Question 1

The __________ exchange rate is the price for "immediate" currency exchange.

Accepted Answer

The spot exchange rate is the price for immediate currency exchange, meaning the exchange rate for transactions that occur "on the spot" or immediately. The current exchange rate is the current market rate for a currency pair, but it may not necessarily be the spot rate. The forward exchange rate is the price for currency exchange at a specific future date, while the future exchange rate is the expected exchange rate for a specific future date, based on market expectations.

Question 2

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. Then the supply curve shifts to S₂. If the European central bank wants to fix the exchange rate at $2.00/euro, they have to:

Accepted Answer

When the supply curve shifts, it creates a new equilibrium point with a different exchange rate. To maintain the exchange rate at $2.00 per euro, the European Central Bank would need to buy euros (increasing demand for euros) and sell dollars (increasing the supply of dollars), which would shift the demand curve to the right, back to the original equilibrium. This action counteracts the effect of the supply shift.

Question 3

Rising income in China triggers an increase demand for U.S. imported goods by Chinese households. This causes ________ Chinese yuan and yuan should_________ against the dollar.

Accepted Answer

D

Question 4

If the spot exchange rate goes from 0.80 euro per dollar to 0.60 euro per dollar, the dollar has ___________ against the euro by _________ percent.

Accepted Answer

The answer of If the spot exchange rate goes from...

Question 5

Suppose that Citibank buys a large amount of Japanese yen from Toyota and Citibank does not want to continue holding too much yen. How should Citibank adjust its buy rate and sell rate of the yen yen per dollar) to "square off"?

Accepted Answer

The answer of Suppose that Citibank buys a large amount...

Question 6

To "square off,"

Accepted Answer

To "square off" means to return to the desired foreign currency holding position. This can be achieved by either increasing or decreasing both the buy and sell rates. Therefore, choice D is the best answer.

Question 7

Suppose the dollar price of Thai baht THB) is $0.025/THB. Thai Airways purchases a $10 million airplane from Boeing. This airplane would cost ___________ Thai baht to Thai Airways.

Accepted Answer

The cost in Thai Baht can be found by multiplying the dollar price by the total cost of the airplane in dollars.

1. Convert 10 million dollars to Thai Baht:
$10 million x 1/(0.025 dollar/Thai Baht) = 400,000,000 Thai Baht

2. Therefore, the airplane would cost 400 million Thai Baht to Thai Airways.

Question 8

A trader makes profit by buying a currency at a low price in one market and immediately selling it in another market. This activity is called:

Accepted Answer

This activity is called arbitrage, where the trader takes advantage of the price difference between two markets to make a profit. Speculation involves taking a position on the future price movement of a currency, hedging involves using financial instruments to reduce risk, and squaring off refers to closing out an open position in the market.

Question 9

Suppose an exchange rate between Korean won and U.S. dollar is 1,000 Korean won per dollar. A hotel vacation package in Korea with a price of 500,000 Korean won will cost:

Accepted Answer

To convert Korean won to U.S. dollars, we need to divide the amount in Korean won by the exchange rate. So, 500,000 Korean won divided by 1,000 Korean won per dollar equals $500. Therefore, the hotel vacation package in Korea with a price of 500,000 Korean won will cost $500.

Question 10

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. Which of the following could shift the supply for euro from S₁ to S₂?

Accepted Answer

A shift in the supply curve represents a change in the quantity of euro supplied at each exchange rate. The only option that would cause a shift in the supply curve is if Germans want to buy American goods more than before. This would increase the demand for dollars, which would lead to a decrease in the value of the euro and a shift to the right in the supply curve for euro, resulting in a new equilibrium point at a lower exchange rate.

Question 11

Use the following information about the spot exchange rates to answer the questions
Suppose that the spot exchange rates for British pound quoted in two locations are:
 $$\begin{array} { | l | l | l | } 
\hline & \text { Buy } 1 \text { pound } \mathrm { £ } \text { ) } & \text { Sell } 1 \text { pound } \mathrm { £} \text { ) } \
\hline \begin{array} { l } 
\text { Barclays, } \
\text { London }
\end{array} & \$ 1.55 & \$ 1.58 \
\hline \text { Citi, New York } & \$ 1.60 & \$ 1.63 \
\hline
\end{array}$$
-Suppose that you have £1 million, how much arbitrage profit can you make?

Accepted Answer

The answer of Use the following information about the spot...

Question 12

Use the following information about the spot exchange rates to answer the questions
Suppose that the spot exchange rates for British pound quoted in two locations are:
 $$\begin{array} { | l | l | l | } 
\hline & \text { Buy } 1 \text { pound } \mathrm { £ } \text { ) } & \text { Sell } 1 \text { pound } \mathrm { £} \text { ) } \
\hline \begin{array} { l } 
\text { Barclays, } \
\text { London }
\end{array} & \$ 1.55 & \$ 1.58 \
\hline \text { Citi, New York } & \$ 1.60 & \$ 1.63 \
\hline
\end{array}$$
-Rising income in the United States triggers an increased demand for imports. This causes:

Accepted Answer

An increase in demand for imports means that more foreign currency is needed to purchase those imports, leading to an increase in the demand for foreign currency.

Question 13

If the French demand for American exports rises, then

Accepted Answer

An increase in demand for American exports from France would lead to an increase in the demand for dollars, causing the dollar to appreciate relative to the euro. Therefore, choice C is the correct answer.

Question 14

Use the following information about the spot exchange rates to answer the questions
Suppose that the spot exchange rates for British pound quoted in two locations are:
 $$\begin{array} { | l | l | l | } 
\hline & \text { Buy } 1 \text { pound } \mathrm { £ } \text { ) } & \text { Sell } 1 \text { pound } \mathrm { £} \text { ) } \
\hline \begin{array} { l } 
\text { Barclays, } \
\text { London }
\end{array} & \$ 1.55 & \$ 1.58 \
\hline \text { Citi, New York } & \$ 1.60 & \$ 1.63 \
\hline
\end{array}$$
-Suppose that you have £1 million, you can make arbitrage profit by selling pounds for dollars in _________ and selling dollars for pounds in _______.

Accepted Answer

Arbitrage involves taking advantage of price differences in different markets. Selling pounds for dollars in New York and then selling those dollars for pounds in London could exploit differences in exchange rates between the two cities, potentially yielding a profit.

Question 15

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. Then the supply curve shifts to S₂. If the European central bank wants to fix the exchange rate at $2.00/euro, there will be ________ of euro and the euro is __________.

Accepted Answer

If the European central bank wants to fix the exchange rate at $2.00/euro, it needs to be willing to buy up any excess supply of euros in the market. However, with the shift in supply curve to S₂, there is now an excess supply of euros at the fixed exchange rate of $2.00/euro. This implies that there are more euros supplied than demanded at this exchange rate, leading to a surplus and downward pressure on the exchange rate. Therefore, the euro is overvalued at this point.

Question 16

Assume that Citibank quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. How much will you receive in dollars, if you sell 1,000 pound to Citibank?

Accepted Answer

The answer of Assume that Citibank quotes you a buy...

Question 17

You have obtained the following spot rates: $\begin{array}{|l|l|l|}
\hline \text { Spot rate per U.S.\$ } & \text { June } \mathbf{2 0 1 0} & \text { June } \mathbf{2 0 1 1} \
\hline \text { Japanese yen } & 120 & 80 \
\hline \text { Mexican peso } & 9.25 & 11.75 \
\hline
\end{array}$ From the above information, the U.S. dollar has ________ against the Japanese yen and it has ______ against the Mexican peso.

Accepted Answer

The spot rate of Japanese yen has decreased from 120 to 80, which means that the value of U.S. dollar has decreased, or in other words, the dollar has depreciated against the yen. On the other hand, the spot rate of Mexican peso has increased from 9.25 to 11.75, which means that the value of U.S. dollar has decreased, or in other words, the dollar has appreciated against the peso. Therefore, the best choice is C.

Question 18

If the price of Japanese yen in terms of U.S. dollars is $0.01/yen, then the price of U.S. dollar in terms of Japanese yen is equal to ___________.

Accepted Answer

The price of 1 U.S. dollar in terms of Japanese yen is the reciprocal of the price of 1 yen in terms of U.S. dollars, which is 1 / $0.01 = 100 yen per dollar.

Question 19

You have accessed the following spot rates: U.S. dollar per pound = 1.50
Yen per U.S. dollar = 100.0
What is the exchange rate yen per pound?

Accepted Answer

To find the yen per pound exchange rate, multiply the U.S. dollar per pound rate (1.50) by the yen per U.S. dollar rate (100.0), which equals 150 yen per pound.

Question 20

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. When the supply curve shifts to S₂, the euro ___________ and the quantities of euro traded in the market __________.

Accepted Answer

When the supply curve shifts to the right from SS0 to SS1, the supply of euros in the market increases at each exchange rate. This causes the equilibrium exchange rate to decrease from $2.00 to $1.50 per euro. As a result, the euro depreciates (loses value) and the quantity of euros traded in the market increases.

Quiz 1: An Introduction to International Trade

The __________ exchange rate is the price for "immediate" currency exchange.

Rising income in China triggers an increase demand for U.S. imported goods by Chinese households. This causes Chinese yuan and yuan should_ against the dollar.

If the spot exchange rate goes from 0.80 euro per dollar to 0.60 euro per dollar, the dollar has ___ against the euro by _ percent.

Suppose that Citibank buys a large amount of Japanese yen from Toyota and Citibank does not want to continue holding too much yen. How should Citibank adjust its buy rate and sell rate of the yen yen per dollar) to "square off"?

To "square off,"

Suppose the dollar price of Thai baht THB) is $0.025/THB. Thai Airways purchases a $10 million airplane from Boeing. This airplane would cost ___________ Thai baht to Thai Airways.

A trader makes profit by buying a currency at a low price in one market and immediately selling it in another market. This activity is called:

Suppose an exchange rate between Korean won and U.S. dollar is 1,000 Korean won per dollar. A hotel vacation package in Korea with a price of 500,000 Korean won will cost:

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. Which of the following could shift the supply for euro from S₁ to S₂?

If the French demand for American exports rises, then

Assume that Citibank quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. How much will you receive in dollars, if you sell 1,000 pound to Citibank?

If the price of Japanese yen in terms of U.S. dollars is $0.01/yen, then the price of U.S. dollar in terms of Japanese yen is equal to ___________.

You have accessed the following spot rates: U.S. dollar per pound = 1.50 Yen per U.S. dollar = 100.0 What is the exchange rate yen per pound?

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. When the supply curve shifts to S₂, the euro _ and the quantities of euro traded in the market .

Quiz 1: An Introduction to International Trade

The __________ exchange rate is the price for "immediate" currency exchange.

Rising income in China triggers an increase demand for U.S. imported goods by Chinese households. This causes ________ Chinese yuan and yuan should_________ against the dollar.

If the spot exchange rate goes from 0.80 euro per dollar to 0.60 euro per dollar, the dollar has ___________ against the euro by _________ percent.

Suppose that Citibank buys a large amount of Japanese yen from Toyota and Citibank does not want to continue holding too much yen. How should Citibank adjust its buy rate and sell rate of the yen yen per dollar) to "square off"?

To "square off,"

Suppose the dollar price of Thai baht THB) is $0.025/THB. Thai Airways purchases a $10 million airplane from Boeing. This airplane would cost ___________ Thai baht to Thai Airways.

A trader makes profit by buying a currency at a low price in one market and immediately selling it in another market. This activity is called:

Suppose an exchange rate between Korean won and U.S. dollar is 1,000 Korean won per dollar. A hotel vacation package in Korea with a price of 500,000 Korean won will cost:

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. Which of the following could shift the supply for euro from S1 to S2?

If the French demand for American exports rises, then

Assume that Citibank quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. How much will you receive in dollars, if you sell 1,000 pound to Citibank?

If the price of Japanese yen in terms of U.S. dollars is $0.01/yen, then the price of U.S. dollar in terms of Japanese yen is equal to ___________.

You have accessed the following spot rates: U.S. dollar per pound = 1.50 Yen per U.S. dollar = 100.0 What is the exchange rate yen per pound?

Rising income in China triggers an increase demand for U.S. imported goods by Chinese households. This causes Chinese yuan and yuan should_ against the dollar.

If the spot exchange rate goes from 0.80 euro per dollar to 0.60 euro per dollar, the dollar has ___ against the euro by _ percent.

Use the graph below to answer questions Figure 1.2 -Refer to Figure 1.2. Suppose that the market for euro is initially in equilibrium at point A with the exchange rate $2.00 per euro. Which of the following could shift the supply for euro from S₁ to S₂?