Question 1

In foreign exchange markets, a U.S.resident who imports New Zealand apples is:

Accepted Answer

The U.S. resident needs to buy New Zealand dollars to pay for the imported apples, making them a demander of New Zealand dollars. At the same time, they will supply U.S. dollars to buy those New Zealand dollars, making them a supplier of U.S. dollars. Therefore, the correct choice is C, a demander of New Zealand dollars and a supplier of U.S. dollars.

Question 2

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2 Refer to Figure 13.2.Given a target exchange rate of MXP 11 = $1 with S₁ the relevant supply curve and a decline in Mexican demand for U.S.dollars from D₁ to D₂ the Fed intervenes in the foreign exchange market by:

Accepted Answer

If there is a decline in Mexican demand for U.S. dollars, the exchange rate would shift to the left from S₁ to S₃. To maintain the target exchange rate of MXP 11 = $1, the Fed needs to intervene by buying U.S. dollars. The Fed should buy (Q₁ - Q₃) amount of U.S. dollars to shift the exchange rate back to the target rate. Therefore, choice D is correct, and the Fed should buy (Q₁ - Q₃) amount of U.S. dollars.

Question 3

The FOMC carries out its policies through directives to the bond-trading desk at the:

Accepted Answer

The Federal Reserve Bank of New York houses the bond-trading desk and is responsible for executing the FOMC's directives on open market operations. It is located in the financial district of New York City and is considered the most important of the twelve regional Federal Reserve Banks.

Question 4

Assume that the yen price of one U.S.dollar rises to 80 yen and that the Bank of Japan has a target exchange rate of 75 yen per dollar.As a result, the Bank of Japan will intervene in the foreign exchange market by:

Accepted Answer

To decrease the exchange rate from 80 yen per dollar to the target of 75 yen per dollar, the Bank of Japan would sell U.S. dollars and buy yen, increasing the supply of dollars and demand for yen, thus appreciating the yen.

Question 5

The use of domestic open market operations to counteract the effects of a foreign exchange market intervention on the domestic money supply is known as:

Accepted Answer

Sterilization refers to the use of domestic open market operations to neutralize the impact of foreign exchange market intervention on the domestic money supply. It involves the central bank buying or selling domestic securities to offset the inflow or outflow of foreign currency resulting from the intervention. This helps to stabilize the exchange rate while preventing any unintended increase or decrease in the domestic money supply.

Question 6

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2  Refer to Figure 13.2.Assume that the exchange rate is fixed at MXP 11 = $1 and the free market equilibrium rate is MXP 10 = $1.This means that at MXP 11 = $1,

Accepted Answer

The answer of The figure given below depicts the equilibrium...

Question 7

Which of the following is most likely to lead to an increase in the demand for U.S.dollars in the foreign exchange market?

Accepted Answer

The answer of Which of the following is most likely...

Question 8

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2 Refer to Figure 13.2.When the Mexican demand for U.S.dollars rises from D₂ to D₁ and the relevant supply curve is S₁:

Accepted Answer

The answer of The figure given below depicts the equilibrium...

Question 9

To keep the U.S.dollar from depreciating against the euro, the U.S.Federal Reserve must:

Accepted Answer

To keep the value of the U.S. dollar from depreciating against the euro, the U.S. Federal Reserve must sell euros and buy U.S. dollars. This increases the demand for U.S. dollars and reduces the supply of euros in the foreign exchange market, which increases the value of the U.S. dollar relative to the euro. Buying both euros and U.S. dollars, as option B suggests, would not have any impact on the exchange rate between the two currencies. Buying U.S. government bonds, as option E suggests, could affect interest rates but would not necessarily keep the dollar from depreciating against the euro.

Question 10

Assume that there is an unexpected increase in the demand for U.S.dollars in Switzerland.If the foreign currency price of the U.S.dollar is fixed, the U.S.Federal Reserve must intervene in the foreign exchange market such that:

Accepted Answer

If the foreign currency price of the U.S. dollar is fixed, an increase in demand for U.S. dollars in Switzerland will result in excess demand in the foreign exchange market. To counteract this, the U.S. Federal Reserve must increase the supply of U.S. dollars by purchasing Swiss francs in the foreign exchange market. This will cause the price of the U.S. dollar to remain fixed, but the quantity supplied will increase to meet the excess demand. Therefore, choice A is correct.

Question 11

When the foreign exchange value of the Mexican peso is above its equilibrium rate, the peso will:

Accepted Answer

When the foreign exchange value of a currency is above its equilibrium rate, it means that the currency is overvalued and its demand in the foreign exchange market is likely to decrease. This will lead to a decrease in the price of the currency, causing it to depreciate. Therefore, the correct answer is D – the peso will tend to depreciate.

Question 12

The supply of the U.S.dollar on the foreign exchange market is generated by:

Accepted Answer

The supply of the U.S. dollar on the foreign exchange market is generated by the U.S. demand for products and financial assets from other countries, as Americans exchange dollars for foreign currencies to make these purchases.

Question 13

Which of the following people is most likely to demand U.S.dollars in the foreign exchange market?

Accepted Answer

A British importer of U.S. beef will need to exchange British pounds for U.S. dollars in order to pay for their imports, making them the most likely to demand U.S. dollars in the foreign exchange market. The other choices either involve U.S. citizens/ companies traveling abroad or investing in foreign assets, which do not necessarily require the exchange of U.S. dollars in the foreign exchange market.

Question 14

When more than one central bank attempts to shift the equilibrium exchange rate, we refer to this as:

Accepted Answer

Coordinated intervention occurs when multiple central banks intervene in the foreign exchange market at the same time in an attempt to shift the equilibrium exchange rate. Sterilization refers to the process of offsetting the effects of foreign exchange intervention on the money supply. A currency crisis is a sudden and sharp depreciation of a currency, often caused by a lack of confidence in the economy or government. Special drawing rights (SDRs) are international reserve assets created by the International Monetary Fund (IMF) and allocated to its member countries. A floating exchange rate system is one where the exchange rate is determined by market forces, without intervention by central banks.

Question 15

The supply curve of U.S.dollars in the foreign exchange market is:

Accepted Answer

The supply curve of U.S. dollars is upward-sloping because as U.S. imports increase, more dollars are supplied to the foreign exchange market to pay for these imports.

Question 16

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the exchange rate is fixed at E₂ but the free market equilibrium rate is E₁ then:

Accepted Answer

The answer of The figure given below depicts the equilibrium...

Question 17

If the U.S.dollar depreciates against the yen below the targeted exchange rate, the U.S.Federal Reserve has to intervene in the foreign exchange market such that:

Accepted Answer

If the U.S.dollar depreciates against the yen, it means it takes more U.S.dollars to buy one yen. Therefore, the supply of U.S.dollars in the foreign exchange market has to fall in order to increase the value of the U.S.dollar relative to the yen. This is achieved through intervention by the U.S.Federal Reserve, which sells U.S.dollars in exchange for yen. By reducing the supply of U.S.dollars in the foreign exchange market, the U.S.Federal Reserve can increase the value of the U.S.dollar, bringing it closer to the targeted exchange rate.

Question 18

To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:

Accepted Answer

To fix the foreign currency price of domestic currency below the free market equilibrium rate, the government must increase the supply of foreign currency and reduce the supply of its own currency. This is achieved by buying its own currency and selling foreign exchange.

Question 19

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1  Refer to Figure 13.1.Which of the following is most likely to cause equilibrium to change from point A to point D?

Accepted Answer

The answer of The figure given below depicts the equilibrium...

Question 20

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the current equilibrium exchange rate is E₁ what action would the Fed have to take to achieve a target exchange rate of E₂?

Accepted Answer

To achieve a target exchange rate of E₂, the Fed would have to increase the demand for U.S. dollars. This can be done by buying U.S. dollars in the foreign exchange market, which would increase the supply of foreign currency and decrease the supply of U.S. dollars, leading to an increase in the exchange rate to the target level. Therefore, the Fed would have to buy (Q₂ - Q₁) amount of U.S. dollars.

Quiz 22: Monetary Policy

In foreign exchange markets, a U.S.resident who imports New Zealand apples is:

The FOMC carries out its policies through directives to the bond-trading desk at the:

Assume that the yen price of one U.S.dollar rises to 80 yen and that the Bank of Japan has a target exchange rate of 75 yen per dollar.As a result, the Bank of Japan will intervene in the foreign exchange market by:

The use of domestic open market operations to counteract the effects of a foreign exchange market intervention on the domestic money supply is known as:

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2 Refer to Figure 13.2.Assume that the exchange rate is fixed at MXP 11 = $1 and the free market equilibrium rate is MXP 10 = $1.This means that at MXP 11 = $1,

Which of the following is most likely to lead to an increase in the demand for U.S.dollars in the foreign exchange market?

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2 Refer to Figure 13.2.When the Mexican demand for U.S.dollars rises from D2 to D1 and the relevant supply curve is S1:

To keep the U.S.dollar from depreciating against the euro, the U.S.Federal Reserve must:

Assume that there is an unexpected increase in the demand for U.S.dollars in Switzerland.If the foreign currency price of the U.S.dollar is fixed, the U.S.Federal Reserve must intervene in the foreign exchange market such that:

When the foreign exchange value of the Mexican peso is above its equilibrium rate, the peso will:

The supply of the U.S.dollar on the foreign exchange market is generated by:

Which of the following people is most likely to demand U.S.dollars in the foreign exchange market?

When more than one central bank attempts to shift the equilibrium exchange rate, we refer to this as:

The supply curve of U.S.dollars in the foreign exchange market is:

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the exchange rate is fixed at E2 but the free market equilibrium rate is E1 then:

If the U.S.dollar depreciates against the yen below the targeted exchange rate, the U.S.Federal Reserve has to intervene in the foreign exchange market such that:

To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.Which of the following is most likely to cause equilibrium to change from point A to point D?

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the current equilibrium exchange rate is E1 what action would the Fed have to take to achieve a target exchange rate of E2?

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2 Refer to Figure 13.2.When the Mexican demand for U.S.dollars rises from D₂ to D₁ and the relevant supply curve is S₁:

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the exchange rate is fixed at E₂ but the free market equilibrium rate is E₁ then:

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the current equilibrium exchange rate is E₁ what action would the Fed have to take to achieve a target exchange rate of E₂?