Question 1

The law of demand in the foreign exchange market refers to the relationship between

Accepted Answer

The law of demand states that as the price of a good increases, the quantity demanded decreases, and vice versa. In the foreign exchange market, the "good" being exchanged is currency. Therefore, the law of demand in this market refers to the inverse relationship between exchange rates and the quantity of U.S. dollars demanded. As exchange rates increase (i.e., the value of the dollar increases), the quantity of U.S. dollars demanded decreases, and vice versa.

Question 2

In the foreign exchange market, a change in which of the following will result in a movement along the demand curve for dollars?

Accepted Answer

A change in exchange rate will result in a movement along the demand curve for dollars, as the exchange rate is the price of one currency in terms of another currency. As the exchange rate changes, the quantity demanded of dollars changes as well. A change in interest rates or expected future exchange rates would shift the demand curve for dollars, rather than result in a movement along the curve.

Question 3

When the U.S. exchange rate falls, U.S. goods become _ _ to foreign residents and U.S. exports _.

Accepted Answer

When the U.S. exchange rate falls, the value of the U.S. dollar decreases relative to other currencies. This makes U.S. goods less expensive for foreign residents, as they now need to spend less of their own currency to purchase American products. As a result, U.S. exports tend to increase.

Question 4

A rise in the U.S. exchange rate will

Accepted Answer

The answer of A rise in the U.S. exchange rate...

Question 5

As the exchange rate _, the is the value of U.S. _ .

Accepted Answer

When the exchange rate falls, it means that the value of the U.S. dollar has decreased relative to other currencies. This makes U.S. exports cheaper for foreign buyers, leading to greater demand and increasing the value of U.S. exports. On the other hand, a rising exchange rate makes U.S. exports more expensive, leading to lower demand and decreasing the value of U.S. exports. Therefore, A is the best choice as it accurately describes the relationship between exchange rates, U.S. currency value, and exports.

Question 6

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 2 euro per 21 yuan, the price of this airplane to China Airlines is

Accepted Answer

To find the price in yuan, convert euros to yuan using the exchange rate. 95 million euros * (21 yuan / 2 euros) = 997.5 million yuan.

Question 7

As the value of U.S. exports _ , the quantity of _ _ demanded increases.

Accepted Answer

When the value of U.S. exports increases, there is an increase in the demand for dollars because foreign countries need to obtain dollars in order to purchase U.S. goods and services. This is referred to as currency exchange demanded. Therefore, as the value of exports increases, the quantity of dollars demanded also increases.

Question 8

The law of demand for dollars means that the

Accepted Answer

The law of demand states that as the price of a good decreases, the quantity demanded increases, and vice versa. In the context of exchange rates, a lower exchange rate makes dollars cheaper, increasing the quantity demanded (A), while a higher exchange rate makes dollars more expensive, decreasing the quantity demanded (B).

Question 9

Which of the following creates a demand for U.S. dollars?

Accepted Answer

The purchase of land in Texas by a Japanese firm requires the exchange of yen for dollars, creating a demand for U.S. dollars.

Question 10

A factor helping determine the demand for U.S. dollars in the foreign exchange market is

Accepted Answer

The demand for U.S. dollars in the foreign exchange market is influenced by the world demand for U.S. exports, as foreign buyers need to purchase U.S. dollars to pay for these goods and services.

Question 11

Exports of U.S. goods creates a

Accepted Answer

When U.S. goods are exported, foreign buyers need to exchange their currency for U.S. dollars to pay for these goods, creating a demand for dollars and a supply of foreign currency.

Question 12

The greater the demand for U.S. exports, the

Accepted Answer

When there is a greater demand for U.S. exports, foreign buyers need to purchase U.S. dollars to pay for those exports. This increases the demand for U.S. dollars in foreign exchange markets.

Question 13

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 10 yuan, the price of this airplane to China Airlines is

Accepted Answer

The price of the Airbus in yuan would be 95 million euros multiplied by 10 yuan per euro, for a total of 950 million yuan. Therefore, option D is correct.

Question 14

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 9 yuan, the price of this airplane to China Airlines is

Accepted Answer

The price of the Airbus in yuan is calculated by multiplying the price in euros by the exchange rate: 95 million euros * 9 yuan/euro = 855 million yuan.

Question 15

When the exchange rate falls, in the foreign exchange market the

Accepted Answer

When the exchange rate falls, the currency becomes cheaper, leading to an increase in the quantity demanded of the currency.

Question 16

With everything else the same, in the foreign exchange market the

Accepted Answer

The larger the value of U.S. exports, the greater is the quantity of dollars demanded because foreign buyers need dollars to pay for U.S. goods and services.

Question 17

The demand curve for U.S. dollars slopes downward because as the dollar _ U.S. goods become expensive to foreign residents, so they purchase fewer U.S. goods, and the quantity of dollars demanded decreases.

Accepted Answer

The answer of The demand curve for U.S. dollars slopes...

Question 18

In the foreign exchange market, which of the following increases the quantity of dollars demanded?
I. Firms expect a larger profit from holding dollars.
II. Mexicans' income rise so that they buy more U.S. made goods.

Accepted Answer

Both I and II increase the quantity of dollars demanded. I increases demand because firms expect higher returns from holding dollars, and II increases demand because higher Mexican income leads to more purchases of U.S. goods, requiring more dollars.

Question 19

The quantity of dollars demanded by foreign nations increases as

Accepted Answer

When foreigners purchase more U.S. goods, they must use U.S. dollars to pay for those goods, hence there is an increase in the demand for U.S. dollars.

Question 20

A fall in the U.S. exchange rate will

Accepted Answer

A fall in the U.S. exchange rate makes U.S. goods and assets cheaper for foreign buyers, increasing the quantity of dollars demanded.

Quiz 9: The Exchange Rate and the Balance of Payments