Question 1

By definition, currency depreciation occurs when the value of

Accepted Answer

Currency depreciation specifically refers to the decrease in value of one currency relative to another currency. This means that it takes more of the depreciating currency to buy the same amount of a foreign currency.

Question 2

When the U.S. dollar depreciates against the yen, the yen ________ and the exchange rate ________.

Accepted Answer

When the U.S. dollar depreciates against the yen, it means the yen is appreciating in value relative to the dollar. The exchange rate, expressed as the amount of yen one can get for a dollar, falls because now fewer yen are needed to buy a dollar.

Question 3

When Safeway supermarkets in the United States buys strawberries from Mexico

Accepted Answer

B

Question 4

The term "foreign currency" refers to foreign
I. coins
II. notes
III. bank deposits

Accepted Answer

Foreign currency encompasses all forms of money from another country, including coins (I), notes (II), and bank deposits (III).

Question 5

An increase in the value of a domestic currency in terms of other currencies is known as

Accepted Answer

An appreciation of a domestic currency means it increases in value compared to other currencies, allowing it to buy more foreign currency than before.

Question 6

If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with

Accepted Answer

The Chinese manufacturer is paid in yuan, the Chinese currency, because the transaction is taking place between two countries with different currencies.

Question 7

Suppose the exchange rate of the U.S. dollar was 1.50 British pounds = $1.00 (U.S.) on Wednesday, and on the following Monday the exchange rate was $0.75 (U.S.) = 1.00 British pound. Which of the following best describes what happened between Wednesday and the following Monday?

Accepted Answer

Between Wednesday and the following Monday, the value of the U.S. dollar decreased in terms of how many British pounds one could get for it, indicating that the British pound appreciated against the U.S. dollar. At the same time, this means the U.S. dollar depreciated against the British pound.

Question 8

Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. Today is it 11 pesos per dollar. Here, the dollar ________ against the peso, and the peso ________ against the dollar

Accepted Answer

The dollar appreciated because it now buys more pesos than before, and the peso depreciated because it now buys fewer dollars than before.

Question 9

Which of the following examples definitely illustrates an appreciation of the U.S. dollar?

Accepted Answer

An appreciation of the U.S. dollar means it gains value compared to another currency. In option C, the dollar initially exchanges for 1 pound and later for 1.2 pounds, indicating it now buys more of the foreign currency, hence it has appreciated.

Question 10

Which of the following examples definitely illustrates a depreciation of the U.S. dollar?

Accepted Answer

A depreciation of the U.S. dollar means it loses value compared to another currency. In option A, the dollar initially exchanges for 120 euros and later for only 100 euros, indicating it now buys fewer euros than before, thus depreciating in value.

Question 11

The exchange rate is the

Accepted Answer

The exchange rate is defined as the price of one country's currency expressed in terms of another country's currency, allowing for the exchange of currencies in international markets.

Question 12

The exchange rate is the price at which the ________ of one country exchanges for the ________ of another country.

Accepted Answer

The exchange rate specifically refers to the rate at which the currency of one country can be exchanged for the currency of another country, not goods or financial instruments.

Question 13

If the United States sells beef to Japan, the U.S. beef producer is paid with

Accepted Answer

The answer of If the United States sells beef to...

Question 14

Which of the following statements is CORRECT?
I. The exchange rate is a price.
II. The exchange rate is different from other prices because it is NOT determined by supply and demand.

Accepted Answer

The exchange rate is indeed a price—the price of one currency in terms of another. Like other prices, it is determined by supply and demand in the foreign exchange market.

Question 15

Suppose that the exchange rate between the dollar and the peso changed from 6 pesos per dollar to 8 pesos per dollar. This change means that the

Accepted Answer

When the exchange rate changes from 6 pesos per dollar to 8 pesos per dollar, it means that more pesos are required to purchase a single dollar. This indicates that the value of the peso has decreased relative to the dollar, which is a depreciation of the peso.

Question 16

When the value of one currency falls relative to another currency, the exchange rate for the first currency has

Accepted Answer

When the value of one currency falls relative to another, it is said to have depreciated. This means it now buys less of the foreign currency than before.

Question 17

When the U.S. dollar depreciates against the yen, the yen becomes ________ expensive and the U.S. exchange rate ________.

Accepted Answer

When the U.S. dollar depreciates against the yen, it means that you need more dollars to buy the same amount of yen, making the yen more expensive. The U.S. exchange rate falls because each dollar is worth fewer yen.

Question 18

A decrease in the value of a currency in terms of other currencies is known as

Accepted Answer

A decrease in the value of a currency in terms of other currencies is referred to as a depreciation. This means the currency has lost value compared to others, making it cheaper to buy foreign currencies and more expensive to buy goods and services from abroad.

Question 19

Americans demand Japanese yen in order to

Accepted Answer

Americans demand Japanese yen primarily to purchase goods and services from Japan, which includes buying Japanese products. This is a fundamental aspect of international trade, where currency exchange is necessary to facilitate transactions between countries with different currencies.

Question 20

If the dollar's value changes from 120 yen per dollar to 110 yen per dollar, the dollar has

Accepted Answer

The dollar has depreciated because it now buys fewer yen than before, indicating a decrease in its value relative to the yen.

Quiz 9: The Exchange Rate and the Balance of Payments