for British goods should increase the value of the pound to the dollar and raise the value of your savings when converted to dollars.

Question 15

A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,purchasing power parity predicts that

Accepted Answer

A) the dollar will appreciate as the demand for dollars rises in the long run. 
B) the dollar will appreciate as the supply of dollars falls in the long run. 
C) the dollar will depreciate as the demand for dollars falls in the long run. 
D) the dollar will depreciate as the supply of dollars rises in the long run. 
A) the dollar will appreciate as the demand for dollars rises in the long run. 
B) the dollar will appreciate as the supply of dollars falls in the long run. 
C) the dollar will depreciate as the demand for dollars falls in the long run. 
D) the dollar will depreciate as the supply of dollars rises in the long run.

Question 16

What factors are most important for determining exchange rate fluctuations in the long run?

Accepted Answer

A) relative price levels across countries 
B) relative rates of productivity growth across countries 
C) preferences for domestic and foreign goods across countries 
D) All of the above are correct. 
A) relative price levels across countries 
B) relative rates of productivity growth across countries 
C) preferences for domestic and foreign goods across countries 
D) All of the above are correct.

Question 17

Under the Bretton Woods system,the World Trade Organization (WTO)provided foreign currency loans to central banks and approved adjustments to the agreed upon fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 18

What is the connection between the gold held at the Fort Knox Bullion Depository in Kentucky and the U.S.money supply?

Accepted Answer

Although under the gold standard all U.S

Question 19

If purchasing power parity tells us that if the exchange rate is a pound for a dollar,then price of a haircut in London should cost the same as a haircut in New York.

Accepted Answer

A) True 
 B)False

Question 20

Ariel is a Canadian citizen who works in Montreal,Canada and owns a winter home in Palm Beach,Florida.When Ariel spends the winters in Palm Beach,an increase in the value of the Canadian dollar relative to the U.S.dollar should

Accepted Answer

A) help Ariel as each Canadian dollar of her salary is now worth more U.S.dollars. 
B) hurt Ariel as each Canadian dollar of her salary is now worth less U.S.dollars. 
C) hurt Ariel as it is now more expensive to live in Palm Beach since the Canadian dollar appreciation. 
D) help Ariel as it is now less expensive to live in Canada since the Canadian dollar appreciation. 
A) help Ariel as each Canadian dollar of her salary is now worth more U.S.dollars. 
B) hurt Ariel as each Canadian dollar of her salary is now worth less U.S.dollars. 
C) hurt Ariel as it is now more expensive to live in Palm Beach since the Canadian dollar appreciation. 
D) help Ariel as it is now less expensive to live in Canada since the Canadian dollar appreciation.

Exam 30: The International Financial System

When the value of a currency is determined ________,the exchange rate system is defined as a floating exchange rate system.

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China had been reluctant to abandon the peg for fear that abandoning the peg would

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

All else being equal,if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States,the euro

Why might a developing country choose to peg the value of its currency to the dollar?

Which of the following is a drawback to having a common currency across countries,as in the European Union?

How will the exchange rate (foreign currency per dollar)respond to an increase in preference for imported goods in the United States in the long run?

A currency pegged at a value below the market equilibrium exchange rate is

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

By 2015,________ members of the European Union were using the euro as their currency.

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,purchasing power parity predicts that

What factors are most important for determining exchange rate fluctuations in the long run?

Under the Bretton Woods system,the World Trade Organization (WTO)provided foreign currency loans to central banks and approved adjustments to the agreed upon fixed exchange rates.

What is the connection between the gold held at the Fort Knox Bullion Depository in Kentucky and the U.S.money supply?

If purchasing power parity tells us that if the exchange rate is a pound for a dollar,then price of a haircut in London should cost the same as a haircut in New York.

Ariel is a Canadian citizen who works in Montreal,Canada and owns a winter home in Palm Beach,Florida.When Ariel spends the winters in Palm Beach,an increase in the value of the Canadian dollar relative to the U.S.dollar should

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