Question 1

A decrease in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive compared to foreign assets, leading to a decrease in demand for domestic assets. This, in turn, causes the domestic currency to depreciate as investors sell domestic currency to buy foreign assets.

Question 2

________ in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to appreciate,everything else held constant.

Accepted Answer

An increase in the domestic interest rate causes the demand for domestic assets to increase, as now investors can earn higher returns on their investments in the domestic market. As a result, the demand for the domestic currency also increases, leading to its appreciation.

Question 3

An increase in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

An increase in the domestic interest rate makes domestic assets more attractive to foreign investors, which increases demand for domestic assets. As demand for domestic assets increases, the value of the domestic currency appreciates.

Question 4

When Canadians 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 investors anticipate higher returns on dollar assets compared to foreign assets, they will have a higher demand for dollar assets, as they seek to maximize their investment returns.

Question 5

________ in the domestic interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________,everything else held constant.

Accepted Answer

An increase in the domestic interest rate will make holding domestic assets more attractive compared to foreign assets, leading to an increase in demand for domestic assets. This increase in demand for domestic assets will cause the value of the domestic currency to appreciate.

Question 6

________ in the domestic interest rate causes the demand for domestic assets to decrease and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate causes the demand for domestic assets to decrease, which leads to a decrease in demand for the domestic currency. This decrease in demand for the domestic currency causes it to depreciate.

Question 7

An increase in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

When the domestic interest rate increases, domestic assets become more attractive to investors, leading to a rightward shift in the demand for these assets. This increased demand strengthens the domestic currency, causing it to appreciate.

Question 8

A decrease in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive compared to foreign assets, leading to a shift in demand for domestic assets to the left. As investors sell domestic assets to buy foreign ones, the domestic currency depreciates due to increased supply in the foreign exchange market.

Question 9

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 relative expected return on dollar assets increases, foreigners will want to hold more dollar assets and less foreign assets. This is because the return on dollar assets is higher, making them more attractive to foreign investors. Holding more dollar assets would also increase the demand for dollars, leading to an appreciation of the currency.

Question 10

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate,everything else held constant.

Accepted Answer

The answer of ________ in the domestic interest rate causes...

Question 11

When Canadians 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 Canadians or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, they will want to hold more dollar assets and sell their foreign assets, leading to a higher demand for dollar assets and a lower demand for foreign assets. Therefore, the return on foreign assets is the key factor in determining the demand for dollar assets.

Question 12

The demand curve for the domestic currency ________.

Accepted Answer

The demand curve for the domestic currency is downward sloping because as the value of the currency decreases, foreign goods become more expensive, increasing the demand for domestic currency. It also shifts when the exchange rate changes due to factors like changes in interest rates, inflation, and economic growth, affecting the attractiveness of holding that currency.

Question 13

________ in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate,everything else held constant.

Accepted Answer

An increase in the domestic interest rate causes the demand for domestic assets to increase since investors can earn higher returns. As a result, the demand for the domestic currency increases, leading to an appreciation in the exchange rate. The shift in demand for domestic assets is to the right since higher interest rates make domestic assets more attractive.

Question 14

Everything else held constant,when the current value of the domestic currency increases,the ________ domestic assets ________.

Accepted Answer

When the current value of the domestic currency increases, it becomes more expensive for foreign investors to purchase domestic assets, leading to a decrease in the quantity demanded of those assets, not a shift in the demand curve itself.

Question 15

Everything else held constant,when the current value of the domestic exchange rate increases,the ________ of domestic assets ________.

Accepted Answer

The increase in the domestic exchange rate implies that the domestic currency has strengthened in relation to other currencies. As a result, domestic assets become more expensive relative to foreign currency, which would lead to a decrease in the quantity demanded (not supply). However, the question asks about the change in the supply of domestic assets, which should be unaffected by exchange rate changes since it pertains to the willingness and ability of producers to offer goods and services for sale at a given price level. Therefore, the correct choice is A: quantity supplied does not change.

Question 16

When Canadians 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

If the expected return on dollar assets is high relative to foreign assets, there will be a higher demand for dollar assets as investors seek to capitalize on the higher returns. At the same time, there will be a lower demand for foreign assets, as investors perceive them as less profitable compared to dollar assets. This inverse relationship between the two asset types makes option B the correct choice.

Question 17

________ in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ________,everything else held constant.

Accepted Answer

An increase in the domestic interest rate would make domestic assets more attractive to investors, causing an increase in demand for them. This increased demand for the domestic currency would cause it to appreciate.

Question 18

The theory of asset demand suggests that the most important factor affecting the demand for domestic and foreign assets is ________.

Accepted Answer

The theory of asset demand suggests that the most important factor that affects the demand for domestic and foreign assets is the expected return on these assets relative to one another. This means that investors will choose to invest in assets that are expected to provide a higher return, taking into account the risk involved. The other factors mentioned - level of trade and capital flows, liquidity of the assets, and riskiness of the assets - are also important factors, but not as crucial as the expected return.

Question 19

________ in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate,everything else held constant.

Accepted Answer

The answer of ________ in the domestic interest rate causes...

Question 20

________ in the domestic interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________,everything else held constant.

Accepted Answer

A decrease in the domestic interest rate reduces the return on domestic assets, and investors will shift their demand to assets with higher returns in other countries, causing the demand for domestic assets to shift to the left. As a result, the supply of domestic currency on the foreign exchange market increases, causing the domestic currency to depreciate in value.

Quiz 19: The Foreign Exchange Market

A decrease in the domestic interest rate causes the demand for domestic assets to and the domestic currency to ,everything else held constant.

in the domestic interest rate causes the demand for domestic assets to and the domestic currency to appreciate,everything else held constant.

An increase in the domestic interest rate causes the demand for domestic assets to and the domestic currency to ,everything else held constant.

When Canadians 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.

in the domestic interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ,everything else held constant.

in the domestic interest rate causes the demand for domestic assets to decrease and the domestic currency to ,everything else held constant.

An increase in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to ,everything else held constant.

A decrease in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to ,everything else held constant.

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

in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to depreciate,everything else held constant.

When Canadians 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.

The demand curve for the domestic currency ________.

in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to appreciate,everything else held constant.

Everything else held constant,when the current value of the domestic currency increases,the domestic assets .

Everything else held constant,when the current value of the domestic exchange rate increases,the of domestic assets .

When Canadians 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.

in the domestic interest rate causes the demand for domestic assets to increase and the domestic currency to ,everything else held constant.

The theory of asset demand suggests that the most important factor affecting the demand for domestic and foreign assets is ________.

in the domestic interest rate causes the demand for domestic assets to and the domestic currency to depreciate,everything else held constant.

in the domestic interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ,everything else held constant.