Question 1

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } 
\hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \
\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \
\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \
\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \
\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \
\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \
\hline
\end{array}$$ ?
What is the approximate U.S. dollar price of a cappuccino in Paris?

Accepted Answer

To find the U.S. dollar price of a cappuccino in Paris, multiply the price in euros (5.1) by the nominal exchange rate (1.11 USD per euro): 5.1 * 1.11 = 5.661 USD, which is approximately $5.66.

Question 2

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } 
\hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \
\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \
\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \
\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \
\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \
\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \
\hline
\end{array}$$ ?
Where does the cappuccino cost the MOST in terms of nominal U.S. dollars?

Accepted Answer

Based on the information in the table, the cappuccino costs €5.50 in Paris, which is the highest in terms of nominal U.S. dollars (since €1 is worth more than $1). None of the other cities have a cappuccino that costs more than €5.50 when converted to U.S. dollars. Therefore, the answer is choice B.

Question 3

Consider the following table, which shows the prices of cappuccinos in cafes in various cities.
$$\begin{array} { | l | l | l | } 
\hline \text { CITY } & \text { PRICE OF A CUP OF CAPPUCCINO } & \text { NOMINAL EXCHANGE RATE } \
\hline \text { London } & 3.15 \text { British pounds } & 1.28 \text { U.S. dollars per British pound } \
\hline \text { Paris } & \text { 5.1 European euros } & 1.11 \text { U.S. dollars per European Euro } \
\hline \text { Melbourne } & \text { 4.6 Australian dollars } & 0.68 \text { U.S. dollar per Australian dollar } \
\hline \text { Stockholm } & \text { 40 Swedish kronas } & 0.1 \text { U.S. dollar per Swedish krona } \
\hline \text { Moscow } & \text { 220 Russian rubles } & 0.02 \text { U.S. dollar per Russian ruble } \
\hline
\end{array}$$ ?
Where does the cappuccino cost the LEAST in terms of nominal U.S. dollars?

Accepted Answer

To find the cost in U.S. dollars, multiply the price of a cup of cappuccino by the nominal exchange rate for each city. For Melbourne, it's $4.6 \times 0.68 = 3.128$ U.S. dollars, which is the lowest among the options provided.

Question 4

The U.S. trades with many countries within the European Union. If the European Union falls into a recession, the demand for U.S. dollars will shift to the _____, indicating a _____ in the demand for the U.S. dollar.

Accepted Answer

If the European Union falls into a recession, their demand for U.S. goods and services will decrease. Therefore, they will need fewer U.S. dollars to trade with the U.S. Thus, the demand for the U.S. dollar will shift to the left, indicating a fall in demand for the U.S. dollar.

Question 5

The United States trades with many countries within the European Union. If the U.S. economy falls into a recession, the U.S. demand for imports will _____, leading to a _____ shift in the demand for the euro.

Accepted Answer

If the U.S. economy falls into a recession, the U.S. demand for imports will fall due to decreased consumer spending and business investment. This will lead to a leftward shift in the demand for the euro, as the U.S. will need to purchase fewer euros to pay for imports.

Question 6

The United States trades with many countries within the European Union. If the eurozone goes into a recession, the demand for U.S. exports will _____, leading to a _____ shift in the demand for the dollar.

Accepted Answer

If the eurozone goes into a recession, the demand for U.S. exports will fall as the countries within the eurozone will have lower purchasing power. This will lead to a leftward shift in the demand for the dollar, as the demand for the dollar will decrease as well.

Question 7

One of Fiji's major trading partners is Australia. If Australia's GDP rises, the demand for Fiji's exports will _____, leading to a _____ shift in the demand for the Fijian dollar.

Accepted Answer

When Australia's GDP rises, the demand for Fiji's exports will rise as well, leading to a right shift in the demand for the Fijian dollar. This is because with a higher GDP, Australians will have more income to spend on imports, including those from Fiji. As a result, the demand for Fiji's exports will increase, causing an increase in the demand for the Fijian dollar.

Question 8

If Fiji's GDP rises, the demand for imports will _____, leading to a _____ shift in the supply of the Fijian dollar.

Accepted Answer

When Fiji's GDP rises, the demand for imports typically increases as consumers and businesses have more income to spend. This increased demand for imports leads to a higher demand for foreign currencies, causing a rightward shift in the supply of the Fijian dollar in the foreign exchange market.

Question 9

Which of the following figures shows the correct shift in the US dollar market when US exports increase?

Accepted Answer

The answer of Which of the following figures shows the...

Question 10

If the United Kingdom has high interest rates relative to other countries, the demand for the pound will _____, and the pound will _____ .

Accepted Answer

High interest rates in the United Kingdom will attract foreign investors looking to earn higher returns on their investments, increasing the demand for the pound. As a result, the pound will appreciate in value relative to other currencies.

Question 11

If the United Kingdom has lower interest rates relative to the United States, the demand for the pound will _____, and the pound will _____.

Accepted Answer

If the UK has lower interest rates, investors will seek higher returns elsewhere, causing a decrease in demand for the pound and a depreciation in its value.

Question 12

If the United Kingdom has lower interest rates relative to the United States, the supply of the pound will _____, leading to a _____ shift in the supply of the pound.

Accepted Answer

When the UK has lower interest rates compared to the US, investors are likely to seek higher returns in the US, increasing the supply of pounds as they sell pounds to buy dollars, leading to a rightward shift in the supply curve of the pound.

Question 13

If the United Kingdom has lower interest rates relative to the United States, the supply of the U.S. dollar will _____, leading to a _____ shift in the supply of the U.S. dollar.

Accepted Answer

When interest rates are lower in the United Kingdom compared to the United States, investors in the UK may choose to invest their funds in the US, leading to an increase in demand for US dollars. This increase in demand for the US dollar will cause its value to appreciate, making it more expensive to purchase. As a result, the supply of US dollars will fall, leading to a leftward shift in the supply of US dollars.

Question 14

Which of the following factors will NOT lead to a shift in the demand of the U.S. dollar?

Accepted Answer

The exchange rate is actually a factor that can lead to a shift in the demand of the U.S. dollar as it directly impacts the value of the currency. A higher exchange rate can lead to an increase in demand for the dollar, while a lower exchange rate can lead to a decrease in demand. Therefore, the correct answer is D.

Question 15

Which of the following factors will NOT lead to a shift in the supply of the U.S. dollar?

Accepted Answer

The exchange rate is a result of changes in supply and demand for currencies, not a cause of shifts in the supply of a currency. Changes in domestic prices, the strength of the domestic economy, and foreign prices can all influence the supply of a currency by affecting trade balances and economic conditions.

Question 16

Which of the following figures shows the correct shift in the US dollar market when financial inflows into the US increase?

Accepted Answer

The answer of Which of the following figures shows the...

Question 17

Kenya trades with Nigeria. If the prices of Kenyan products rise, the demand for the Kenyan shilling will _____, and the shilling will _____.

Accepted Answer

If the prices of Kenyan products rise, they become more expensive for foreign buyers, leading to a decrease in demand for these products and consequently a decrease in demand for the Kenyan shilling. This decreased demand for the currency will cause the shilling to depreciate.

Question 18

If Canada has low interest rates relative to other countries, the demand for the Canadian dollar will _____, and the Canadian dollar will _____.

Accepted Answer

Low interest rates in Canada relative to other countries make investments in Canada less attractive, leading to a decrease in demand for the Canadian dollar. As demand falls, the value of the Canadian dollar depreciates against other currencies.

Question 19

Which of the following figures shows the effect on the British pound market when UK interest rates increase?

Accepted Answer

The answer of Which of the following figures shows the...

Question 20

The United States trades with Nigeria. If inflation rises in Nigeria, what will happen in the market for the Nigerian naira?

Accepted Answer

When inflation rises in Nigeria, its currency, the naira, becomes less valuable. This means that the demand for the naira will fall, as individuals and businesses will look to purchase goods and services with currencies that have greater purchasing power. As a result, the naira will depreciate in value.

Quiz 28: International Finance and the Exchange Rate

The U.S. trades with many countries within the European Union. If the European Union falls into a recession, the demand for U.S. dollars will shift to the _, indicating a _ in the demand for the U.S. dollar.

The United States trades with many countries within the European Union. If the U.S. economy falls into a recession, the U.S. demand for imports will _, leading to a _ shift in the demand for the euro.

The United States trades with many countries within the European Union. If the eurozone goes into a recession, the demand for U.S. exports will _, leading to a _ shift in the demand for the dollar.

One of Fiji's major trading partners is Australia. If Australia's GDP rises, the demand for Fiji's exports will _, leading to a _ shift in the demand for the Fijian dollar.

If Fiji's GDP rises, the demand for imports will _, leading to a _ shift in the supply of the Fijian dollar.

Which of the following figures shows the correct shift in the US dollar market when US exports increase?

If the United Kingdom has high interest rates relative to other countries, the demand for the pound will _, and the pound will _ .

If the United Kingdom has lower interest rates relative to the United States, the demand for the pound will _, and the pound will _.

If the United Kingdom has lower interest rates relative to the United States, the supply of the pound will _, leading to a _ shift in the supply of the pound.

If the United Kingdom has lower interest rates relative to the United States, the supply of the U.S. dollar will _, leading to a _ shift in the supply of the U.S. dollar.

Which of the following factors will NOT lead to a shift in the demand of the U.S. dollar?

Which of the following factors will NOT lead to a shift in the supply of the U.S. dollar?

Which of the following figures shows the correct shift in the US dollar market when financial inflows into the US increase?

Kenya trades with Nigeria. If the prices of Kenyan products rise, the demand for the Kenyan shilling will _, and the shilling will _.

If Canada has low interest rates relative to other countries, the demand for the Canadian dollar will _, and the Canadian dollar will _.

Which of the following figures shows the effect on the British pound market when UK interest rates increase?

The United States trades with Nigeria. If inflation rises in Nigeria, what will happen in the market for the Nigerian naira?