Deck 33: International Finance

Question 1

The euro is an unusual currency because

A) euro coins are made of 100 percent gold.
B) it is the only other currency besides dollars that is issued solely by the United States Federal Reserve Bank.
C) euros cannot be exchanged for Mexican pesos.
D) euros are used by 19 countries in Europe.
E) a euro coin turns bright pink if it is used in an illegal transaction.

Answer 1

euros are used by 19 countries in Europe.

Question 2

The following table shows the number of U.S. dollars required to buy one British pound between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between March 1,2016,and April 1,2016,the U.S.dollar ________ against the British pound,and the British pound ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) neither appreciated nor depreciated; neither appreciated nor depreciated

Answer 2

depreciated; appreciated

Question 3

The following table shows the number of U.S. dollars required to buy one British pound between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between February 1,2016,and March 1,2016,the U.S.dollar ________ against the British pound,and the British pound ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) appreciated; appreciated
D) depreciated; neither appreciated nor depreciated
E) neither appreciated nor depreciated; neither appreciated nor depreciated

Answer 3

appreciated; depreciated

Question 4

The following table shows the number of U.S. dollars required to buy one euro between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between February 1,2016,and September 1,2016,the U.S.dollar ________ against the euro,and the euro ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 5

The following table shows the number of U.S. dollars required to buy one euro between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between April 1,2016,and June 1,2016,the U.S.dollar ________ against the euro,and the euro ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 6

The following table shows the number of U.S. dollars required to buy one British pound between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
On February 1,2016,the price of a skateboard at JJ's Beach Shop was 120 U.S.dollars in La Jolla,California.On April 1,2016,the price of a skateboard was 130 U.S.dollars.Using the exchange rates in the table,between February 1,2016,and April 1,2016,the price of a skateboard at JJ's Beach Shop increased by approximately ________ in terms of U.S.dollars and ________ in terms of British pounds.(Round the percentage changes to the first decimal point.)

A) 7.7 percent; 2.3 percent
B) 7.7 percent; 12.8 percent
C) 8.3 percent; 2.3 percent
D) 8.3 percent; 8.1 percent
E) 8.3 percent; 7.7 percent

Question 7

The following table shows the number of euros required to buy one U.S. dollar between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between April 1,2016,and June 1,2016,the U.S.dollar ________ against the euro,and the euro ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 8

If the U.S.dollar ________,it becomes ________ valuable in world markets.

A) appreciates; less
B) depreciates; less
C) depreciates; more
D) is indexed; less
E) is indexed; more

Question 9

Currency ________ occurs when a currency increases in value relative to other currencies.

A) devaluation
B) dismissal
C) depreciation
D) appreciation
E) representation

Question 10

If a currency becomes ________ valuable in world markets,then its price falls,and this decrease is called a(n)________.

A) more; approximation
B) less; depreciation
C) less; appreciation
D) more; depreciation
E) more; appreciation

Question 11

The following table shows the number of various foreign currencies required to buy a U.S. dollar in April 2011 and April 2016. Use this table to answer the following questions.
Between April 2011 and April 2016,the U.S.dollar depreciated against the

A) euro.
B) Chinese yuan.
C) Indian rupee.
D) Japanese yen.
E) British pound.

Question 12

If the U.S.dollar ________,it becomes ________ valuable in world markets.

A) depreciates; more
B) is indexed; less
C) appreciates; less
D) is indexed; more
E) appreciates; more

Question 13

The following table shows the number of U.S. dollars required to buy one euro between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between March 1,2016,and May 1,2016,the U.S.dollar ________ against the euro,and the euro ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 14

If a currency becomes ________ valuable in world markets,then its price rises,and this increase is called a(n)________.

A) less; appreciation
B) less; disaggregation
C) more; appreciation
D) more; aggregation
E) more; speculation

Question 15

The following table shows the number of euros required to buy one U.S. dollar between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between March 1,2016,and May 1,2016,the U.S.dollar ________ against the euro,and the euro ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; neither appreciated nor depreciated
E) appreciated; neither appreciated nor depreciated

Question 16

The following table shows the number of various foreign currencies required to buy a U.S. dollar in April 2011 and April 2016. Use this table to answer the following questions.
Between April 2011 and April 2016,the price of a U.S.postage stamp increased from $0.41 to $0.46.The price of a U.S.postage stamp has increased approximately ________ in terms of Indian rupees and ________ in terms of Chinese yuan.

A) 12 percent; 12 percent
B) 68 percent; 11 percent
C) 13 percent; 44 percent
D) 19 percent; 28 percent
E) 9 percent; 51 percent

Question 17

The following table shows the number of U.S. dollars required to buy one British pound between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between June 1,2016,and August 1,2016,the U.S.dollar ________ against the British pound,and the British pound ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) appreciated; appreciated
D) depreciated; neither appreciated nor depreciated
E) neither appreciated nor depreciated; neither appreciated nor depreciated

Question 18

The following table shows the number of various foreign currencies required to buy a U.S. dollar in April 2011 and April 2016. Use this table to answer the following questions.
In April 2011,a haircut in Japan cost 2,000 yen.Using the exchange rates in the above table,that haircut cost approximately ________ U.S.dollars or ________ euros.

A) 24.04; 16.62
B) 20.08; 19.03
C) 203,080.00; 189,140.36
D) 21.15; 2,147.40
E) 9.82; 10.54

Question 19

Currency ________ occurs when a currency decreases in value relative to other currencies.

A) apportionment
B) revaluation
C) depreciation
D) appreciation
E) representation

Question 20

The following table shows the number of U.S. dollars required to buy one British pound between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
On March 1,2016,the price of a surfboard was 1,200 U.S.dollars in La Jolla,California.Based on the exchange rates quoted in the table,a surfboard was approximately ________ British pounds.

A) 1,931
B) 1,950
C) 1,883
D) 1,805
E) 842

Question 21

The following table shows the number of British pounds required to buy one U.S.dollar and the number of euros required to buy one U.S.dollar between February 1,2016,and September 1,2016: Between March 1,2016,and April 1,2016,the U.S.dollar ________ against the British pound,and the U.S.dollar ________ against the euro.

A) neither appreciated nor depreciated; neither appreciated nor depreciated
B) depreciated; appreciated
C) appreciated; appreciated
D) depreciated; depreciated
E) appreciated; depreciated

Question 22

According to the law of ________,the quantity of yen demanded by U.S.consumers will ________ when the price of yen in terms of U.S.dollars falls.

A) demand; fall
B) demand; rise
C) international banking secrecy; neither rise nor fall
D) supply; neither rise nor fall
E) supply; fall

Question 23

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between June 1, 2016, and September 1, 2016. Use this table to answer the following questions.
On July 1,2016,Brandy paid 450 Mexican pesos for a manicure in Playa del Carmen,Mexico.Because she only had Japanese yen,she needed to exchange her Japanese yen at a nearby money-exchange kiosk in order to get the 450 Mexican pesos she used to pay the manicurist.The kiosk is able to buy and sell U.S.dollars,Mexican pesos,and Japanese yen at the exchange rates shown in the table.Approximately how much did the manicure cost Brandy in terms of Japanese yen?

A) 0.3386
B) 2,517
C) 2,921
D) 0.3243
E) 472,532

Question 24

Which statement best describes the law of demand as it relates to currency markets?

A) The law of demand only applies to goods and services,not currency.
B) When the price of a Mexican peso in terms of a U.S.dollar decreases,U.S.consumers demand fewer Mexican pesos because Mexican goods become more expensive to American consumers.
C) When the price of Japanese yen in terms of a U.S.dollar decreases,U.S.consumers demand more Japanese dollars because Japanese goods become more expensive to American consumers.
D) When the price of a Canadian dollar in terms of a U.S.dollar increases,U.S.consumers demand fewer Canadian dollars because Canadian goods become more expensive to American consumers.
E) When the price of an Australian dollar in terms of a U.S.dollar increases,U.S.consumers demand more Australian dollars because Australian goods become less expensive to American consumers.

Question 25

The following table shows the number of British pounds required to buy one U.S. dollar between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between June 1,2016,and August 1,2016,the U.S.dollar ________ against the British pound,and the British pound ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; depreciated
E) appreciated; neither appreciated nor depreciated

Question 26

The claim that the quantity of euros demanded by U.S.consumers will fall when the price of euros in terms of U.S.dollars rises is best referred to as the

A) law of increasing marginal costs.
B) hot-hand fallacy.
C) law of supply.
D) exchange rate-inflation fallacy.
E) law of demand.

Question 27

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between June 1, 2016, and September 1, 2016. Use this table to answer the following questions.
On June 1,2016,the price of a 16-ounce can of mixed nuts was 135 Mexican pesos at a supermarket in Juarez,Mexico.Based on the exchange rates quoted in the table,the price of the 16-ounce can of mixed nuts was approximately ________ U.S.dollars.

A) 0.18
B) 7.30
C) 7.24
D) 1,669.14
E) 1,722.38

Question 28

The following table shows the number of British pounds required to buy one U.S. dollar between February 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between February 1,2016,and March 1,2016,the U.S.dollar ________ against the British pound,and the British pound ________ against the U.S.dollar.

A) depreciated; appreciated
B) appreciated; depreciated
C) neither appreciated nor depreciated; depreciated
D) depreciated; depreciated
E) appreciated; neither appreciated nor depreciated

Question 29

The following table shows the number of U.S.dollars required to buy one Mexican peso and the number of U.S.dollars required to buy one Australian dollar between June 1,2016,and September 1,2016: Between June 1,2016,and July 1,2016,the U.S.dollar ________ against the Mexican peso,and the U.S.dollar ________ against the Australian dollar.

A) neither appreciated nor depreciated; neither appreciated nor depreciated
B) depreciated; appreciated
C) appreciated; appreciated
D) depreciated; depreciated
E) appreciated; depreciated

Question 30

If interest rates rise in the United States relative to the rest of the world,the demand for U.S.dollars will ________ because there is greater demand for assets with ________ returns.

A) decrease; higher
B) decrease; lower
C) increase; higher
D) increase; lower
E) increase; diminishing marginal

Question 31

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between June 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between August 1,2016,and September 1,2016,the number of

A) Japanese goods exported to the United States likely decreased because Japanese goods became more expensive to consumers in the United States.
B) U.S.goods exported to Japan likely decreased because U.S.goods became less expensive to consumers in Japan.
C) Mexican goods exported to the United States likely increased because the Mexican peso depreciated against the U.S.dollar.
D) U.S.goods exported to Mexico likely did not change because the Mexican peso is pegged to the Japanese yen but not to the U.S.dollar.
E) Japanese goods exported to the United States likely increased because Japanese goods became less expensive to consumers in the United States.

Question 32

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between June 1, 2016, and September 1, 2016. Use this table to answer the following questions.
On August 1,2016,the price of a jar of pickles was 135 Mexican pesos at a supermarket in Juarez,Mexico.Based on the exchange rates quoted in the table,the price of the jar of pickles was approximately ________ U.S.dollars.

A) 0.18
B) 7.31
C) 7.24
D) 1,669.14
E) 1,722.38

Question 33

If interest rates fall in the United States relative to the rest of the world,the demand for U.S.dollars will ________ because there is lesser demand for assets with ________ returns.

A) decrease; higher
B) decrease; lower
C) increase; higher
D) increase; lower
E) increase; diminishing marginal

Question 34

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between June 1, 2016, and September 1, 2016. Use this table to answer the following questions.
On June 1,2016,Samantha bought a yoga mat for 250 Mexican pesos in Playa del Carmen,Mexico.Because she only had Japanese yen,she needed to exchange her Japanese yen at a nearby money-exchange kiosk in order to get the 250 Mexican pesos she used for the purchase.The kiosk is able to buy and sell U.S.dollars,Mexican pesos,and Japanese yen at the exchange rates shown in the table.Approximately how much did the yoga mat cost Samantha in terms of Japanese yen?

A) 0.2136
B) 1,121
C) 3,151
D) 1,411
E) 292,609

Question 35

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between June 1, 2016, and September 1, 2016. Use this table to answer the following questions.
Between June 1,2016,and July 1,2016,the number of U.S.goods exported to Mexico likely

A) increased because U.S.goods became more expensive to consumers in Mexico.
B) decreased because U.S.goods became more expensive to consumers in Mexico.
C) increased because U.S.goods became less expensive to consumers in Mexico.
D) decreased because U.S.goods became less expensive to consumers in Mexico.
E) did not change because exchange rates do not affect trade.

Question 36

The following table shows the number of U.S.dollars required to buy one British pound and the number of U.S.dollars required to buy one euro between February 1,2016,and September 1,2016: Between February 1,2016,and March 1,2016,the U.S.dollar ________ against the British pound,and the U.S.dollar ________ against the euro.

A) neither appreciated nor depreciated; neither appreciated nor depreciated
B) depreciated; appreciated
C) appreciated; appreciated
D) depreciated; depreciated
E) appreciated; depreciated

Question 37

When demand for Canada's exports falls,

A) Canadian producers will sell more goods to foreigners.
B) the U.S.federal government will always respond by increasing U.S.tax rates.
C) the U.S.federal government will always respond by increasing U.S.exports.
D) demand of the Canadian dollar in the foreign exchange market falls.
E) supply of the Canadian dollar in the foreign exchange market rises.

Question 38

If interest rates in Canada increase relative to the rest of the world,it means that (1)Canadian bonds will provide a ________ return than previously and (2)________ for these bonds will ________.

A) higher; supply; decrease
B) higher; supply; increase
C) higher; demand; increase
D) lower; demand; decrease
E) lower; demand; increase

Question 39

When demand for Canada's exports rises,

A) demand for the Canadian dollar in the foreign exchange market falls.
B) demand for the Canadian dollar in the foreign exchange market rises.
C) the Canadian dollar depreciates against all other currencies.
D) supply of the Canadian dollar in the foreign exchange market falls.
E) supply of the Canadian dollar in the foreign exchange market rises.

Question 40

The following table shows the number of U.S. dollars required to buy one Mexican peso and the number of U.S. dollars required to buy one Japanese yen between June 1, 2016, and September 1, 2016. Use this table to answer the following questions.
On August 1,2016,Carlos paid 800,000 Japanese yen for a solid gold iPhone case in Fukushima,Japan.Because he only had Mexican pesos,he needed to exchange his pesos at a nearby bank in order to get the 800,000 yen he used to pay for the iPhone case.The bank is able to buy and sell U.S.dollars,Mexican pesos,and Japanese yen at the exchange rates shown in the table.Approximately how much did the iPhone case cost Carlos in terms of Mexican pesos?

A) 8,584
B) 11,333
C) 146,396
D) 171,118
E) 4,371,717

Question 41

A national government or central bank can ________ its currency in foreign currency exchange markets by printing more of it.

A) reflate
B) recombine
C) demonetize
D) monetize
E) devalue

Question 42

The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the following questions.
The U.S.central bank has the power to increase or decrease the supply of U.S.dollars.If the U.S.central bank increases the supply of U.S.dollars,the supply curve in the above figure will ________; if the U.S.central bank decreases the supply of U.S.dollars,the supply curve in the above figure will ________.

A) shift rightward; shift leftward
B) shift leftward; shift rightward
C) shift rightward; also shift rightward
D) shift leftward; also shift leftward
E) not shift; not shift

Question 43

The following figure depicts the supply of U.S. dollars in the foreign currency exchange market. Use this figure to answer the following questions.
If the U.S.central bank decreases the supply of U.S.dollars,the supply curve in the above figure will ________; if the Indian central bank increases the supply of rupees,the supply curve in the above figure will ________.

A) shift leftward; also shift leftward
B) shift rightward; not shift
C) not shift; shift rightward
D) shift rightward; shift leftward
E) shift leftward; not change

Question 44

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the following questions.
An increase in U.S.consumer demand for British goods is consistent with

A) both Figures A and B.
B) neither Figure A nor Figure B.
C) Figure A but not Figure B.
D) Figure B but not Figure A.
E) the supply curve being upward sloping in both Figures A and B.

Question 45

The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the following questions.
If interest rates in Mexico rise relative to interest rates in the United States,the demand curve in the figure above

A) will not shift because interest rates are not related to exchange rates.
B) will not shift because interest rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D₃,depending on the relative magnitude of the two effects.
D) will increase from D₁ to D_2.
E) will decrease from D₁ to D_3.

Question 46

The arrows in Figures A–D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the following questions.
A depreciation of the euro against the U.S.dollar is represented by Figure ________,and a depreciation of the U.S.dollar against the euro is represented by Figure ________.

A) A; C
B) C; A
C) B; D
D) D; B
E) A; D

Question 47

The figure below depicts the three possible aggregate demand curves. If the Bank of Canada (the Canadian central bank)________ Canadian dollar(s),the Canadian dollar will depreciate and the aggregate demand curve will shift from AD₂ to ________.

A) devalues the; AD₁
B) prints more; AD₁
C) decreases the supply of; AD₃
D) increases the supply of; AD₃
E) prints less; AD₃

Question 48

The figure below depicts the supply of U.S.dollars in the foreign currency exchange market. A shift from D₁ to D₃ in the above figure could have been caused by a(n)

A) decrease in the exchange rate from £1.2/$1 to £1.1/$1.
B) increase in the exchange rate from £1.1/$1 to £1.2/$1.
C) increase in demand for U.S.assets relative to British assets.
D) increase in U.S.interest rates relative to British interest rates.
E) decrease in British consumers' demand for U.S.goods.

Question 49

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the following questions.
Assume that the same event caused demand for U.S.dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event.Approximately what is ?

A) $0.50
B) $0.71
C) $0.83
D) $1.20
E) $1.40

Question 50

In the foreign currency market,the supply of a foreign currency is assumed to be ________ because the central bank determines the supply of money.

A) horizontal
B) vertical
C) upward sloping
D) downward sloping
E) uncontrollable

Question 51

Figure A below depicts the demand and supply of Japanese yen in the foreign currency exchange market. Figure B below depicts the aggregate supply–aggregate demand model for the Japanese economy. Use these figures to answer the following questions.
Which of the following is the most accurate description of the phenomenon shown in Figure B?

A) The Japanese central bank increased the money supply S₁ to S₂,which caused the price level to fall from 115 to 110,which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.
B) The Japanese central bank increased the money supply S₁ to S₂,which caused aggregate demand to increase from AD₁ to AD₂,which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.
C) The Japanese central bank decreased the money supply S₁ to S₃,which caused aggregate demand to decrease from AD₂ to AD₁,which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.
D) The Japanese central bank increased the money supply S₁ to S₂,which caused real gross domestic product (GDP)to fall from Y₂ to Y₁,which caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂,which then caused aggregate demand to increase from AD₁ to AD₂.
E) Aggregate demand increased from AD₁ to AD₂,which forced the Japanese central bank to increase the money supply S₁ to S₂,which then caused the short-run aggregate supply to decrease from SRAS₁ to SRAS₂.

Question 52

Figure A below depicts the demand and supply of Japanese yen in the foreign currency exchange market. Figure B below depicts the aggregate supply–aggregate demand model for the Japanese economy. Use these figures to answer the following questions.
Assume the Japanese economy is illustrated at the intersection of AD₁ and SRAS₁.If the Bank of Japan (the Japanese central bank)increased the supply of yen from five trillion to six trillion,the Japanese price level would ________ in the short run and increase from 115 to 120 in the long run.

A) decrease from 120 to 110
B) not change
C) increase from 110 to 120
D) decrease from 120 to 115
E) increase from 110 to 115

Question 53

The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the following questions.
If interest rates in the United States rise relative to interest rates in Mexico and,at the same time,Mexican consumer demand for U.S.goods decreases,the demand curve in the figure above

A) will not shift because interest rates are not related to exchange rates.
B) will not shift because interest rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D₃,depending on the relative magnitude of the two effects.
D) will increase from D₁ to D_2.
E) will decrease from D₁ to D_3.

Question 54

The following figure depicts the demand for Chinese yuan in the foreign currency exchange market. Use this figure to answer the following questions.
If the interest rates in China fall relative to interest rates in the United States and,at the same time,U.S.consumer demand for Chinese goods decreases,the demand curve in the figure above

A) will not shift because interest rates are not related to exchange rates.
B) will not shift because interest rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D_3.
D) will increase from D₁ to D_2.
E) will decrease from D₁ to D_3.

Question 55

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the following questions.
Assume that the same event caused demand for U.S.dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event.Approximately what is ?

A) $0.50
B) $0.71
C) $0.83
D) $1.20
E) $1.40

Question 56

If interest rates in Australia decrease relative to the rest of the world,it means that (1)Australian bonds will provide a ________ return than previously and (2)________ for these bonds will ________.

A) higher; supply; decrease
B) higher; supply; increase
C) higher; demand; increase
D) lower; demand; decrease
E) lower; demand; increase

Question 57

The following two figures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the following questions.
An appreciation of the ________ is shown in ________.

A) U.S.dollar; Figure A but not Figure B
B) U.S.dollar; Figure B but not Figure A
C) U.S.dollar; both Figures A and B
D) British pound; neither Figure A nor Figure B
E) British pound; both Figures A and B

Question 58

The following figure depicts the demand for Chinese yuan in the foreign currency exchange market. Use this figure to answer the following questions.
If the interest rates in China rise relative to interest rates in the United States,the demand curve in the figure above

A) will not shift because interest rates are not related to exchange rates.
B) will not shift because interest rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D_3.
D) will increase from D₁ to D_2.
E) will decrease from D₁ to D_3.

Question 59

________ occurs when a national government or central bank intentionally adjusts its money supply to affect the exchange rate of its currency.

A) Dollarization
B) A complete breakdown of the fractional reserve banking system
C) Demonetization
D) Exchange rate manipulation
E) A currency war

Question 60

The arrows in Figures A–D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the following questions.
An appreciation of the euro against the U.S.dollar is represented by Figure ________,and a depreciation of the U.S.dollar against the euro is represented by Figure ________.

A) A; C
B) A; A
C) B; D
D) D; B
E) A; D

Question 61

Which of the following goods/services is considered nontradable?

A) an oil change for your automobile
B) online technical support for your computer
C) a share of stock in Google
D) a pint of gelato from Italy
E) prescription medication

Question 62

The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the following questions.
According to the law of one price,the price of grapes will

A) increase in California and decrease in West Virginia.
B) increase in California and increase in West Virginia.
C) not change in either California or West Virginia.
D) decrease in California and increase in West Virginia.
E) decrease in California and decrease in West Virginia.

Question 63

If the assumptions for the theory of purchasing power parity are correct,then how much does an oil change for a Toyota Prius cost in Japan if the same oil change for the same Toyota Prius costs $29.95 in the United States and the exchange rate is $0.011 per Japanese yen?

A) This cannot be determined with the given information because oil changes are not tradable.
B) 2,723 yen
C) 0.33 yen
D) 272 yen
E) 3.29 yen

Question 64

Pegged exchange rates can also be referred to as ________ exchange rates.

A) variable
B) fixed
C) flexible
D) specialized
E) nominal

Question 65

Suppose market forces outside of the control of the Chinese government are causing the price of Chinese yuan in terms of Japanese yen to rise.In order to maintain the current value of the yuan,the Chinese government must

A) file a pegging application with one of the three international currency-management agencies.
B) ban Chinese firms from hiring Japanese workers.
C) use tax incentives to encourage Chinese firms to hire more Japanese workers.
D) get official approval from the World Trade Organization.
E) buy yen with newly created yuan.

Question 66

According to the law of ________,after accounting for transportation costs and trade barriers,identical goods in different locations must sell for the same price.

A) supply
B) demand
C) one price
D) currency equivocation
E) diminishing marginal product

Question 67

In order to maintain a pegged exchange rate in China,

A) the Chinese government must prevent Chinese citizens from trading goods or services with other countries.
B) the Chinese government must prevent Chinese citizens from purchasing assets denominated in foreign currencies.
C) the Chinese government must adjust the supply of the yuan in world markets.
D) at least one foreign country must also maintain a pegged exchange rate.
E) no other country with which China shares a geographical border can maintain a pegged exchange rate.

Question 68

Suppose an earthquake occurs in Dhaka,Bangladesh,and inflicts massive damages on the city.You raise money to send to aid the victims of the tragedy.How would this transaction be recorded?

A) as an increase in the U.S.capital account
B) as an increase in the U.S.current account
C) as a decrease in the U.S.capital account
D) as a decrease in the U.S.current account
E) The transaction is not recorded because there is no exchange of goods or services.

Question 69

________ exchange rates are exchange rates that are fixed at a certain level through the actions of a government.

A) Variable
B) Flexible
C) Pegged
D) Speculated
E) Real

Question 70

If the Central Reserve Bank of Peru (the Peruvian central bank)were to take steps to devalue the sol (the Peruvian currency)in foreign currency markets,the Peruvian aggregate demand curve would ________ in the short run,and the Peruvian short-run aggregate supply curve would ________ in the long run.

A) not change; not change
B) not change; shift leftward
C) shift rightward; not change
D) shift rightward; shift leftward
E) shift leftward; shift rightward

Question 71

In the short run,________ would increase domestic aggregate demand in the context of the aggregate supply-aggregate demand model.

A) an increase in the value of the domestic currency against all foreign currencies
B) a depreciation of the domestic currency against all foreign currencies
C) an appreciation of the domestic currency against all foreign currencies
D) a depreciation of all foreign currencies against the domestic currency
E) either an increase or decrease in domestic government spending

Question 72

If the Bank of Japan (the Japanese central bank)were to take steps to devalue the yen in foreign currency markets,the Japanese ________ curve would shift rightward in the short run and the Japanese ________ curve would shift leftward in the long run.

A) aggregate demand; aggregate demand
B) short-run aggregate supply; aggregate demand
C) long-run aggregate supply; short-run aggregate supply
D) aggregate yen maintenance; aggregate U.S.dollar diminution
E) aggregate demand; short-run aggregate supply

Question 73

Suppose that a Sony PlayStation (manufactured in Japan and exported worldwide)sells for a lower price in China than in the United States.What is the most likely reason for the difference in prices in the two locations?

A) China institutes price controls on goods and services sold within the country.
B) Shipping the PlayStation to the United States is more expensive than shipping it to China.
C) The PlayStation sold in China is different from the one sold in the United States.
D) Chinese citizens have a much stronger demand for the PlayStation than U.S.citizens do.
E) Japan has a closer political relationship with China,so China receives a discount on the PlayStations compared to the United States.

Question 74

Suppose that sugar produced in Cuba sells for a lower price in Mexico than it does in the southern United States.What is the most likely reason for the difference in prices in the two locations?

A) The United States has more stringent trade restrictions on Cuba than Mexico.
B) Shipping the sugar to the United States is more expensive than shipping it to Mexico.
C) The sugar sold in Mexico is different from the sugar sold in the United States.
D) Americans prefer high fructose corn syrup,whereas Mexicans prefer sugar.
E) Mexico has a closer political relationship with Cuba,so Mexico receives a discount on the sugar compared to the price charged the United States.

Question 75

Floating exchange rates can also be referred to as ________ exchange rates.

A) flexible
B) real
C) fixed
D) pegged
E) specialized

Question 76

________ exchange rates are exchange rates that are determined by the market forces of supply and demand for currency.

A) Rigid
B) Stock
C) Government-determined
D) Pegged
E) Floating

Question 77

The national government or central bank of country X might take steps to purposefully depreciate its currency because

A) country X wants its currency to command more respect from international news reporters.
B) consumers in country X would be able to purchase more goods from producers in country Y.
C) producers in country X would be able to sell more goods to consumers in country Y.
D) a depreciated currency would benefit both consumers and producers in country X.
E) an appreciated currency would harm both consumers and producers in country Y.

Question 78

The following two graphs depict the equilibrium price of a pound of grapes in California and West Virginia, respectively. Assume the type and quality of the grapes being sold in the two states are identical. Further, assume grape sellers incur zero costs to transport grapes between the two states and there are no other barriers to trade. Use these graphs to answer the following questions.
Which of the following pairs of prices is consistent with the law of one price?

A) California price: $0.50; West Virginia price: $0.80
B) California price: $0.80; West Virginia price: $0.80
C) California price: $1.20; West Virginia price: $1.20
D) California price: $1.35; West Virginia price: $1.35
E) California price: $1.50; West Virginia price: $1.50

Question 79

If the Bank of Japan (the Japanese central bank)were to take steps to devalue the yen in foreign currency markets,________,which would cause Japanese real gross domestic product (GDP)to increase in the short run.

A) aggregate demand for Japanese goods and services would increase
B) aggregate demand for Japanese goods and services would decrease
C) Japanese interest rates would rise
D) aggregate supply of Japanese goods and services would decrease
E) one U.S.dollar would subsequently buy many fewer yen

Question 80

The following graph depicts the market for potatoes in West Virginia. Assume there are similar markets for potatoes in all other U.S. states and that the potatoes sold in all states are identical. Further, assume potato sellers incur zero costs to transport potatoes between any U.S. states and that there are no other barriers to trade. Use this graph to answer the following question.
Suppose the equilibrium price of a pound of potatoes in all U.S.states is initially $1.20.Which scenario could cause a shift in West Virginia from S₁ to S₂ as shown in the graph?

A) Potato farmers in other states produce unusually large crops of potatoes,causing the price in those states to fall to $1.00.
B) Potato farmers in other states produce unusually small crops of potatoes,causing the price in those states to rise to $1.50.
C) Demand for potatoes increases in West Virginia,causing the price there to rise to $1.50.
D) Demand for potatoes falls in other states,causing the price in those states to fall to $1.00.
E) Demand for potatoes falls in West Virginia,causing the price there to fall to $1.00.