Question 1

In the long run,a rise in a country's price level (relative to the foreign price level)causes its currency to ________,while a rise in the country's relative productivity causes its currency to ________.

Accepted Answer

A rise in a country's price level relative to the foreign price level causes its currency to depreciate. This is because a higher price level means that goods and services in that country are becoming more expensive compared to goods and services in other countries. As a result, people will demand fewer goods and services from the country with the higher price level, causing the demand for the country's currency to decrease and its value to depreciate. On the other hand, a rise in the country's relative productivity causes its currency to appreciate. This is because higher productivity makes goods and services from the country more competitive, increasing demand for the country's currency and causing its value to appreciate.

Question 2

When the exchange rate for the euro changes from $1.20 to $1.00,then,holding everything else constant,the euro has

Accepted Answer

When the exchange rate for the euro changes from $1.20 to $1.00, it means that fewer dollars are needed to buy euros, indicating that the euro has depreciated relative to the dollar. As a result, American goods, such as wheat, become more expensive in euro terms, making it costlier for consumers in the eurozone, like Germany, to purchase these goods.

Question 3

The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

Accepted Answer

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries. This means that if the price level of one country increases relative to another country, the currency of the country with the higher price level should depreciate in value relative to the other country's currency, in order to maintain parity in purchasing power.

Question 4

American firms became less competitive compared to foreign firms during the 1980s because

Accepted Answer

The answer of American firms became less competitive compared to...

Question 5

When the exchange rate for the euro changes from $1.00 to $1.20,then,holding everything else constant,the euro has

Accepted Answer

When the exchange rate for the euro changes from $1.00 to $1.20, it means that the euro has appreciated relative to the U.S. dollar. This means that it will now take more dollars to buy the same amount of euros. As a result, goods and services produced in the eurozone, such as German cars, will become more expensive for U.S. consumers.

Question 6

The starting point for understanding how exchange rates are determined is a simple idea called ________,which states that if two countries produce an identical good,the price of the good should be the same throughout the world no matter which country produces it.

Accepted Answer

The law of one price states that identical goods should have the same price throughout the world, regardless of where they are produced. This serves as the starting point for understanding how exchange rates are determined. Gresham's law refers to the tendency for bad money to drive out good money, while purchasing power parity is the theory that exchange rates should adjust to equalize the purchasing power of currencies in different countries. Arbitrage refers to the practice of buying and selling securities or currencies in order to profit from price imbalances in different markets.

Question 7

If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar,the euro depreciates from ________ dollars to ________ dollars per euro.

Accepted Answer

Initially, 1 euro = $1/0.8 = $1.25. After appreciation, 1 euro = $1/1.2 = $0.83.

Question 8

If the dollar appreciates relative to the Swiss franc,

Accepted Answer

When the dollar appreciates relative to the Swiss franc, it means that each dollar can buy more Swiss francs than before. This makes Swiss goods, like chocolate, cheaper in the United States because it takes fewer dollars to buy the same amount of Swiss francs needed to purchase the chocolate.

Question 9

When the value of the dollar changes from £0.50 to £0.75,the pound has ________ and the dollar has ________.

Accepted Answer

When the value of the dollar changes from £0.50 to £0.75, it means that the pound has become more expensive compared to the dollar. Therefore, the pound has depreciated and the dollar has appreciated. Option B correctly identifies this change in value.

Question 10

The theory of purchasing power parity cannot fully explain exchange rate movements because

Accepted Answer

The answer of The theory of purchasing power parity cannot...

Question 11

When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar,the euro has ________ and the dollar has ________.

Accepted Answer

When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar, it means you now need fewer euros to get one dollar, indicating the euro has appreciated in value. Conversely, because more dollars are now needed to get the same amount of euros, the dollar has depreciated.

Question 12

When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar,the euro has ________ and the dollar has ________.

Accepted Answer

When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar, it means that it takes more euros to buy one dollar, which indicates that the euro has depreciated, and the dollar has appreciated. Therefore, the best choice is B, which states that the euro has depreciated, and the dollar has appreciated.

Question 13

If the dollar ________ from 1.2 euros per dollar to 0.8 euros per dollar,the euro ________ from 0.83 dollars to 1.25 dollars per euro.

Accepted Answer

When the dollar decreases in value (depreciates) from 1.2 euros per dollar to 0.8 euros per dollar, it means that it takes more dollars to buy one euro. Therefore, the euro increases in value (appreciates) from 0.83 dollars to 1.25 dollars per euro.

Question 14

The theory of purchasing power parity is a theory of how exchange rates are determined in

Accepted Answer

The theory of purchasing power parity is a theory of how exchange rates are determined in the long run. It suggests that over time, the exchange rate between two currencies should adjust until the price of an identical basket of goods is the same in both countries. In the short run, other factors such as speculation, political events, and changes in interest rates can affect exchange rates.

Question 15

If the 2005 inflation rate in Britain is 6 percent,and the inflation rate in the U.S.is 4 percent,then the theory of purchasing power parity predicts that,during 2005,the value of the British pound in terms of U.S.dollars will

Accepted Answer

According to the theory of purchasing power parity, the exchange rate between two currencies should adjust to compensate for inflation differentials. Therefore, if the inflation rate in Britain is 6 percent and the inflation rate in the U.S. is 4 percent, the British pound should depreciate by 2 percent against the U.S. dollar to maintain purchasing power parity. This means that the value of the British pound in terms of U.S. dollars will fall by 2 percent during 2005. Thus, the correct answer is D.

Question 16

When the value of the British pound changes from $1.50 to $1.25,the pound has ________ and the dollar has ________.

Accepted Answer

When the value of the British pound decreases from $1.50 to $1.25, it means the pound has depreciated in value. Conversely, it takes fewer dollars to buy the same amount of pounds, indicating the dollar has appreciated in value.

Question 17

The theory of purchasing power parity cannot fully explain exchange rate movements because

Accepted Answer

The theory of purchasing power parity assumes that identical goods have the same price in different countries, and this is not always the case. Additionally, some goods are not traded between countries, which also undermines the theory's accuracy. While monetary policy differences (choice B) can also affect exchange rates, it is not the primary reason why the theory of purchasing power parity cannot fully explain exchange rate movements.

Question 18

A spot transaction in the foreign exchange market involves the

Accepted Answer

A spot transaction in the foreign exchange market refers to the immediate exchange of currencies, which typically settles within two business days. This involves the exchange of bank deposits in the respective currencies being traded, not the physical goods or services (exports and imports).

Question 19

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

Accepted Answer

The theory of purchasing power parity (PPP) suggests that exchange rates between two currencies will adjust to reflect changes in the price levels of the two countries. PPP attempts to explain the long-term movements in exchange rates based on differences in the inflation rates between two countries. In other words, if the price level in one country increases relative to another, the exchange rate between those two currencies will adjust to reflect the difference in the rate of inflation. Therefore, Option D is the correct choice.

Question 20

If the dollar depreciates relative to the Swiss franc,

Accepted Answer

If the dollar depreciates relative to the Swiss franc, then American products, such as computers, will become less expensive in Switzerland. At the same time, Swiss products, such as chocolate, will become more expensive in the United States. Therefore, both A and B of the above will happen.

Quiz 15: The Foreign Exchange Market

In the long run,a rise in a country's price level (relative to the foreign price level) causes its currency to ,while a rise in the country's relative productivity causes its currency to .

When the exchange rate for the euro changes from $1.20 to $1.00,then,holding everything else constant,the euro has

The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

American firms became less competitive compared to foreign firms during the 1980s because

When the exchange rate for the euro changes from $1.00 to $1.20,then,holding everything else constant,the euro has

The starting point for understanding how exchange rates are determined is a simple idea called ________,which states that if two countries produce an identical good,the price of the good should be the same throughout the world no matter which country produces it.

If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar,the euro depreciates from dollars to dollars per euro.

If the dollar appreciates relative to the Swiss franc,

When the value of the dollar changes from £0.50 to £0.75,the pound has and the dollar has .

The theory of purchasing power parity cannot fully explain exchange rate movements because

When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar,the euro has and the dollar has .

When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar,the euro has and the dollar has .

If the dollar from 1.2 euros per dollar to 0.8 euros per dollar,the euro from 0.83 dollars to 1.25 dollars per euro.

The theory of purchasing power parity is a theory of how exchange rates are determined in

If the 2005 inflation rate in Britain is 6 percent,and the inflation rate in the U.S.is 4 percent,then the theory of purchasing power parity predicts that,during 2005,the value of the British pound in terms of U.S.dollars will

When the value of the British pound changes from $1.50 to $1.25,the pound has and the dollar has .

The theory of purchasing power parity cannot fully explain exchange rate movements because

A spot transaction in the foreign exchange market involves the

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

If the dollar depreciates relative to the Swiss franc,

Quiz 15: The Foreign Exchange Market

In the long run,a rise in a country's price level (relative to the foreign price level) causes its currency to ________,while a rise in the country's relative productivity causes its currency to ________.

When the exchange rate for the euro changes from $1.20 to $1.00,then,holding everything else constant,the euro has

The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.

American firms became less competitive compared to foreign firms during the 1980s because

When the exchange rate for the euro changes from $1.00 to $1.20,then,holding everything else constant,the euro has

The starting point for understanding how exchange rates are determined is a simple idea called ________,which states that if two countries produce an identical good,the price of the good should be the same throughout the world no matter which country produces it.

If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar,the euro depreciates from ________ dollars to ________ dollars per euro.

If the dollar appreciates relative to the Swiss franc,

When the value of the dollar changes from £0.50 to £0.75,the pound has ________ and the dollar has ________.

The theory of purchasing power parity cannot fully explain exchange rate movements because

When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar,the euro has ________ and the dollar has ________.

When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar,the euro has ________ and the dollar has ________.

If the dollar ________ from 1.2 euros per dollar to 0.8 euros per dollar,the euro ________ from 0.83 dollars to 1.25 dollars per euro.

The theory of purchasing power parity is a theory of how exchange rates are determined in

If the 2005 inflation rate in Britain is 6 percent,and the inflation rate in the U.S.is 4 percent,then the theory of purchasing power parity predicts that,during 2005,the value of the British pound in terms of U.S.dollars will

When the value of the British pound changes from $1.50 to $1.25,the pound has ________ and the dollar has ________.

The theory of purchasing power parity cannot fully explain exchange rate movements because

A spot transaction in the foreign exchange market involves the

The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in

If the dollar depreciates relative to the Swiss franc,

In the long run,a rise in a country's price level (relative to the foreign price level) causes its currency to ,while a rise in the country's relative productivity causes its currency to .

If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar,the euro depreciates from dollars to dollars per euro.

When the value of the dollar changes from £0.50 to £0.75,the pound has and the dollar has .

When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar,the euro has and the dollar has .

When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar,the euro has and the dollar has .

If the dollar from 1.2 euros per dollar to 0.8 euros per dollar,the euro from 0.83 dollars to 1.25 dollars per euro.

When the value of the British pound changes from $1.50 to $1.25,the pound has and the dollar has .