Question 1

Between 2009 and 2011, the Canadian dollar
A)depreciated against the U.S. dollar.
B)appreciated against the U.S. dollar.
C)remained constant against the U.S. dollar.
D)was not able to vary against the U.S. dollar, because the exchange rate was fixed against the Japanese yen.
E)bought the same number of U.S. dollars as the euro.

Accepted Answer

B

Question 2

Suppose the dollar-yen foreign exchange rate changes from 140 yen per dollar to 130 yen per dollar. Then the yen has
A)depreciated against the dollar, and the dollar has appreciated against the yen.
B)depreciated against the dollar, and the dollar has depreciated against the yen.
C)appreciated against the dollar, and the dollar has appreciated against the yen.
D)appreciated against the dollar, and the dollar has depreciated against the yen.
E)neither appreciated nor depreciated, but the dollar has depreciated against the yen.

Accepted Answer

When the dollar-yen exchange rate changes from 140 yen per dollar to 130 yen per dollar, it means that the yen has become stronger relative to the dollar. Therefore, the yen has appreciated against the dollar. On the other hand, since the dollar is now worth fewer yen, it has depreciated against the yen. So, the correct option is D, where the yen appreciated against the dollar, and the dollar depreciated against the yen.

Question 3

If the exchange rate is 97 U.S. cents per Canadian dollar, then
A)the Canadian dollar is cheaper than the U.S. dollar.
B)the U.S. dollar is more expensive than the Canadian dollar.
C)the Canadian dollar will appreciate.
D)one U.S. dollar will buy 1.03 Canadian dollars.
E)one U.S. dollar will buy 0.97 Canadian dollars.

Accepted Answer

D

Question 4

Which of the following factors influence the demand for Canadian dollars?
A)The exchange rate and the world demand for Canadian exports.
B)Interest rates in Canada and other countries, and the expected future exchange rate.
C)The world demand for Canadian exports and Canadian demand for imports.
D)Both A and B are correct.
E)Both B and C are correct.

Accepted Answer

Both A and B are correct because the exchange rate and the world demand for Canadian exports directly affect the demand for Canadian dollars, while interest rates in Canada and other countries, as well as the expected future exchange rate, indirectly affect the demand for Canadian dollars by influencing investors' decisions to hold Canadian dollars or other currencies. Choice C is incorrect because while the world demand for Canadian exports may affect the supply of Canadian dollars, it does not directly influence the demand for Canadian dollars. The Canadian demand for imports may also indirectly affect the demand for Canadian dollars, but this was not listed as a choice.

Question 5

The law of supply of foreign exchange tells us that, other things remaining the same,
A)the lower the exchange rate, the greater is the quantity of Canadian dollars supplied.
B)the higher the exchange rate, the greater is the quantity of Canadian dollars supplied.
C)the higher the exchange rate, the greater is the supply of Canadian dollars
D)the lower the exchange rate, the greater is the supply of Canadian dollars.
E)the lower the exchange rate, the smaller is the supply of Canadian dollars.

Accepted Answer

The law of supply of foreign exchange states that, other things remaining the same, the higher the exchange rate, the greater is the quantity of Canadian dollars supplied. This means that as the exchange rate increases, Canadian exporters and individuals are more willing to supply Canadian dollars because they are able to receive more of a foreign currency in exchange. Conversely, as the exchange rate decreases, the quantity of Canadian dollars supplied also decreases because there is less incentive for exporters and individuals to sell Canadian dollars when they will receive less foreign currency in exchange.

Question 6

Suppose that the Canadian dollar exchanges for 1.05 U.S. dollars and also for 0.65 euros. A U.S. dollar exchanges for
A)1.00 euro.
B)1.70 euros.
C)0.40 euros.
D)0.68 euros.
E)0.62 euros.

Accepted Answer

The answer of Suppose that the Canadian dollar exchanges for...

Question 7

Foreign currency is
A)the market for foreign exchange.
B)the price at which one currency exchanges for another currency.
C)foreign notes, coins and bank deposits.
D)foreign notes and coins only.
E)the purchasing power of foreign money.

Accepted Answer

Foreign currency refers to foreign notes, coins, and bank deposits that can be used as a medium of exchange in a foreign country. Therefore, option C is the correct choice as it encompasses all forms of foreign currency. Options A, B, D, and E are either incomplete or incorrect in their definition of foreign currency.

Question 8

Table 25.1.1
 
-Refer to Table 25.1.1. Between 2009 and 2010, the Canadian dollar ________ versus the euro and ________ versus the yen.
A)appreciated; depreciated
B)appreciated; appreciated
C)depreciated; depreciated
D)depreciated; appreciated
E)not changed; not changed

Accepted Answer

From Table 25.1.1, we can see that the CAD-EUR exchange rate decreased from 0.6873 in 2009 to 0.6539 in 2010, indicating that the Canadian dollar appreciated against the euro. On the other hand, the CAD-JPY exchange rate increased from 84.35 in 2009 to 87.82 in 2010, indicating that the Canadian dollar depreciated against the yen. Therefore, the correct answer is A, where the Canadian dollar appreciated versus the euro and depreciated versus the yen.

Question 9

If the Canadian dollar depreciates, it means that
A)one Canadian dollar buys less foreign currency.
B)inflation has eroded the purchasing power of Canadian money.
C)the Canadian economy is becoming less stable.
D)Canadians are buying too many imports.
E)prices in Canada are rising.

Accepted Answer

If the Canadian dollar depreciates, it means that one Canadian dollar buys less foreign currency. This means that other currencies can buy more Canadian dollars, making exported goods cheaper while making imports more expensive. This can lead to changes in international trade and affect the Canadian economy.

Question 10

The lower the exchange rate, the
A)larger is the quantity of Canadian dollars supplied in the foreign exchange market.
B)larger is the quantity of Canadian dollars demanded in the foreign exchange market.
C)smaller is the quantity of Canadian dollars supplied in the foreign exchange market.
D)smaller is the quantity of Canadian dollars demanded in the foreign exchange market.
E)Both B and C are correct.

Accepted Answer

The answer of The lower the exchange rate, the
A)larger is...

Question 11

The exchange rate is the
A)volume of currency exchanged between importers and exporters.
B)price at which one currency exchanges for another currency.
C)rate of currency appreciation or depreciation.
D)percentage change in the volume of currency exchanges.
E)average rate at which foreign currencies are exchanged.

Accepted Answer

The exchange rate is the price at which one currency exchanges for another currency.

Question 12

Suppose that the following situation exists in the foreign exchange market: 1 Canadian dollar buys $1.01 U.S, and 1 Canadian dollar buys 6.63 South African rand. How many U.S. dollars will one rand buy?
A)$6.56
B)$1.01
C)$0.17
D)$0.15
E)$6.63

Accepted Answer

To solve the problem, we need to convert Canadian dollars to rand and then to U.S. dollars. 
1 Canadian dollar buys $1.01 U.S, so 1 U.S. dollar is worth 0.99 Canadian dollars (1 divided by 1.01). 
1 Canadian dollar also buys 6.63 South African rand, so 1 South African rand is worth 0.15 Canadian dollars (1 divided by 6.63). 
Now, we can find out how many U.S. dollars one rand can buy by converting rand to Canadian dollars and then to U.S. dollars: 
1 rand is worth 0.15 Canadian dollars, and 1 U.S. dollar is worth 0.99 Canadian dollars, so 
1 rand is worth (0.15/0.99) U.S. dollars, which is approximately $0.15. 
Therefore, one rand can buy $0.15 U.S. dollars.

Question 13

Suppose that the following situation exists in the foreign exchange market: 1 Canadian dollar buys 7.2 Chinese yuan and 1 Canadian dollar buys 5.77 South African rand. How many yuan will one rand buy?
A)0.80 yuan
B)1.25 yuan
C)7.20 yuan
D)5.77 yuan
E)1.43 yuan

Accepted Answer

The answer of Suppose that the following situation exists in...

Question 14

If the exchange rate is too high in the foreign exchange market,
A)there is a surplus and the exchange rate will rise.
B)there is a surplus and the exchange rate will fall.
C)exports are cheap, and the demand curve for Canadian dollars will shift rightward.
D)there is a shortage and the exchange rate will fall.
E)there is a shortage and the exchange rate will rise.

Accepted Answer

The answer of If the exchange rate is too high...

Question 15

Currency depreciation is a reduction in the
A)precious metal content in coins, such as the replacement of silver with copper in quarters.
B)goods and services a currency can purchase within its own country, usually the result of a period of inflation.
C)amount of foreign currency that can be obtained in trade for each unit of domestic currency.
D)amount of domestic currency that must be exchanged for a unit of foreign exchange.
E)amount of domestic goods foreign currency can purchase.

Accepted Answer

The answer of Currency depreciation is a reduction in the
A)precious...

Question 16

The market in which the currency of one country is exchanged for the currency of another country is the
A)money market.
B)capital market.
C)foreign exchange market.
D)forward exchange market.
E)international trading market.

Accepted Answer

The foreign exchange market is where currencies are exchanged between different countries. The money market and capital market are markets for different types of financial instruments, while the forward exchange market is a subset of the foreign exchange market where currencies are exchanged at a future date. The international trading market is a broad term that encompasses various types of markets for goods and services, including currency markets.

Question 17

Appreciation of a currency means
A)an increase in the amount of goods and services that currency can purchase within its own country.
B)an increase in the precious metal content in coins.
C)a shortage of currency.
D)that currency can buy more foreign currency.
E)that currency can buy less foreign currency.

Accepted Answer

Appreciation of a currency means that it can buy more foreign currency. This means that imports become cheaper, while exports become more expensive. As a result, an appreciated currency can lead to a decrease in a country's trade balance.

Question 18

Suppose that the following situation exists in the foreign exchange market: 1 Canadian dollar buys $1.05 U.S, and 1 Canadian dollar buys 8.6 Chinese yuan. How many yuan will $1 U.S. buy?
A)8.6 yuan
B)1.0 yuan
C)8.2 yuan
D)0.12 yuan
E)0.14 yuan

Accepted Answer

To find out how many yuan $1 U.S. buys, we need to determine the value of 1 U.S. dollar in Canadian dollars, and then multiply that by the number of yuan that 1 Canadian dollar can buy.

Since 1 Canadian dollar buys $1.05 U.S., we know that 1 U.S. dollar is worth 1/1.05 = 0.9524 Canadian dollars.

Now we can use the exchange rate between Canadian dollars and Chinese yuan to find out how many yuan 0.9524 Canadian dollars can buy:

0.9524 * 8.6 = 8.19 yuan

Therefore, $1 U.S. will buy approximately 8.2 Chinese yuan. The correct answer is C.

Question 19

The law of demand for foreign exchange tells us that other things remaining the same,
A)the higher the exchange rate, the greater is the quantity of Canadian dollars demanded.
B)the higher the exchange rate, the greater is the demand for Canadian dollars.
C)the higher the exchange rate, the greater is the supply of Canadian dollars.
D)the higher the exchange rate, the smaller is the quantity of Canadian dollars demanded.
E)the lower the exchange rate, the greater is the supply of Canadian dollars.

Accepted Answer

The law of demand for foreign exchange states that as the exchange rate (price of foreign currency) increases, the quantity of Canadian dollars demanded decreases, all other things remaining constant. This means that at higher exchange rates, Canadians will demand fewer foreign currencies, including the US dollar, yen or euro, because they will be more expensive in Canadian dollar terms. Thus, choice D ("the higher the exchange rate, the smaller is the quantity of Canadian dollars demanded") is the correct answer.

Question 20

Table 25.1.1
 
-Refer to Table 25.1.1. Between 2009 and 2010, the yen
A)must have depreciated in value versus the euro.
B)must have appreciated in value versus the euro.
C)may or may not have appreciated in value versus the euro.
D)will have appreciated in value versus the euro if the euro has a high weight in CERI.
E)will have appreciated in value versus the euro if the euro has a lower weight in CERI.

Accepted Answer

The answer of Table 25.1.1
 
-Refer to Table 25.1.1. Between...

Quiz 25: The Exchange Rate and the Balance of Payments

Between 2009 and 2011, the Canadian dollar

Suppose the dollar-yen foreign exchange rate changes from 140 yen per dollar to 130 yen per dollar. Then the yen has

If the exchange rate is 97 U.S. cents per Canadian dollar, then

Which of the following factors influence the demand for Canadian dollars?

The law of supply of foreign exchange tells us that, other things remaining the same,

Suppose that the Canadian dollar exchanges for 1.05 U.S. dollars and also for 0.65 euros. A U.S. dollar exchanges for

Foreign currency is

Table 25.1.1 -Refer to Table 25.1.1. Between 2009 and 2010, the Canadian dollar versus the euro and versus the yen.

If the Canadian dollar depreciates, it means that

The lower the exchange rate, the

The exchange rate is the

Suppose that the following situation exists in the foreign exchange market: 1 Canadian dollar buys $1.01 U.S, and 1 Canadian dollar buys 6.63 South African rand. How many U.S. dollars will one rand buy?

Suppose that the following situation exists in the foreign exchange market: 1 Canadian dollar buys 7.2 Chinese yuan and 1 Canadian dollar buys 5.77 South African rand. How many yuan will one rand buy?

If the exchange rate is too high in the foreign exchange market,

Currency depreciation is a reduction in the

The market in which the currency of one country is exchanged for the currency of another country is the

Appreciation of a currency means

Suppose that the following situation exists in the foreign exchange market: 1 Canadian dollar buys $1.05 U.S, and 1 Canadian dollar buys 8.6 Chinese yuan. How many yuan will $1 U.S. buy?

The law of demand for foreign exchange tells us that other things remaining the same,

Table 25.1.1 -Refer to Table 25.1.1. Between 2009 and 2010, the yen