Deck 2: The Determination of Exchange Rates

Question 1

If 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%

Answer 1

A

Question 2

An 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) raise the cost of foreign goods

Answer 2

C

Question 3

Exchange rates depend on

A) relative inflation rates
B) relative interest rates
C) relative trade deficits
D) a and b

Answer 3

D

Question 4

Beginning in 1997, the ruble came under attack by speculators and resulted in accelerating

A) stock market prices
B) capital flight
C) efforts by the Russian government to address the root causes of the crisis
D) decontrol by the government on the foreign exchange market

Question 5

If 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 6

If 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

The U.S. dollar weakened during the 1970s because

A) control of Congress changed political parties
B) the U.S. economy grew
C) foreigners wanted to hold more dollars than before
D) U.S. inflation accelerated

Question 8

If 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%

Question 9

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%

Question 10

If 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 11

When 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 12

If a foreigner purchases a U.S. government security

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

Question 13

If 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 14

During the second half of 1997, currencies and stock market prices plunged in value across Southeast Asia, beginning in

A) Thailand
B) Malaysia
C) Indonesia
D) South Korea

Question 15

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

A) the U.S. budget deficit lowered U.S. interest rates
B) the U.S. trade deficit caused more U.S. inflation
C) the U.S. budget deficit raised U.S. interest rates
D) the U.S. economy deteriorated dramatically

Question 16

On Friday, September 13, 1992, the lira was worth DM 0.0013. Over 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%

Question 17

The 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

If the 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 19

The asset market view of exchange rate determination says that the spot rate

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

Question 20

A 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 invest in
D) lower the value of the dollar because interest rates will rise

Question 21

An increase in the supply of U.S. dollars by the Federal Reserve will

A) raise the value of the dollar because it will stimulate U.S. economic growth
B) raise the value of the dollar because it will lead to higher U.S. interest rates
C) reduce the value of the dollar because of inflation fears in the United States
D) decrease the value of the dollar because it will force other countries to raise their interest rates

Question 22

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 23

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 24

During 1995, the yen went from $0.0125 to $0.0095238. By how much did the dollar appreciate against the yen?

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

Question 25

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 Japanese central bank sells yen in the foreign exchange market to prop up the value of the yen

Question 26

The 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 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) historical experience shows no correlation between government budget deficits and the value of the nation's currency