Question 1

Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar.If interest rates in the United States increase and interest rates in Europe remain unchanged then

Accepted Answer

If interest rates increase in the United States, holding dollars becomes relatively more attractive as the potential return on investment is higher. Therefore, investors will demand more dollars, causing the value of the dollar to increase relative to the euro.

Question 2

An increase in the interest rate in the United States compared to the interest rate in Great Britain will

Accepted Answer

An increase in the interest rate in the United States compared to the interest rate in Great Britain will increase the U.S. interest rate differential (option A) and this will shift the demand curve for dollars rightward (option C). The higher interest rate in the U.S. will attract investors who will demand more dollars, leading to an increase in the dollar's value relative to the pound. This increase in demand for dollars will also lead to an increase in the exchange rate, which makes the pound more expensive and reduces the demand for pounds (option B is incorrect). Hence, only options A and C are correct, and the answer is D.

Question 3

If the interest rate on Japanese yen assets falls while interest rates in the United States remain constant,the

Accepted Answer

If the interest rate on Japanese yen assets falls, investors will shift their investments to countries with higher interest rates, such as the United States. This will increase the demand for dollars, leading to an increase in the quantity of dollars demanded.

Question 4

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₁ could occur when

Accepted Answer

A shift in the demand curve for U.S. dollars from D1 to D2 could occur when foreign interest rates drop. This is because lower foreign interest rates make investments in those countries less attractive compared to investments in the U.S., increasing the demand for U.S. dollars as investors seek higher returns in the U.S. market.

Question 5

If there is an increase in the expected future U.S.exchange rate,there is

Accepted Answer

An increase in the expected future U.S. exchange rate makes holding dollars more attractive, as people anticipate that dollars will be more valuable in the future. This increases the demand for dollars now, leading to a rightward shift of the demand curve for dollars.

Question 6

Today the U.S.dollar is worth 1.5 Canadian dollars.Because of changes in economic conditions,people come to believe that by the end of the month the U.S.dollar will be worth 1.2 Canadian dollars.This belief

Accepted Answer

If people believe that the U.S. dollar will be worth less in the future, they will want to sell their U.S. dollars now before the value drops. This will result in a decrease in the demand for U.S. dollars today.

Question 7

U.S.residents come to believe that the dollar will appreciate in the future,that is,the exchange rate in the future will be higher than the current exchange rate.As a result,

Accepted Answer

U.S. residents believing that the dollar will appreciate in the future would increase their demand for dollars now, shifting the demand curve for dollars rightward. This is because they would want to hold onto more dollars in anticipation of the appreciation, leading to an increase in demand.

Question 8

U.S.residents come to believe that the dollar will depreciate in the future,that is,the exchange rate in the future will be lower than the current exchange rate.As a result,

Accepted Answer

If U.S. residents believe that the dollar will depreciate in the future, they will want to sell their dollars now and buy foreign currency to hold onto. This will increase the supply of dollars on the foreign exchange market and decrease the demand, causing the demand curve for dollars to shift leftward.

Question 9

If the U.S.interest rate rises while interest rates in the rest of the world do not change,the higher U.S.interest rate

Accepted Answer

When the U.S. interest rates rise while interest rates in the rest of the world remain the same, it attracts investors looking to earn higher returns on their investments, thus increasing the demand for dollars. As a result, the value of the dollar strengthens relative to other currencies. This increase in demand for dollars can benefit the U.S. economy in various ways, including attracting foreign investment and boosting exports.

Question 10

If people expect the foreign exchange rate for dollars to rise in the future,

Accepted Answer

If people expect the foreign exchange rate for dollars to rise in the future, it means they anticipate that dollars will be more valuable. Therefore, they are more likely to want to hold dollars now before the value increases, leading to an increase in the demand for dollars today.

Question 11

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₂ could occur when

Accepted Answer

The answer of 
-In the figure above,the shift in the...

Question 12

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₁ could occur when

Accepted Answer

A shift in the demand curve for U.S. dollars from D1 to D2 could occur when the U.S. interest rate rises because higher interest rates in the U.S. would attract more foreign capital, increasing the demand for U.S. dollars as investors exchange their currency for dollars to invest in the U.S.

Question 13

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₂ could occur when

Accepted Answer

The answer of 
-In the figure above,the shift in the...

Question 14

If the interest rate on Swiss franc assets increases while interest rates in the United States remain constant,the

Accepted Answer

When the interest rate on Swiss franc assets increases, it becomes more attractive for investors to hold Swiss francs and invest in Swiss assets. This leads to a decrease in demand for dollars as investors are selling dollars to buy Swiss francs.

Question 15

The demand for dollars in the foreign exchange market will decrease and the demand curve will shift leftward if

Accepted Answer

A decrease in the U.S. interest rate differential will make holding dollars less attractive, causing a decrease in demand for dollars and a leftward shift in the demand curve. The other options are incorrect because an expected future exchange rate rise and an exchange rate rise both increase the demand for dollars, not decrease it.

Question 16

Today,the dollar is worth 1.15 euros.Due to changes in economic conditions,in one month people come to expect the dollar will be worth 1.20 euros.This belief

Accepted Answer

When people expect the dollar to be worth more euros in the future, they will want to buy more dollars now in order to benefit from the increased exchange rate. This increase in demand for dollars will therefore raise the value of the dollar relative to the euro.

Question 17

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₁ could occur when

Accepted Answer

The answer of 
-In the figure above,the shift in the...

Question 18

If the interest rate in the United States increases,then in the foreign exchange market the

Accepted Answer

When the interest rates in the United States increase, investing in the United States becomes more attractive for foreign investors seeking higher returns on their investments. This increased demand for U.S. investments will lead to an increase in the demand for U.S. dollars, causing the exchange rate of the dollar to appreciate. Therefore, the correct answer is B, which states that the demand for U.S. dollars will increase.

Question 19

If growth in the United States speeds up so that investors believe they can make a bigger profit from U.S.assets,the ________ U.S.dollars will ________.

Accepted Answer

When growth in the United States speeds up, investors believe that they can make a bigger profit from U.S. assets, which increases the demand for U.S. dollars. This increase in demand for U.S. dollars leads to an appreciation in the value of the currency. Therefore, the demand for U.S. dollars will increase.

Question 20

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₂ could occur when

Accepted Answer

The answer of 
-In the figure above,the shift in the...

Quiz 9: The Exchange Rate and the Balance of Payments

Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar.If interest rates in the United States increase and interest rates in Europe remain unchanged then

An increase in the interest rate in the United States compared to the interest rate in Great Britain will

If the interest rate on Japanese yen assets falls while interest rates in the United States remain constant,the

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₁ could occur when

If there is an increase in the expected future U.S.exchange rate,there is

Today the U.S.dollar is worth 1.5 Canadian dollars.Because of changes in economic conditions,people come to believe that by the end of the month the U.S.dollar will be worth 1.2 Canadian dollars.This belief

U.S.residents come to believe that the dollar will appreciate in the future,that is,the exchange rate in the future will be higher than the current exchange rate.As a result,

U.S.residents come to believe that the dollar will depreciate in the future,that is,the exchange rate in the future will be lower than the current exchange rate.As a result,

If the U.S.interest rate rises while interest rates in the rest of the world do not change,the higher U.S.interest rate

If people expect the foreign exchange rate for dollars to rise in the future,

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₂ could occur when

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₁ could occur when

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₂ could occur when

If the interest rate on Swiss franc assets increases while interest rates in the United States remain constant,the

The demand for dollars in the foreign exchange market will decrease and the demand curve will shift leftward if

Today,the dollar is worth 1.15 euros.Due to changes in economic conditions,in one month people come to expect the dollar will be worth 1.20 euros.This belief

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₁ could occur when

If the interest rate in the United States increases,then in the foreign exchange market the

If growth in the United States speeds up so that investors believe they can make a bigger profit from U.S.assets,the U.S.dollars will .

-In the figure above,the shift in the demand curve for U.S.dollars from D₀ to D₂ could occur when