Question 1

If the exchange rate between the U.S.dollar and the Indian rupee (rupees per dollar)is greater than the relative purchasing power between the two countries,which of the following would be true?

Accepted Answer

If the exchange rate is greater than the relative purchasing power, it means that goods are cheaper in India when bought with rupees than when bought with dollars in the United States. Therefore, someone could make a profit by purchasing goods in India with dollars (which would be converted to a larger amount of rupees) and then selling them in the United States for dollars. This is an example of arbitrage, and it would lead to the equalization of prices between the two countries over time, according to the concept of purchasing power parity.

Question 2

An increase in the value of the U.S.dollar will

Accepted Answer

An increase in the value of the U.S. dollar would make it more expensive for Canadians to purchase winter homes in Arizona because they would need to exchange more Canadian dollars to obtain the required amount of U.S. dollars. As a result, Canadian demand for winter homes in Arizona is likely to reduce.

Question 3

If one U.S.dollar could be exchanged for one Canadian dollar in 1970,and one U.S.dollar can now be exchanged for 1.13 Canadian dollars,which of the following is true?

Accepted Answer

Since one U.S. dollar can now buy more Canadian dollars than before, it means the Canadian dollar has lost value relative to the U.S. dollar.

Question 4

How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?

Accepted Answer

The answer of How were exchange rates determined under the...

Question 5

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Accepted Answer

The answer of A Big Mac costs $4.00 in the...

Question 6

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

Accepted Answer

Purchasing power parity theory suggests that over the long run, exchange rates will adjust to equalize the purchasing power of currencies. Therefore, if the purchasing power of a dollar is greater than the purchasing power of the yen, the exchange rate should adjust in the long run to reflect this difference. In the short run, other factors such as interest rate differentials can affect exchange rates.

Question 7

You are a Canadian citizen who works in Toronto,Canada and owns a winter home in Phoenix,Arizona.When you spend the winters in Phoenix,an increase in the value of the Canadian dollar relative to the U.S.dollar should

Accepted Answer

When the Canadian dollar appreciates relative to the U.S. dollar, each Canadian dollar you earn is worth more U.S. dollars. Therefore, if you are spending your winters in Phoenix and earning Canadian dollars from your job in Toronto, the increase in the value of the Canadian dollar will benefit you because you will be able to exchange your Canadian dollars for more U.S. dollars to pay for expenses in Phoenix.

Question 8

From the beginning of 1973 until October 2011,the value of the dollar has ________ relative to the Canadian dollar and ________ relative to the Japanese yen.

Accepted Answer

The answer of From the beginning of 1973 until October...

Question 9

If two countries adhere to a gold standard,the exchange rate for their currencies is fixed.

Accepted Answer

Adhering to a gold standard involves fixing the value of a currency to a specific amount of gold. As both countries have agreed to use gold as a standard, this establishes a fixed exchange rate between the two currencies.

Question 10

What factors are not important in determining exchange rate fluctuations in the long run?

Accepted Answer

Speculation in currency markets is a short-term factor and not a fundamental economic factor that determines exchange rate fluctuations in the long run. Factors such as relative price levels, rates of productivity growth, and preferences for domestic and foreign goods determine exchange rates in the long run through their impact on trade and capital flows.

Question 11

In 2011,a number of Canadians purchased homes in Arizona.Which of the following would not be a possible explanation for this?

Accepted Answer

If the U.S. dollar appreciated relative to the Canadian dollar, it would make purchasing homes in the U.S. more expensive for Canadians, not more attractive.

Question 12

Expanding,contracting,and managing the money supply is easier for a central bank under the gold standard.

Accepted Answer

Under the gold standard, the money supply is tied to the availability of gold reserves, limiting a central bank's ability to expand or contract the money supply. In contrast, modern central banks have more tools (such as open market operations, reserve requirements, and discount rates) to manage the money supply.

Question 13

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

Accepted Answer

Purchasing power parity states that exchange rates should be set at a level that allows one to buy the same amount of goods and services in any country, meaning that equivalent amounts of any country's currency should allow for purchasing power parity.

Question 14

Managed float exchange systems were abandoned with the implementation of the gold standard.

Accepted Answer

Managed float exchange systems were implemented after the abandonment of the gold standard.

Question 15

Which of the following is most important in explaining exchange rate fluctuations in the short run?

Accepted Answer

Interest rates have a large impact on short-run exchange rate fluctuations because they affect capital flows and investor demand. When domestic interest rates rise relative to foreign interest rates, investors will demand more domestic currency to invest, leading to an increase in the value of the domestic currency relative to foreign currencies. Conversely, when foreign interest rates rise relative to domestic interest rates, investors will demand more foreign currency, leading to a decrease in the value of the domestic currency relative to foreign currencies.

Question 16

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

Accepted Answer

The answer of A Big Mac costs $4.00 in the...

Question 17

The currency adopted by most countries in Western Europe is referred to as the

Accepted Answer

The euro is the currency adopted by most countries in Western Europe. The Eurodollar refers to US dollars deposited in overseas banks outside of the US, the yen is the currency used in Japan, and the pound is the currency used in the United Kingdom.

Question 18

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,what is the dollar cost of a Big Mac in Brazil?

Accepted Answer

Since the cost of a Big Mac in Brazil is 9.00 reals and the exchange rate is 2 reals per dollar, we can find the cost in dollars by dividing 9.00 by 2. This gives us a cost of $4.50. Therefore, the answer is C.

Question 19

What are the three main exchange rate systems,and how do they operate?

Accepted Answer

The answer of What are the three main exchange rate...

Question 20

The current exchange rate system has which of the following characteristics?

Accepted Answer

The United States allows the dollar to float against other major currencies, meaning that its value is determined by market forces and can fluctuate based on supply and demand. This is the current exchange rate system, also known as a flexible or floating exchange rate system. Choices B, C, D, and E are incorrect as they do not accurately describe the current exchange rate system.

Quiz 19: The International Financial System

If the exchange rate between the U.S.dollar and the Indian rupee (rupees per dollar) is greater than the relative purchasing power between the two countries,which of the following would be true?

An increase in the value of the U.S.dollar will

If one U.S.dollar could be exchanged for one Canadian dollar in 1970,and one U.S.dollar can now be exchanged for 1.13 Canadian dollars,which of the following is true?

How were exchange rates determined under the gold standard? How did the Bretton Woods system differ from the gold standard?

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

If the purchasing power of a dollar is greater than the purchasing power of the yen,purchasing power parity would predict that

You are a Canadian citizen who works in Toronto,Canada and owns a winter home in Phoenix,Arizona.When you spend the winters in Phoenix,an increase in the value of the Canadian dollar relative to the U.S.dollar should

From the beginning of 1973 until October 2011,the value of the dollar has relative to the Canadian dollar and relative to the Japanese yen.

If two countries adhere to a gold standard,the exchange rate for their currencies is fixed.

What factors are not important in determining exchange rate fluctuations in the long run?

In 2011,a number of Canadians purchased homes in Arizona.Which of the following would not be a possible explanation for this?

Expanding,contracting,and managing the money supply is easier for a central bank under the gold standard.

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

Managed float exchange systems were abandoned with the implementation of the gold standard.

Which of the following is most important in explaining exchange rate fluctuations in the short run?

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

The currency adopted by most countries in Western Europe is referred to as the

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,what is the dollar cost of a Big Mac in Brazil?

What are the three main exchange rate systems,and how do they operate?

The current exchange rate system has which of the following characteristics?