Question 1

________ in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to appreciate,everything else held constant.

Accepted Answer

An increase in the domestic interest rate makes domestic assets more attractive to foreign investors, which leads to an increase in demand for domestic assets, causing the domestic currency to appreciate.

Question 2

A decrease in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive compared to foreign assets, leading to a shift in demand for domestic assets to the left. As investors sell domestic assets to buy foreign ones, the domestic currency depreciates due to increased supply in the foreign exchange market.

Question 3

________ in the domestic interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive, leading to a decrease in demand for them and causing the domestic currency to depreciate.

Question 4

________ in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ________,everything else held constant.

Accepted Answer

When the domestic interest rate increases, it becomes more attractive for foreign investors to invest in domestic assets, which increases the demand for domestic currency, causing it to appreciate. In contrast, a decrease in the domestic interest rate would reduce the attractiveness of investing in domestic assets, leading to a decrease in demand for domestic currency and causing it to depreciate.

Question 5

An increase in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

When the domestic interest rate increases, domestic assets become more attractive to investors, leading to a rightward shift in the demand for these assets. This increased demand strengthens the domestic currency, causing it to appreciate.

Question 6

Suppose that the Federal Reserve conducts an open market sale. Everything else held constant,this will cause the demand for U.S. assets to ________ and the U.S. dollar will ________.

Accepted Answer

An open market sale by the Federal Reserve involves selling government securities, which increases interest rates. Higher interest rates attract foreign investment, increasing the demand for U.S. assets and causing the U.S. dollar to appreciate.

Question 7

Everything else held constant,when the current value of the domestic currency increases,the ________ domestic assets ________.

Accepted Answer

When the current value of the domestic currency increases, it becomes more expensive for foreign investors to purchase domestic assets, leading to a decrease in the quantity demanded of those assets, not a shift in the demand curve itself.

Question 8

Everything else held constant,when the current value of the domestic exchange rate increases,the ________ of domestic assets ________.

Accepted Answer

The increase in the domestic exchange rate implies that the domestic currency has strengthened in relation to other currencies. As a result, domestic assets become more expensive relative to foreign currency, which would lead to a decrease in the quantity demanded (not supply). However, the question asks about the change in the supply of domestic assets, which should be unaffected by exchange rate changes since it pertains to the willingness and ability of producers to offer goods and services for sale at a given price level. Therefore, the correct choice is A: quantity supplied does not change.

Question 9

________ in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive, reducing their demand and leading to currency depreciation.

Question 10

An increase in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

An increase in foreign interest rates makes foreign assets more attractive compared to domestic assets, leading to a decrease in demand for domestic assets. As investors sell domestic currency to buy foreign assets, the domestic currency depreciates.

Question 11

Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant,this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

Accepted Answer

Expansionary policy typically involves lowering interest rates or increasing the money supply, which makes U.S. assets less attractive to investors (decreasing demand for U.S. assets) and leads to a depreciation of the U.S. dollar as investors seek higher returns in other currencies.

Question 12

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive, causing the demand for them to shift to the left, leading to a depreciation of the domestic currency.

Question 13

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate,everything else held constant.

Accepted Answer

When there is an increase in the domestic interest rate, the demand for domestic assets increases as well. This causes a shift in demand to the right, towards higher interest rates, which causes the domestic currency to appreciate. Therefore, the correct answer is A) An increase; right.

Question 14

An increase in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

An increase in domestic interest rate attracts foreign investors to invest in domestic assets, thus increasing the demand for domestic assets. The increase in demand for domestic assets leads to an increase in the demand for the domestic currency, resulting in an appreciation of the domestic currency.

Question 15

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

Accepted Answer

When there is an expectation of a higher return on dollar assets compared to foreign assets, there will be a higher demand for dollar assets as investors seek to capitalize on the higher return. As a result, the demand for foreign assets will decrease because investors are choosing to invest in dollar assets instead.

Question 16

________ in the domestic interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________,everything else held constant.

Accepted Answer

When the domestic interest rate increases, it attracts more foreign investors to invest in the domestic assets, leading to a higher demand for domestic assets. The increased demand for domestic assets will lead to an appreciation of the domestic currency.

Question 17

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

Accepted Answer

When the return on dollar assets is expected to be higher than the return on foreign assets, there is a higher demand for dollar assets. This is because investors will want to invest in the currency/asset that provides them with better returns. Therefore, choice B is the correct answer as it states that there is a higher demand for dollar assets when the return on dollar assets is expected to be higher than the return on foreign assets.

Question 18

A decrease in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive compared to foreign assets, leading to a decrease in demand for domestic assets. This, in turn, causes the domestic currency to depreciate as investors sell domestic currency to buy foreign assets.

Question 19

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Accepted Answer

When people expect the return on dollar assets to be higher than foreign assets, they would want to invest in dollar assets. Therefore, there would be higher demand for dollar assets and lower demands for foreign assets.

Question 20

________ in the domestic interest rate causes the demand for domestic assets to decrease and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate causes the demand for domestic assets to decrease, which leads to a decrease in demand for the domestic currency. This decrease in demand for the domestic currency causes it to depreciate.

Quiz 17: The Foreign Exchange Market

in the domestic interest rate causes the demand for domestic assets to and the domestic currency to appreciate,everything else held constant.

A decrease in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to ,everything else held constant.

in the domestic interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ,everything else held constant.

in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ,everything else held constant.

An increase in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to ,everything else held constant.

Suppose that the Federal Reserve conducts an open market sale. Everything else held constant,this will cause the demand for U.S. assets to and the U.S. dollar will .

Everything else held constant,when the current value of the domestic currency increases,the domestic assets .

Everything else held constant,when the current value of the domestic exchange rate increases,the of domestic assets .

in the domestic interest rate causes the demand for domestic assets to and the domestic currency to depreciate,everything else held constant.

An increase in the foreign interest rate causes the demand for domestic assets to and the domestic currency to ,everything else held constant.

Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant,this will cause the demand for U.S. assets to and the U.S. dollar to .

in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to depreciate,everything else held constant.

in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to appreciate,everything else held constant.

An increase in the domestic interest rate causes the demand for domestic assets to and the domestic currency to ,everything else held constant.

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a demand for dollar assets and a correspondingly demand for foreign assets.

in the domestic interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ,everything else held constant.

When Americans or foreigners expect the return on assets to be high relative to the return on assets,there is a demand for dollar assets,everything else held constant.

A decrease in the domestic interest rate causes the demand for domestic assets to and the domestic currency to ,everything else held constant.

When Americans or foreigners expect the return on assets to be high relative to the return on assets,there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

in the domestic interest rate causes the demand for domestic assets to decrease and the domestic currency to ,everything else held constant.