Deck 2: The Determination of Exchange Rates

Question 1

Suppose that the Brazilian real devalues by 40% against the U.S. dollar. By how much will the dollar appreciate against the real?

A) 67%
B) 40%
C) 32%
D) 28%

Answer 1

A

Question 2

the euro depreciates against the U.S. dollar by 50%, the dollar appreciates against the euro by

A) 55%
B) 100%
C) 200%
D) 1,000%

Answer 2

B

Question 3

Friday, September 13, 1992, the lira was worth DM 0.001Over the weekend the lira devalued against the DM to DM 0.001By how much had the lira devalued against the DM?

A) 7.69%
B) 8.33%
C) 5.21%
D) 9.27%

Answer 3

A

Question 4

some U.S. manufacturers and labor unions, a cheap yuan value gives China's __________ an unfair advantage in the global economy.

A) imports
B) subsidies
C) bankers
D) exporters

Question 5

the U.S. dollar appreciates against the Nigerian naira by 150%, the naira depreciates against the dollar by

A) 60%
B) 75%
C) 125%
D) 300%

Question 6

the Australian dollar devalues against the Japanese yen by 10%, the yen will appreciate by

A) 33.32%
B) 25.55%
C) 10.11%
D) 11.11%

Question 7

During the 1994 peso problem, Mexico made a fundamental error by not allowing the ________ of pesos to fall.

A) demand
B) supply
C) devaluation
D) real exchange rate

Question 8

the U.S. Federal Reserve sells or purchases Treasury securities in order to sterilize the impact of their foreign exchange market interventions, it is referred to as a(n) ________ operation.

A) floating currency
B) spot rate
C) revaluation
D) open market

Question 9

the dinar devalues against the U.S. dollar by 45%, the U.S. dollar will appreciate against the dinar by

A) 45%
B) 82%
C) 55%
D) 32%

Question 10

the U.S. dollar appreciates against the euro by 25%, the euro will depreciate against the U.S. dollar

A) 25%
B) 20%
C) 30%
D) 10%

Question 11

most likely explanation for the rise of the U.S. dollar during the early 1980s is that the U.S.

A) budget deficit lowered U.S. interest rates
B) trade deficit accelerated U.S. inflation
C) economy slowed dramatically
D) budget deficit raised U.S. interest rates

Question 12

a foreigner purchases a U.S. government security the

A) supply of dollars rises
B) federal government deficit declines
C) demand for dollars rises
D) U.S. money supply rises

Question 13

U.S. dollar weakened during the 1970s for the following reasons EXCEPT

A) U.S. inflation accelerated
B) the U.S. economy weakened
C) foreigners didn't want to hold as many dollars as before
D) foreigners did want to hold many more dollars than before

Question 14

monetary authorities have not insulated their domestic money supplies from the foreign exchange transactions, it is known as ________ intervention.

A) unsterilized
B) sterilized
C) foreign market
D) subsidized

Question 15

French euro devalued by 17% against the U.S. dollar. This is equivalent to a revaluation of the dollar against the euro by

A) 17%
B) 16.31%
C) 20.48%
D) 17.54%

Question 16

the following, exchange rates depend the most upon relative

A) monetary systems
B) political systems
C) trade deficits
D) inflation rates between nations

Question 17

price of foreign goods in terms of domestic goods is called

A)the real exchange rate
B)the balance of trade
C) the trade?weighted exchange rate
D)purchasing parity

Question 18

asset market view of exchange rate determination does NOT state that the spot rate

A) should follow a random walk
B) is affected primarily by a nation's long?run economic prospects
C) is influenced by a nation's annual economic growth
D) should be strongly affected by a nation's balance of trade

Question 19

______ is another name for the complete replacement of the local currency with the U.S. dollar.

A) Seignorage
B) Dollarization
C) Depreciation
D) Appreciation

Question 20

the peso depreciates against the U.S dollar by 80%, the US dollar will appreciate against the peso by

A) 300%
B) 200%
C) 250%
D) 400%

Question 21

slowdown in U.S. economic growth will

A) boost the value of the dollar because inflation fears will be calmed b) boost the value of the dollar because the Federal Reserve will expand the money supply
C) lower the value of the dollar because the U)S) will be a less attractive place to investors
D) lower the value of the dollar because interest rates will rise
B) boost the value of the dollar because the Federal Reserve will expand the money supply
C) lower the value of the dollar because the U)S) will be a less attractive place to investors
D) lower the value of the dollar because interest rates will rise

Question 22

_______ for/of foreign currency in the U.S. is derived from the demand for ___________ by American consumers.

A) Demand, foreign products
B) Demand, tax loopholes
C) Supply, lower tariffs
D) Supply, local products

Question 23

increase in the real exchange rate will

A) raise national income
B) lower national income
C) make a country less competitive in international trade
D) lower the cost of foreign goods
E) c and d

Question 24

willingness of people to hold money

A) increases with the interest rate
B) rises with price stability
C) rises with national income
D) b and c only

Question 25

Sound economic policies will

A) raise the value of a nation's currency by boosting the economy
B) lower the value of a nation's currency by increasing the precautionary demand for money
C) lower the value of a nation's currency by leading to lower interest rates
D) both b and c

Question 26

During 1995, the yen went from $0.0125 to $0.009523By how much did the dollar appreciate against the yen?

A) 23.81%
B) 31.25%
C) 15.67%
D) 40.78%

Question 27

Large government budget deficits will

A) raise the value of a nation's currency by raising domestic interest rates
B) raise the value of a nation's currency by stimulating the domestic economy
C) lower the value of a nation's currency by leading to higher inflation
D) lower the value of a nation's currency by leading to added political risk
E) be irrelevant since historical experience shows no correlation between government budget deficits and the value of the nation's currency

Question 28

Which type of money is most likely to see its value fluctuate in the foreign exchange market?

A) fiat money
B) commodity money
C) price-indexed money
D) pegged-exchange rate

Question 29

July 19, 1985, the Italian lira devalued by 17% against the U.S. dollar. This is equivalent to a revaluation of the dollar against the lira of

A) 17%
B) 16.31%
C) 20.48%=
D) 17.54%

Question 30

Which of the following is an example of foreign exchange market intervention?

A) the U.S. government pays Social Security checks to pensioners living in Poland
B) IBM sells euros it received in international trade
C) the Canadian government pays interest to Saudi Arabian investors
D) the French government sells dollars in the foreign exchange market to prop up the value of the euro