Question 1

Soon after the Australia dollar was floated, it ________ against the United States dollar and ________ against other major currencies.

Accepted Answer

The answer of Soon after the Australia dollar was floated,...

Question 2

Describe how the 'Bretton Woods System' operated.
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Accepted Answer

The answer of Describe how the 'Bretton Woods System' operated.
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Question 3

What is a 'gold standard'? What kind of exchange rate system is it? What problem does it present during a depression?
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Accepted Answer

The answer of What is a 'gold standard'? What kind...

Question 4

All of the following explain why purchasing power parity does not completely explain long-run fluctuations in exchange rates, except:

Accepted Answer

While all of the reasons listed contribute to why purchasing power parity does not completely explain long-run fluctuations in exchange rates, choice D is incorrect. Many countries have government regulations that affect their exchange rates, such as actions by central banks or trade policies.

Question 5

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'.
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Accepted Answer

The answer of Explain the difference between a 'floating exchange...

Question 6

Suppose the price of a mobile phone in Australia is $400 and 30 000 yen in Japan. If the current exchange rate is 100 yen to the dollar, then purchasing power parity theory would predict that in the long run:

Accepted Answer

According to purchasing power parity theory, exchange rates should adjust so that the same goods in different countries have the same price in the long run. Thus, the price of the mobile phone in Japan should eventually be equal to its price in Australia (assuming no trade barriers). Currently, the phone costs 30,000 yen, which is equivalent to $300 at the current exchange rate. Since this is less than the price in Australia ($400), the theory predicts that the yen will appreciate (i.e. become stronger) relative to the dollar, making the phone more expensive in Japan and reducing the price difference between the two countries.

Question 7

The 'purchasing power parity theory' of exchange rate determination states that:

Accepted Answer

The purchasing power parity theory of exchange rate determination states that in the long run, exchange rates will move to equalize the purchasing power of different countries. This means that if the price of goods in the US is higher than in the UK, the exchange rate will adjust to make UK goods more expensive to US consumers and vice versa. This theory suggests that exchange rates are driven by fundamental economic factors, such as inflation and productivity, rather than by short-term speculative forces.

Question 8

Exchange rates will equalise purchasing power parity in the long run unless:

Accepted Answer

Exchange rates will equalise purchasing power parity in the long run unless countries impose barriers to trade, such as tariffs and quotas, which can prevent the free flow of goods and services and thus distort prices and exchange rates.

Question 9

The 'theory of purchasing power parity' implies that:

Accepted Answer

The theory of purchasing power parity suggests that over the long run, the prices of goods in different countries will be equal when measured in a common currency. This is because changes in the exchange rate will adjust to reflect differences in inflation rates between countries. Therefore, A is the correct choice. B is incorrect because this theory only applies in the long run, and short-term deviations can occur due to various factors. C is partially correct, as nominal exchange rates will adjust over time to reflect changes in inflation rates, but this is a result of PPP rather than a direct implication. D is incorrect, as demand and supply factors can still have an impact on the exchange rate in the short run.

Question 10

The trade weighted index (TWI)is a measure of the:

Accepted Answer

The trade weighted index (TWI) is a measure of the value of the Australian dollar against a basket of currencies of its major trading partners. It is used to show the overall strength or weakness of the Australian dollar compared to other currencies and can be used by policymakers to monitor and manage exchange rate movements. Options A, C, and D are all incorrect as they do not describe the TWI.

Question 11

'Purchasing power parity' is the theory that in the long run, exchange rates move to equalise:

Accepted Answer

Purchasing power parity suggests that exchange rates will adjust to equalize the purchasing power of different currencies in different countries. This means that if the same basket of goods costs more in one country than in another, then the exchange rate between the two currencies should adjust so that the cost of the basket of goods is the same in both currencies. This equilibrium should hold in the long run. Therefore, option D is the correct answer.

Question 12

Exchange rates under the Bretton Woods System were determined by relative supplies of gold held by countries within the system.

Accepted Answer

Under the Bretton Woods System, exchange rates were fixed to the US dollar, which was then convertible to gold at a fixed rate, rather than determined by relative supplies of gold held by countries.

Question 13

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, what is the dollar cost of a Big Mac in Poland?

Accepted Answer

To find the dollar cost of a Big Mac in Poland, we need to convert the price of a Big Mac in Poland from zlotys to dollars using the exchange rate.

7.80 zlotys / 3 zlotys per dollar = $2.60

Therefore, the dollar cost of a Big Mac in Poland is $2.60.

Question 14

Which of the following is not a feature of the current exchange rate system?

Accepted Answer

Developed countries no longer rely on the gold standard to fix their currencies' exchange rates. The current exchange rate system is a system of floating exchange rates, where the value of a country's currency is determined by the market forces of supply and demand. The gold standard was a fixed exchange rate system where the value of a country's currency was tied to a specific amount of gold.

Question 15

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, purchasing power parity predicts that the dollar will:

Accepted Answer

Purchasing power parity suggests that exchange rates should adjust to equalize the price of identical goods in different countries. Given the exchange rate, the Big Mac should cost 3.57 * 3 = 10.71 zlotys in Poland, but it costs only 7.80 zlotys. This implies the dollar is overvalued and should depreciate, leading to an increase in the supply of dollars.

Question 16

Because of inflation, the prices of Australian goods are rising faster than prices of goods in Great Britain. If purchasing power parity holds, then:

Accepted Answer

According to the purchasing power parity theory, the exchange rate between two currencies should adjust to ensure that a basket of goods costs the same in both countries. If the prices of goods in one country (Australia) are rising faster than in another country (Great Britain) due to inflation, then the currency of the country with higher inflation (Australian dollar) should depreciate against the currency of the other country (British pound) to restore the balance. Therefore, the Australian dollar will depreciate against the British pound.

Question 17

What was the General Agreement on Tariffs and Trade (GATT)? What did it accomplish?
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Accepted Answer

The answer of What was the General Agreement on Tariffs...

Question 18

The Australian dollar was floated in:

Accepted Answer

The Australian dollar was floated on December 12, 1983, ending the system of fixed exchange rates that had been in place since World War II.

Question 19

According to the theory of 'purchasing power parity', the foreign exchange market will:

Accepted Answer

According to the theory of purchasing power parity, the exchange rate between two currencies should adjust to reflect the difference in inflation rates between the two countries. If the inflation rate in a country is higher than the inflation rates in other countries, its currency will depreciate to reflect the decrease in purchasing power. Similarly, if a country's inflation rate is lower than other countries, its currency will appreciate. Therefore, the foreign exchange market will adjust the value of currencies to reflect differing inflation rates between countries. Hence, option C is the correct choice.

Question 20

What determined the exchange rates among currencies under the gold standard and what caused the gold standard to collapse?
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Accepted Answer

The answer of What determined the exchange rates among currencies...

Quiz 15: The International Financial System

Soon after the Australia dollar was floated, it against the United States dollar and against other major currencies.

Describe how the 'Bretton Woods System' operated. _ _

What is a 'gold standard'? What kind of exchange rate system is it? What problem does it present during a depression? _ _

All of the following explain why purchasing power parity does not completely explain long-run fluctuations in exchange rates, except:

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'. _ _

Suppose the price of a mobile phone in Australia is $400 and 30 000 yen in Japan. If the current exchange rate is 100 yen to the dollar, then purchasing power parity theory would predict that in the long run:

The 'purchasing power parity theory' of exchange rate determination states that:

Exchange rates will equalise purchasing power parity in the long run unless:

The 'theory of purchasing power parity' implies that:

The trade weighted index (TWI) is a measure of the:

'Purchasing power parity' is the theory that in the long run, exchange rates move to equalise:

Exchange rates under the Bretton Woods System were determined by relative supplies of gold held by countries within the system.

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, what is the dollar cost of a Big Mac in Poland?

Which of the following is not a feature of the current exchange rate system?

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, purchasing power parity predicts that the dollar will:

Because of inflation, the prices of Australian goods are rising faster than prices of goods in Great Britain. If purchasing power parity holds, then:

What was the General Agreement on Tariffs and Trade (GATT)? What did it accomplish? _ _

The Australian dollar was floated in:

According to the theory of 'purchasing power parity', the foreign exchange market will:

What determined the exchange rates among currencies under the gold standard and what caused the gold standard to collapse? _ _

Quiz 15: The International Financial System

Soon after the Australia dollar was floated, it ________ against the United States dollar and ________ against other major currencies.

Describe how the 'Bretton Woods System' operated. _____________________________________________________________________________________________ _____________________________________________________________________________________________

All of the following explain why purchasing power parity does not completely explain long-run fluctuations in exchange rates, except:

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Suppose the price of a mobile phone in Australia is $400 and 30 000 yen in Japan. If the current exchange rate is 100 yen to the dollar, then purchasing power parity theory would predict that in the long run:

The 'purchasing power parity theory' of exchange rate determination states that:

Exchange rates will equalise purchasing power parity in the long run unless:

The 'theory of purchasing power parity' implies that:

The trade weighted index (TWI) is a measure of the:

'Purchasing power parity' is the theory that in the long run, exchange rates move to equalise:

Exchange rates under the Bretton Woods System were determined by relative supplies of gold held by countries within the system.

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, what is the dollar cost of a Big Mac in Poland?

Which of the following is not a feature of the current exchange rate system?

Assume that a Big Mac burger costs $3.57 in Australia and 7.80 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, purchasing power parity predicts that the dollar will:

Because of inflation, the prices of Australian goods are rising faster than prices of goods in Great Britain. If purchasing power parity holds, then:

What was the General Agreement on Tariffs and Trade (GATT)? What did it accomplish? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The Australian dollar was floated in:

According to the theory of 'purchasing power parity', the foreign exchange market will:

Soon after the Australia dollar was floated, it against the United States dollar and against other major currencies.

Describe how the 'Bretton Woods System' operated. _ _

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'. _ _

What was the General Agreement on Tariffs and Trade (GATT)? What did it accomplish? _ _