Question 1

As the relative expected return on dollar assets increases,foreigners will want to hold more ________ assets and less ________ assets,everything else held constant.

Accepted Answer

As the expected return on dollar assets increases, foreigners will want to hold more dollar assets (i.e. invest in the US) and less foreign assets (i.e. divest from their own countries). Therefore, the correct choice is C, where the first blank is filled with "dollar" and the second blank is filled with "foreign."

Question 2

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

Accepted Answer

The theory of portfolio choice suggests that investors choose their portfolio based on the expected return on the assets relative to one another. They seek to diversify their portfolio to minimize risk, and the expected return is a critical factor in their decision of where to allocate their funds.

Question 3

Everything else held constant,increased demand for a country's ________ causes its currency to appreciate in the long run,while increased demand for ________ causes its currency to depreciate.

Accepted Answer

Increased demand for a country's exports will lead to an increase in demand for its currency as well. This is because importers from other countries will need to buy the country's currency in order to pay for the exports. As a result, there will be an increase in the demand for the country's currency, causing it to appreciate in the long run. Conversely, increased demand for imports will require the country to sell more of its currency to pay for the imports and therefore cause the currency to depreciate.

Question 4

Lower tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

Accepted Answer

The answer of Lower tariffs and quotas cause a country's...

Question 5

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.

Accepted Answer

If demand for foreign goods increases relative to domestic goods, people will need more foreign currency to pay for those goods. As a result, they will sell their domestic currency, which will increase the supply of domestic currency on the foreign exchange market. Increased supply usually results in a lower price, hence the domestic currency will depreciate. Additionally, if the domestic goods are to continue selling well, the value of the domestic currency needs to be lower to maintain price competitiveness.

Question 6

Everything else held constant,if a factor decreases the demand for ________ goods relative to ________ goods,the domestic currency will depreciate.

Accepted Answer

If a factor decreases the demand for domestic goods relative to foreign goods, it means foreign goods are more attractive to consumers than domestic goods. As a result, there will be less demand for the domestic currency, which will lead to its depreciation.

Question 7

Everything else held constant,if a factor increases the demand for ________ goods relative to ________ goods,the domestic currency will appreciate.

Accepted Answer

If the demand for domestic goods increases relative to foreign goods, it means that there will be an increase in demand for the domestic currency as well, as people will need to buy more of the domestic currency to purchase the domestic goods. This increased demand for the domestic currency will lead to an appreciation of the currency.

Question 8

Higher tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

Accepted Answer

The answer of Higher tariffs and quotas cause a country's...

Question 9

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

Accepted Answer

When Brazilian demand for American exports rises, there will be an increase in the demand for U.S. dollars, which will cause the Brazilian real to depreciate relative to the U.S. dollar. Additionally, when U.S. productivity rises relative to Brazilian productivity, the supply of U.S. dollars will increase, which will further contribute to the appreciation of the U.S. dollar and the depreciation of the Brazilian real. Therefore, the most likely outcome is that the Brazilian real will depreciate relative to the U.S. dollar in the long run, assuming everything else is held constant.

Question 10

Explain the law of one price and the theory of purchasing power parity.Why doesn't purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?

Accepted Answer

The answer of Explain the law of one price and...

Question 11

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.

Accepted Answer

Higher inflation and lower productivity growth in the U.S. compared to Mexico would, in the long run, lead to the appreciation of the Mexican peso relative to the U.S. dollar, as Mexico's goods become relatively cheaper and more competitive.

Question 12

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

Accepted Answer

According to the theory of portfolio choice, investors will demand assets with higher expected returns. Therefore, the most important factor affecting the demand for domestic and foreign assets is the expected return on these assets relative to one another.

Question 13

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

Accepted Answer

The answer of If the U.S.Congress imposes a quota on...

Question 14

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 the expected return on dollar assets is high relative to foreign assets, people will want to buy more dollar assets and sell more foreign assets, leading to a higher demand for dollar assets (and therefore a higher value of the dollar) and a lower demand for foreign assets (and therefore a lower value of foreign currencies). Conversely, when the expected return on foreign assets is high relative to dollar assets, people will want to buy more foreign assets and sell more dollar assets, leading to a lower demand for dollar assets (and therefore a lower value of the dollar) and a higher demand for foreign assets (and therefore a higher value of foreign currencies).

Question 15

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 higher returns on dollar assets compared to foreign assets, they will demand more dollar assets and fewer foreign assets. Therefore, the demand for dollar assets increases, and the demand for foreign assets decreases.

Question 16

Everything else held constant,increased demand for a country's exports causes its currency to ________ in the long run,while increased demand for imports causes its currency to ________.

Accepted Answer

If there is an increased demand for a country's exports, its currency will appreciate due to the increased demand for its currency from foreign buyers. On the other hand, if there is an increased demand for imports, the country will need to sell more of its currency to buy the foreign currency needed to pay for the imports, thus causing the country's currency to depreciate.

Question 17

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price,everything else held constant.

Accepted Answer

An increase in productivity allows a country to produce goods at a lower cost, making its products more competitive internationally. This typically leads to an increase in exports, which can cause the country's currency to appreciate due to higher demand for its currency to purchase its goods.

Question 18

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 expected return on dollar assets is comparatively higher than that of foreign assets, there will be a higher demand for dollar assets. This is because investors expect to earn more return on their investment in dollar assets, and therefore they are willing to buy more dollar assets. Everything else being constant, such a scenario will create a higher demand for dollar assets.

Question 19

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

Accepted Answer

The theory of portfolio choice suggests that investors choose their portfolio of assets based on the expected return of domestic assets relative to foreign assets, among other factors like risk. This theory emphasizes the importance of expected returns in determining the demand for different types of assets across countries.

Question 20

If,in retaliation for "unfair" trade practices,Congress imposes a 30 percent tariff on Japanese DVD recorders,but at the same time,U.S.demand for Japanese goods increases,then,in the long run,________,everything else held constant

Accepted Answer

The imposition of a tariff could potentially lead to retaliation from Japan in the form of their own tariff on U.S. goods, which could result in a decrease in demand for U.S. goods and a decrease in the value of the U.S. dollar relative to the Japanese yen. However, the increase in demand for Japanese goods could lead to an increase in demand for the Japanese yen, causing it to appreciate relative to the U.S. dollar. Therefore, the effect on the Japanese yen could go in either direction or remain unchanged, making D the best choice.

Quiz 17: The Foreign Exchange Market

As the relative expected return on dollar assets increases,foreigners will want to hold more assets and less assets,everything else held constant.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

Everything else held constant,increased demand for a country's causes its currency to appreciate in the long run,while increased demand for causes its currency to depreciate.

Lower tariffs and quotas cause a country's currency to in the run,everything else held constant.

Anything that increases the demand for foreign goods relative to domestic goods tends to the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ,everything else held constant.

Everything else held constant,if a factor decreases the demand for goods relative to goods,the domestic currency will depreciate.

Everything else held constant,if a factor increases the demand for goods relative to goods,the domestic currency will appreciate.

Higher tariffs and quotas cause a country's currency to in the run,everything else held constant.

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

Explain the law of one price and the theory of purchasing power parity.Why doesn't purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,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.

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.

Everything else held constant,increased demand for a country's exports causes its currency to in the long run,while increased demand for imports causes its currency to .

An increase in productivity in a country will cause its currency to because it can produce goods at a price,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.

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

If,in retaliation for "unfair" trade practices,Congress imposes a 30 percent tariff on Japanese DVD recorders,but at the same time,U.S.demand for Japanese goods increases,then,in the long run,________,everything else held constant