Question 1

The exchange rate

Accepted Answer

A)  is the ratio of two countries' GDPs. 
B)  is the rate at which one country's money is flowing into another country. 
C)  states the price of one currency in terms of another currency. 
D)  is closely related to the concept of absolute advantage.

Question 2

If the dollar depreciates, it can be said that

Accepted Answer

A)  foreign countries no longer respect the United States. 
B)  it falls in value within the United States. 
C)  it takes fewer dollars to buy foreign currencies. 
D)  other currencies appreciate.

Question 3

The idea behind the "Big Mac index" is a test of

Accepted Answer

A)  interest rate parity theory. 
B)  long-run equilibrium theory. 
C)  purchasing power parity theory. 
D)  exchange rate equalization theory.

Question 4

The exchange rate between yen and dollars at one point in 2010 was 83 yen per dollar.If a Big Mac, fries, and a Coke cost $3.91 in San Francisco, how much should the same order cost in yen in Osaka?

Accepted Answer

A)  0.03 
B)  325 
C)  392 
D)  422

Question 5

A deficit country, like Argentina in 2001, must follow restrictive monetary and fiscal policy in order to maintain a fixed exchange rate.

Accepted Answer

A) True 
 B)False

Question 6

There are at least three exchange rates between every pair of national currencies.

Accepted Answer

A) True 
 B)False

Question 7

$\begin{array}{l}
\text { Table 19-1 }\
\begin{array} { c c } 
\begin{array} { c } 
\text { American Coal } \
\text { Cost per Ton }
\end{array} & \begin{array} { c } 
\text { British Coal } \
\text { Cost per Ton }
\end{array} \
\hline \$ 150 & £ 75
\end{array}
\end{array}$
-Assume that the information in Table 19-1 applies to the cost per ton of coal in 1998.Assume that also over a 10-year period prices rise 100 percent in Great Britain and 200 percent in the United States.According to the purchasing power parity theory, the exchange rate between the dollar and the pound in the year 2008 will be

Accepted Answer

A)  one dollar = two pounds. 
B)  one pound = two dollars. 
C)  one pound = three dollars. 
D)  one dollar = three pounds.

Question 8

On May 11, 2011, it cost 11.601 Mexican pesos to buy one U.S.dollar.How many U.S.dollars did it take to buy a Mexican peso?

Accepted Answer

A)  $11.11 
B)  $10.82 
C)  $8.92 
D)  $0.09

Question 9

Balance of payments deficits arise whenever the exchange rate is set at an artificially high level.

Accepted Answer

A) True 
 B)False

Question 10

The principal goal of the Treaty of Maastricht was the creation of a

Accepted Answer

A)  fixed exchange rate system. 
B)  floating exchange rate system. 
C)  gold-exchange system. 
D)  monetary union.

Question 11

If a currency decreases in value in response to market forces, this process is known as

Accepted Answer

A)  devaluation. 
B)  depreciation. 
C)  deflation. 
D)  degeneration.

Question 12

If U.S.securities pay 7 percent interest, and if Great Britain's securities pay 5 percent interest, then

Accepted Answer

A)  pounds depreciate relative to dollars. 
B)  pounds appreciate relative to dollars. 
C)  Great Britain's imports will rise. 
D)  Great Britain's exports will fall.

Question 13

An overvalued currency, such as the Argentinean peso in 2001, is an indicator of a balance of payments surplus.

Accepted Answer

A) True 
 B)False

Question 14

The prospect of a recession in the United States would probably cause the dollar to

Accepted Answer

A)  depreciate because interest rates would be expected to rise. 
B)  depreciate because imports would be expected to rise. 
C)  appreciate because imports would be expected to fall. 
D)  appreciate because interest rates would be expected to decrease.

Question 15

Figure 19-2
 
-Of the graphs in Figure 19-2, which one shows the effects on the exchange rate of an expansion in Japan?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4

Question 16

If interest rates in the United States are higher than interest rates in Europe, what is most likely to happen?

Accepted Answer

A)  Supply of dollars will increase, causing appreciation of the dollar. 
B)  Supply of euros will increase, causing appreciation of the euro. 
C)  Demand for dollars will increase causing appreciation of the dollar. 
D)  Demand for dollars will decrease, causing depreciation of the dollar.

Question 17

If British government bonds pay a higher interest rate than U.S.government bonds, the dollar should appreciate.

Accepted Answer

A) True 
 B)False

Question 18

If the United States experiences an economic boom, compared to other countries, how will this affect the value of the U.S.dollar?

Accepted Answer

A)  It will fall because other nations would be forced to raise their interest rates. 
B)  It will fall because the United States will import more goods and services, leading to an increased supply of dollars. 
C)  It will rise because U.S.GDP would be rising faster than other countries. 
D)  It will rise because the Fed will have to lower U.S.interest rates.

Question 19

On May 12, 2011, the U.S.dollar was worth 28 Russian rubles.How many U.S.dollars did it take to buy one Russian ruble?

Accepted Answer

A)  0.01 
B)  0.04 
C)  0.28 
D)  0.40

Question 20

When a country decreases the official value of its currency, for example, Russia changes the value of the ruble from $.16 to $.04, it is said to have ____ its currency.

Accepted Answer

A)  floated 
B)  revalued 
C)  devalued 
D)  depreciated

Exam 36: The International Monetary System: Order or Disorder?

The exchange rate

If the dollar depreciates, it can be said that

The idea behind the "Big Mac index" is a test of

The exchange rate between yen and dollars at one point in 2010 was 83 yen per dollar.If a Big Mac, fries, and a Coke cost $3.91 in San Francisco, how much should the same order cost in yen in Osaka?

A deficit country, like Argentina in 2001, must follow restrictive monetary and fiscal policy in order to maintain a fixed exchange rate.

There are at least three exchange rates between every pair of national currencies.

On May 11, 2011, it cost 11.601 Mexican pesos to buy one U.S.dollar.How many U.S.dollars did it take to buy a Mexican peso?

Balance of payments deficits arise whenever the exchange rate is set at an artificially high level.

The principal goal of the Treaty of Maastricht was the creation of a

If a currency decreases in value in response to market forces, this process is known as

If U.S.securities pay 7 percent interest, and if Great Britain's securities pay 5 percent interest, then

An overvalued currency, such as the Argentinean peso in 2001, is an indicator of a balance of payments surplus.

The prospect of a recession in the United States would probably cause the dollar to

Figure 19-2 -Of the graphs in Figure 19-2, which one shows the effects on the exchange rate of an expansion in Japan?

If interest rates in the United States are higher than interest rates in Europe, what is most likely to happen?

If British government bonds pay a higher interest rate than U.S.government bonds, the dollar should appreciate.

If the United States experiences an economic boom, compared to other countries, how will this affect the value of the U.S.dollar?

On May 12, 2011, the U.S.dollar was worth 28 Russian rubles.How many U.S.dollars did it take to buy one Russian ruble?

When a country decreases the official value of its currency, for example, Russia changes the value of the ruble from $.16 to $.04, it is said to have ____ its currency.