Question 1

The exchange rate is

Accepted Answer

The exchange rate is the rate at which one currency can be traded for another currency. It is important for currency conversion and international trade.

Question 2

The higher the price of a foreign currency,the more expensive that foreign country's goods and services are to individuals in the domestic economy.

Accepted Answer

When the price of a foreign currency increases, it takes more of the domestic currency to purchase it. This means that individuals in the domestic economy will have to pay more for the same amount of foreign currency, making goods and services in that foreign country relatively more expensive.

Question 3

If the dollar-pound exchange rate is $1.00 per pound,then a shirt priced at 25 pounds will cost an American

Accepted Answer

The exchange rate is $1.00 per pound, so a shirt priced at 25 pounds will cost $25.

Question 4

If the dollars per peso exchange rate fell,

Accepted Answer

If the dollars per peso exchange rate fell, it means the peso is cheaper relative to the dollar, making it less expensive for Americans to travel to Mexico, thus increasing travel.

Question 5

Which of the following changes would cause a movement along the U.S.demand curve for a foreign currency?

Accepted Answer

A change in the exchange rate itself causes a movement along the demand curve for a foreign currency, as it directly affects the quantity demanded.

Question 6

In the market for euros,Americans want to buy euros

Accepted Answer

Americans may want to buy euros to purchase goods, services, and assets from European countries. It could be to invest in European assets or to finance their travel, education, or other expenses in Europe.

Question 7

To an American,the demand curve for euros tells

Accepted Answer

The demand curve for euros shows the quantities of euros that Americans would want to buy at each different exchange rate. It does not indicate whether or not Americans want to purchase euros, but rather how much they would want to buy at different prices. Option C is incorrect because the demand curve does not necessarily indicate the real interest rate on foreign currency over time. Option D is incorrect because the demand curve does not tell us how many Americans are willing to buy euros, only the quantity demanded at different prices. Option E is incorrect because the demand curve only shows the quantities demanded at different prices, not the total amount purchased during a given time period.

Question 8

If you know the number of euros that can be exchanged for one dollar,you can easily figure out the number of dollars needed to obtain one euro by finding the reciprocal of the exchange rate for dollars per euro.

Accepted Answer

Finding the reciprocal of the exchange rate for dollars per euro will give the exchange rate for euros per dollar, thus allowing us to calculate how many dollars are needed to obtain one euro.

Question 9

If the dollar-peso exchange rate is 0.01 dollars per peso,what is the rate of pesos per dollar?

Accepted Answer

The exchange rate of 0.01 dollars per peso means 1 dollar is equivalent to 100 pesos (1/0.01 = 100).

Question 10

If we know that the exchange rate is 0.8 dollars per euro,then we know that the exchange rate of euros per dollars is

Accepted Answer

The exchange rate of euros per dollar is the reciprocal of dollars per euro. So, 1 / 0.8 = 1.25 euros per dollar.

Question 11

The demand curve for a foreign currency

Accepted Answer

The demand curve for a foreign currency slopes downward. This is because as the price of the foreign currency increases, the quantity demanded by domestic consumers decreases, since they will need to pay more in their domestic currency to purchase the foreign currency. Conversely, as the price of the foreign currency decreases, the quantity demanded by domestic consumers increases, since they will need to pay less in their domestic currency to purchase the foreign currency.

Question 12

Which of the following best describes the foreign exchange market? It is a market where one country's

Accepted Answer

The foreign exchange market is a market where currencies of different countries are traded for each other. It is also known as the forex market. Option A, C, D, and E involve the exchange of goods and services between countries, but do not specifically refer to currencies.

Question 13

If the dollar-pound exchange rate is $2.00 per pound,then a shirt priced at 25 pounds will cost an American

Accepted Answer

If the exchange rate is $2.00 per pound, it means that one pound is worth $2. So, if a shirt costs 25 pounds, it would cost:
25 pounds * $2.00/pound = $50.00

Question 14

A decrease in the price of a foreign currency is represented graphically as

Accepted Answer

A decrease in the price of a foreign currency is represented graphically as a rightward movement along the demand curve for that currency, as the currency becomes cheaper and more is demanded.

Question 15

Which of the following is a reason why an American would demand British pounds?

Accepted Answer

An American would demand British pounds to purchase British real estate because the transaction would require the use of the local currency, which is the British pound.

Question 16

If the dollars per euro exchange rate increased,

Accepted Answer

When the dollars per euro exchange rate increases, it means the euro is stronger compared to the dollar. This makes European goods more expensive for Americans, leading to a decrease in purchases.

Question 17

The lower the price of a foreign currency,the more expensive that foreign country's goods and services are to individuals in the domestic economy.

Accepted Answer

The lower the price of a foreign currency, the cheaper that foreign country's goods and services are to individuals in the domestic economy.

Question 18

In a foreign exchange market,one country's currency is exchanged for another's.

Accepted Answer

This is true. In a foreign exchange market, different currencies are traded and exchanged for each other. For example, someone might exchange US dollars for Japanese yen or Euros for British pounds. This market is also sometimes referred to as the forex market.

Question 19

What does the demand curve for British pounds tell us?

Accepted Answer

The demand curve for British pounds tells us the quantity of pounds people will want to buy at each different exchange rate.

Question 20

If the pound-dollar exchange rate is 2 pounds per dollar,what is the rate of dollars per pound?

Accepted Answer

To find the rate of dollars per pound, we need to take the reciprocal of the given rate of pounds per dollar. So, 1/(2 pounds per dollar) is equal to 0.5 dollars per pound or 0.50 dollars/pound (since 1/2 is 0.5). Therefore, the correct answer is D.

Quiz 17: Exchange Rates and Macroeconomic Policy