Question 1

If the dollar-euro exchange rate on June 30, 2015, is $1.115 per euro, then the euro-dollar exchange rate would be:
A) €2.45 per dollar.
B) €0.897 per dollar.
C) €1.225 per dollar.
D) €1 per dollar.

Accepted Answer

To find the euro-dollar exchange rate, we need to take the reciprocal of the dollar-euro exchange rate. Therefore, the euro-dollar exchange rate would be €0.897 per dollar.

Question 2

(Table: Exchange Rates Across Currencies) Based on the information provided, one Canadian dollar is equal to _____ Mexican pesos and _____ Indian rupees. 
A) 10; 73.5
B) 10; 37.5
C) 12; 37.5
D) 12; 45

Accepted Answer

B

Question 3

The price of a foreign currency expressed in terms of the home currency is called the:
A) exchange rate.
B) rate of depreciation.
C) dollar-yen ratio.
D) opportunity cost.

Accepted Answer

The exchange rate is the price of a foreign currency expressed in terms of the home currency.

Question 4

When we look at exchange rates between two countries, what is the relationship between the exchange rate expressed in units of the domestic currency and the exchange rate expressed in units of the foreign currency?
A) They are both equal to one.
B) They cancel each other out.
C) One is always the reciprocal of the other.
D) They can never coexist.

Accepted Answer

The exchange rate expressed in units of the domestic currency is simply the reciprocal of the exchange rate expressed in units of the foreign currency. For example, if the exchange rate between US dollars and Euros is 1.25, then the exchange rate between Euros and US dollars would be 0.8 (1/1.25). Therefore, one is always the reciprocal of the other.

Question 5

If, in 2011, $1 = 1.5 euros, and in 2016, $1 = 0.9 euros, which of the following statements would be TRUE?
A) More American tourists will find it cheaper to travel to Europe.
B) More Europeans will stay home as visits to the United States become more expensive.
C) Europeans will import fewer products from the United States.
D) Americans will import fewer products from Europe.

Accepted Answer

The answer of If, in 2011, $1 = 1.5 euros,...

Question 6

When interpreting the meaning of an exchange rate, the first step is to always:
A) know exactly what the exchange rate signifies in terms of which currency is the denominator.
B) watch for ways the currency might lose value.
C) learn about recent behavior of the exchange rate.
D) know exactly what the rate is at any moment in time.

Accepted Answer

Understanding which currency is the denominator is crucial in correctly interpreting the meaning of an exchange rate. Without this knowledge, it can be difficult to understand the value of the exchange rate in relation to the currencies being exchanged.

Question 7

When the dollar declines in value against a foreign currency, it is called a(n):
A) appreciation.
B) depreciation.
C) inflation.
D) deflation.

Accepted Answer

When the dollar declines in value against a foreign currency, it means that a smaller amount of foreign currency can be exchanged for one US dollar. This is called depreciation.

Question 8

If a nation's currency buys fewer units of a foreign currency today than yesterday, we say the value of its currency has:
A) appreciated.
B) depreciated.
C) stagnated.
D) become inverted.

Accepted Answer

If a nation's currency buys fewer units of a foreign currency today than yesterday, it means that the value of its currency has decreased, which is known as currency depreciation.

Question 9

Generally, exchange rates are quoted as a single price of a unit of foreign currency rather than a ratio because:
A) the ratio of the units of home currency to units of foreign currency is always equal to one.
B) the denominator is always equal to one.
C) the price is fixed by the government.
D) the rate is adjustable in increments of 25 basis points.

Accepted Answer

Exchange rates are quoted as a single price of a unit of foreign currency rather than a ratio because the denominator is always equal to one. This means that for every unit of foreign currency, there is a fixed price in the home currency. For example, if the exchange rate is 1.25 USD/EUR, it means that one euro costs 1.25 US dollars. If it were quoted as a ratio, it would be 0.8 EUR/USD, which is equivalent but less intuitive for most people.

Question 10

When a nation's currency appreciates, it purchases _____ units of a foreign currency and its currency is said to _____.
A) fewer; strengthen
B) more; strengthen
C) fewer; weaken
D) more; weaken

Accepted Answer

When a nation's currency appreciates, it means the value of the currency has increased relative to other currencies. This allows it to purchase more units of a foreign currency, indicating that the currency has strengthened.

Question 11

The equation E_¥_/£ = 100 means that: A) 1 yen buys 10 pounds. B) 0.1 yen buys 1 pound. C) 100 yen buy 1 pound. D) 0.01 yen buys 1 pound.

Accepted Answer

The equation simplifies to 100 yen = 1 pound, meaning 100 yen can buy 1 pound.

Question 12

If one nation's currency strengthens against a foreign currency, the other nation's currency must _____ against the domestic currency.
A) strengthen
B) equalize
C) weaken
D) appreciate

Accepted Answer

If one nation's currency strengthens against a foreign currency, it means that it is now more valuable than the foreign currency. Therefore, the other nation's currency has to weaken against the domestic currency to maintain competitiveness in trade.

Question 13

The equation E_$/£ = 2 means that: A) 1 dollar buys 2 pounds. B) 1 dollar buys a pound. C) 2 pounds buy 1 dollar. D) 1 dollar buys 1 pound.

Accepted Answer

The equation is stating that the exchange rate between dollars and pounds is 2. Specifically, 1 unit of currency in the numerator (in this case, dollars) can be exchanged for 2 units of currency in the denominator (in this case, pounds). Therefore, the correct interpretation is that 1 dollar buys 1/2 (or 0.5) pounds, not 2 pounds as option C suggests. Option A is the inverse relationship and option D is an incorrect interpretation.

Question 14

The notation used in the text for the euro-dollar exchange rate is: A) FX_€_/$. B) FX_$/€. C) E_€_/$. D) E_$/€.

Accepted Answer

The notation E_€_/$ is commonly used to represent the exchange rate of euros to dollars, indicating how many dollars one euro can buy.

Question 15

A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome. Thus, $1 is equal to:
A) 1 euro.
B) 2 euros.
C) 1.67 euros.
D) 0.6 euros.

Accepted Answer

We can use the formula:

Exchange rate = Price in one currency / Price in another currency

To find the exchange rate, we can use the prices of the dining table in both New York and Rome:

Exchange rate = $3,000 / 5,000 euros
Exchange rate = 0.6

This means that $1 is equal to 0.6 euros. Therefore, the answer is choice letter D.

Question 16

Normally, exchange rates are expressed as:
A) the number of units of the currency per one ounce of gold.
B) the GDP of one nation as a percentage of the GDP of the other.
C) the price of one unit of foreign currency expressed in terms of the domestic currency.
D) ratios of the value of one nation's wealth compared with the other.

Accepted Answer

Exchange rates are the price of one currency expressed in terms of another currency. This is commonly expressed as the price of one unit of foreign currency in terms of the domestic currency. For example, if the exchange rate between the US dollar and the Japanese yen is 110 yen per dollar, it means that one US dollar can be exchanged for 110 Japanese yen.

Question 17

If today €1 exchanges for ¥135, and tomorrow €1 exchanges for ¥150, we say the euro has:
A) appreciated.
B) depreciated.
C) stagnated.
D) become inverted.

Accepted Answer

If the exchange rate for the euro increases (in this case, from ¥135 to ¥150), then the euro has appreciated.

Question 18

(Table: Exchange Rates Across Currencies) If the exchange rate on January 1, 2016, is $1 = 144 yen, then: 
A) the dollar has appreciated 10% against the yen.
B) the dollar has depreciated 24% against the yen.
C) the yen has depreciated 12% against the dollar.
D) the yen has depreciated 20% against the dollar.

Accepted Answer

The answer of (Table: Exchange Rates Across Currencies) If the...

Question 19

(Table: Exchange Rates Across Currencies) Based on the information provided, which of the following statements is TRUE? 
A) 1 peso = 10 yen
B) 1 rupee = 10 yen
C) 1 peso = 3 rupees
D) $1 Canadian = 35 rupees

Accepted Answer

The answer of (Table: Exchange Rates Across Currencies) Based on...

Question 20

Exchange rates affect: I. international trade flows
II) international investment flows
III) corporate earnings
A) I
B) II and III
C) I and II
D) I, II, and III

Accepted Answer

Exchange rates influence international trade flows by making exports cheaper or more expensive, affect international investment flows by impacting the return on foreign investments, and can also affect corporate earnings through their impact on both international sales and the value of foreign-denominated profits when converted back to the corporation's home currency.

Quiz 13: Introduction to Exchange Rates and the Foreign Exchange Market

If the dollar-euro exchange rate on June 30, 2015, is $1.115 per euro, then the euro-dollar exchange rate would be:

(Table: Exchange Rates Across Currencies) Based on the information provided, one Canadian dollar is equal to _ Mexican pesos and _ Indian rupees.

The price of a foreign currency expressed in terms of the home currency is called the:

When we look at exchange rates between two countries, what is the relationship between the exchange rate expressed in units of the domestic currency and the exchange rate expressed in units of the foreign currency?

If, in 2011, $1 = 1.5 euros, and in 2016, $1 = 0.9 euros, which of the following statements would be TRUE?

When interpreting the meaning of an exchange rate, the first step is to always:

When the dollar declines in value against a foreign currency, it is called a(n) :

If a nation's currency buys fewer units of a foreign currency today than yesterday, we say the value of its currency has:

Generally, exchange rates are quoted as a single price of a unit of foreign currency rather than a ratio because:

When a nation's currency appreciates, it purchases _ units of a foreign currency and its currency is said to _.

The equation E_¥_/£ = 100 means that:

If one nation's currency strengthens against a foreign currency, the other nation's currency must _____ against the domestic currency.

The equation E_$/£ = 2 means that:

The notation used in the text for the euro-dollar exchange rate is:

A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome. Thus, $1 is equal to:

Normally, exchange rates are expressed as:

If today €1 exchanges for ¥135, and tomorrow €1 exchanges for ¥150, we say the euro has:

(Table: Exchange Rates Across Currencies) If the exchange rate on January 1, 2016, is $1 = 144 yen, then:

(Table: Exchange Rates Across Currencies) Based on the information provided, which of the following statements is TRUE?

Exchange rates affect: I. international trade flows II) international investment flows III) corporate earnings