Question 1

As the relative expected return on dollar assets increases,foreigners will want to hold more ________ assets and less ________ assets,everything else held constant.

Accepted Answer

As the expected return on dollar assets increases, foreigners will want to hold more dollar assets and less foreign assets, everything else held constant. This is because they can now earn a higher return by holding dollar assets, which increases the demand for those assets, and decreases the demand for foreign assets.

Question 2

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price,everything else held constant.

Accepted Answer

An increase in productivity allows a country to produce goods at a lower cost, making its products more competitive internationally. This typically leads to an increase in exports, which can cause the country's currency to appreciate due to higher demand for its currency to purchase its goods.

Question 3

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

Accepted Answer

If the demand for American exports by Brazil rises while the US productivity increases relative to Brazil's productivity, the demand for Brazilian real will increase as well. With higher demand, the value of the Brazilian real will appreciate, which means that it will require more US dollars to buy one Brazilian real. Therefore, the Brazilian real will depreciate relative to the US dollar, as stated in option B.

Question 4

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

Accepted Answer

When there is an expectation of a high return on dollar assets relative to foreign assets, there is a higher demand for dollar assets as investors seek to maximize their returns. This leads to a correspondingly lower demand for foreign assets.

Question 5

Explain the law of one price and the theory of purchasing power parity.Why doesn't purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?

Accepted Answer

The answer of Explain the law of one price and...

Question 6

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Accepted Answer

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a higher demand for dollar assets and a lower demand for foreign assets. Therefore, the correct choice is B.

Question 7

Higher tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

Accepted Answer

The answer of Higher tariffs and quotas cause a country's...

Question 8

Everything else held constant,if a factor increases the demand for ________ goods relative to ________ goods,the domestic currency will appreciate.

Accepted Answer

If domestic goods become relatively more attractive to foreign consumers, there will be an increase in demand for domestic goods, which will lead to an increase in demand for the domestic currency. This increase in demand for the domestic currency will cause an appreciation in its value.

Question 9

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

Accepted Answer

The theory of portfolio choice suggests that investors will choose to hold a diversified portfolio of domestic and foreign assets. The most important factor affecting their decision to invest in a particular asset is the expected return on that asset relative to other available assets. Therefore, option B, the expected return on these assets relative to one another, is the correct choice. While factors such as risk and liquidity are also important, they are considered secondary to the expected return.

Question 10

Everything else held constant,if a factor decreases the demand for ________ goods relative to ________ goods,the domestic currency will depreciate.

Accepted Answer

If a factor decreases the demand for domestic goods relative to foreign goods, this would result in a decrease in demand for the domestic currency as well, leading to a depreciation of the domestic currency. Therefore, the correct answer is D) domestic; foreign.

Question 11

Everything else held constant,increased demand for a country's exports causes its currency to ________ in the long run,while increased demand for imports causes its currency to ________.

Accepted Answer

Increased demand for a country's exports means that there is a higher demand for that country's currency as well, as foreigners need to buy the currency to pay for the exports. This increased demand for the currency will typically lead to an appreciation in its value in the long run.

On the other hand, increased demand for imports means that there is a higher demand for foreign currency to pay for those imports. This increased demand for foreign currency will typically lead to a depreciation in the value of the country's currency.

Therefore, the correct answer is (B) appreciate; depreciate.

Question 12

Everything else held constant,increased demand for a country's ________ causes its currency to appreciate in the long run,while increased demand for ________ causes its currency to depreciate.

Accepted Answer

Increased demand for a country's exports means that there is a greater demand for its currency as well, as people need to purchase that currency in order to make transactions for the exports. This increase in demand for the currency leads to appreciation in the long run. On the other hand, increased demand for imports means that more of a country's currency is being used to purchase goods and services from other countries, leading to depreciation.

Question 13

Lower tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

Accepted Answer

The answer of Lower tariffs and quotas cause a country's...

Question 14

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

Accepted Answer

When the return on dollar assets is expected to be higher than the return on foreign assets, there is a higher demand for dollar assets. This is because investors will want to invest in the currency/asset that provides them with better returns. Therefore, choice B is the correct answer as it states that there is a higher demand for dollar assets when the return on dollar assets is expected to be higher than the return on foreign assets.

Question 15

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

Accepted Answer

The theory of portfolio choice suggests that investors choose their portfolio of assets based on the expected return of domestic assets relative to foreign assets, among other factors like risk. This theory emphasizes the importance of expected returns in determining the demand for different types of assets across countries.

Question 16

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.

Accepted Answer

When the demand for foreign goods increases relative to domestic goods, there will be an increase in imports and a decrease in exports, which leads to an excess supply of domestic currency on the foreign exchange market. This excess supply will lead to a decrease in the value of the domestic currency or a depreciation. An increase in demand for foreign goods increases the demand for foreign currency to pay for those goods, which further lowers the value of the domestic currency. Additionally, the domestic currency needs to have a lower value to make domestic goods relatively cheaper compared to foreign goods, so they continue to sell well.

Question 17

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

Accepted Answer

The answer of If the U.S.Congress imposes a quota on...

Question 18

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

Accepted Answer

According to the theory of portfolio choice, investors make decisions based on the expected return of the assets they are considering. Therefore, the relative expected returns of domestic and foreign assets will be the most important factor affecting the demand for them.

Question 19

If,in retaliation for "unfair" trade practices,Congress imposes a 30 percent tariff on Japanese DVD recorders,but at the same time,U.S.demand for Japanese goods increases,then,in the long run,________,everything else held constant

Accepted Answer

The imposition of a 30 percent tariff on Japanese DVD recorders could lead to a decrease in demand for these goods and reduce the supply of Japanese yen in the foreign exchange market, potentially leading to a depreciation of the yen. However, if at the same time, U.S. demand for Japanese goods increases, this could increase the demand for Japanese yen and potentially lead to an appreciation of the yen. Therefore, it is impossible to predict the exact effect on the Japanese yen relative to the U.S. dollar, and it could appreciate, depreciate, or remain constant in the long run.

Question 20

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.

Accepted Answer

Higher inflation in the US means that the value of the US dollar will decrease relative to the Mexican peso. Additionally, slower productivity growth in the US means that the demand for US goods and services will decrease, leading to a decrease in demand for the US dollar. These factors combined suggest that the Mexican peso will appreciate relative to the US dollar in the long run.

Quiz 17: The Foreign Exchange Market

As the relative expected return on dollar assets increases,foreigners will want to hold more assets and less assets,everything else held constant.

An increase in productivity in a country will cause its currency to because it can produce goods at a price,everything else held constant.

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a demand for dollar assets and a correspondingly demand for foreign assets.

Explain the law of one price and the theory of purchasing power parity.Why doesn't purchasing power parity explain all exchange rate movements? What factors determine long-run exchange rates?

When Americans or foreigners expect the return on assets to be high relative to the return on assets,there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Higher tariffs and quotas cause a country's currency to in the run,everything else held constant.

Everything else held constant,if a factor increases the demand for goods relative to goods,the domestic currency will appreciate.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

Everything else held constant,if a factor decreases the demand for goods relative to goods,the domestic currency will depreciate.

Everything else held constant,increased demand for a country's exports causes its currency to in the long run,while increased demand for imports causes its currency to .

Everything else held constant,increased demand for a country's causes its currency to appreciate in the long run,while increased demand for causes its currency to depreciate.

Lower tariffs and quotas cause a country's currency to in the run,everything else held constant.

When Americans or foreigners expect the return on assets to be high relative to the return on assets,there is a demand for dollar assets,everything else held constant.

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

Anything that increases the demand for foreign goods relative to domestic goods tends to the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ,everything else held constant.

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

If,in retaliation for "unfair" trade practices,Congress imposes a 30 percent tariff on Japanese DVD recorders,but at the same time,U.S.demand for Japanese goods increases,then,in the long run,________,everything else held constant

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.