Question 1

If the U.S.dollar appreciates against the Nigerian naira by 150%,the naira depreciates against the dollar by
A)60%
B)75%
C)125%
D)300%

Accepted Answer

A

Question 2

If the peso depreciates against the U.S dollar by 80%,the US dollar will appreciate against the peso by
A)300%
B)200%
C)250%
D)400%

Accepted Answer

D

Question 3

The U.S.dollar weakened during the 1970s for the following reasons EXCEPT
A)U.S.inflation accelerated
B)the U.S.economy weakened
C)foreigners didn't want to hold as many dollars as before
D)foreigners did want to hold many more dollars than before

Accepted Answer

Option D is the only choice that does not describe a reason for the weakening of the U.S.dollar during the 1970s. In fact, the opposite is true, as foreigners wanting to hold many more dollars than before would have strengthened the U.S.dollar. The other three options all describe factors that contributed to the weakening of the currency.

Question 4

If the U.S.dollar appreciates against the euro by 25%,the euro will depreciate against the U.S.dollar
A)25%
B)20%
C)30%
D)10%

Accepted Answer

If the U.S. dollar appreciates against the euro by 25%, it means that it is now worth 25% more in euros. Therefore, the euro has depreciated by 25% against the U.S. dollar. To calculate the percentage of depreciation of the euro against the U.S. dollar, we need to use the formula: percentage change = (change/original value) x 100. In this case, the change is -25% (depreciation), and the original value is 1 euro. So, percentage change = (-25%/1 euro) x 100 = -25%. This means that the euro has depreciated against the U.S. dollar by 25%. The only answer that corresponds to this is B) 20%, which is the closest to -25% but still incorrect.

Question 5

When the U.S.dollar becomes weaker,U.S.exports become more ____ in foreign markets.
A)competitive
B)costly
C)credit worthy
D)productive

Accepted Answer

When the U.S. dollar becomes weaker, it means that foreign currencies have become stronger in comparison. Therefore, U.S. exports become less expensive and more attractive to foreign buyers, making them more competitive in foreign markets.

Question 6

To some U.S.manufacturers and labor unions,a cheap yuan value gives China's __________ an unfair advantage in the global economy.
A)imports
B)subsidies
C)bankers
D)exporters

Accepted Answer

A cheap yuan value makes Chinese exports cheaper, giving them an advantage over other exporters in the global economy.

Question 7

Of the following,exchange rates depend the most upon relative
A)monetary systems
B)political systems
C)trade deficits
D)inflation rates between nations

Accepted Answer

Exchange rates mainly depend on the inflation rates of different countries. Higher inflation in one country compared to another will result in the depreciation of the currency of the former. This is because the purchasing power of currency will decrease due to inflation. Therefore, inflation differentials between countries are the most significant factor that affects exchange rates. While monetary and political systems may indirectly impact exchange rates, their influence is not as significant as inflation rates. Trade deficits may also impact exchange rates, but only to a limited extent.

Question 8

______ is another name for the complete replacement of the local currency with the U.S.dollar.
A)Seignorage
B)Dollarization
C)Depreciation
D)Appreciation

Accepted Answer

Dollarization is the process where the local currency of a country is completely replaced by the US dollar. This can occur due to factors such as high inflation, instability in the local economy, or lack of confidence in the local currency. In dollarized economies, US dollars become the primary medium of exchange, and all prices and transactions are denominated in dollars.

Question 9

During the 1994 peso problem,Mexico made a fundamental error by not allowing the ________ of pesos to fall.
A)demand
B)supply
C)devaluation
D)real exchange rate

Accepted Answer

The answer of During the 1994 peso problem,Mexico made a...

Question 10

When the U.S.Federal Reserve sells or purchases Treasury securities in order to sterilize the impact of their foreign exchange market interventions,it is referred to as an.________ operation.
A)floating currency
B)spot rate
C)revaluation
D)open market

Accepted Answer

When the U.S. Federal Reserve sells or purchases Treasury securities in order to offset the impact of their foreign exchange market interventions, it is referred to as an open market operation. This is a common tool used by central banks to influence the money supply and interest rates in the economy.

Question 11

The French euro devalued by 17% against the U.S.dollar.This is equivalent to a revaluation of the dollar against the euro by
A)17%
B)16.31%
C)20.48%
D)17.54%

Accepted Answer

When a currency devalues by a certain percentage, the reciprocal currency appreciates by a different percentage. The formula to calculate the appreciation is 1 / (1 - devaluation rate) - 1. In this case, it's 1 / (1 - 0.17) - 1 = 1 / 0.83 - 1 ≈ 0.2048 or 20.48%.

Question 12

If the Australian dollar devalues against the Japanese yen by 10%,the yen will appreciate by
A)33.32%
B)25.55%
C)10.11%
D)11.11%

Accepted Answer

When a currency devalues by a certain percentage, the reciprocal currency appreciates by a different percentage. The formula to calculate the appreciation rate is: Appreciation Rate = (1 / (1 - Devaluation Rate)) - 1. For a 10% devaluation, this becomes: (1 / (1 - 0.10)) - 1 = 1.1111 - 1 = 0.1111 or 11.11%.

Question 13

If the euro depreciates against the U.S.dollar by 50%,the dollar appreciates against the euro by
A)55%
B)100%
C)200%
D)1,000%

Accepted Answer

If the euro depreciates against the U.S. dollar by 50%, it means that 1 euro is now worth 0.5 dollars ($0.50). Therefore, if we flip the ratio around, it means that 1 dollar is now worth 2 euros (€2). This is a 100% appreciation of the dollar against the euro.

Question 14

When monetary authorities have not insulated their domestic money supplies from the foreign exchange transactions,it is known as ________ intervention.
A)unsterilized
B)sterilized
C)foreign market
D)subsidized

Accepted Answer

Unsterilized intervention occurs when the monetary authorities do not take offsetting actions to neutralize the effects of their foreign exchange transactions on the domestic money supply. This can cause changes in interest rates and inflation rates. Sterilized intervention, on the other hand, involves taking offsetting actions to neutralize the effects of foreign exchange transactions. Foreign market intervention and subsidized intervention are not specific types of intervention.

Question 15

The asset market view of exchange rate determination does NOT statee that the spot rate
A)should follow a random walk
B)is affected primarily by a nation's long-run economic prospects
C)is influenced by a nation's annual economic growth
D)should be strongly affected by a nation's balance of trade

Accepted Answer

The asset market view of exchange rate determination suggests that the spot rate is primarily influenced by a nation's long-run economic prospects, but not by its annual economic growth. Additionally, it states that the spot rate should not necessarily follow a random walk, but rather be affected by factors such as interest rates, inflation, and political stability. However, it does not suggest that the spot rate should be strongly affected by a nation's balance of trade, as this is just one of many factors that can influence exchange rates.

Question 16

The most likely explanation for the rise of the U.S.dollar during the early 1980s is that the U.S.
A)budget deficit lowered U.S.interest rates
B)trade deficit accelerated U.S.inflation
C)economy slowed dramatically
D)budget deficit raised U.S.interest rates

Accepted Answer

The answer of The most likely explanation for the rise...

Question 17

Although the mechanics of central bank interventions in the global currency markets may vary from country to country,the goal is always the same,to ____ the demand for one currency by ______ the supply of another.
A)increase,increasing
B)decrease,decreasing
C)increase,decreasing
D)decrease,increasing

Accepted Answer

Central banks intervene in the currency markets to influence the exchange rate of their currency. They do this by buying or selling foreign currencies, which increases or decreases the supply of those currencies in the market. This, in turn, affects the demand for the central bank's own currency.

Question 18

If the dinar devalues against the U.S.dollar by 45%,the U.S.dollar will appreciate against the dinar by
A)45%
B)82%
C)55%
D)32%

Accepted Answer

If the dinar devalues by 45%, then the new exchange rate would be 1 dinar = 0.55 USD (a 45% decrease in value from the previous rate of 1 dinar = 1 USD). To find the percentage change in the USD against the dinar, we can use the formula:

[(new value - old value) / old value] x 100

[(0.55 - 1) / 1] x 100 = -45%

However, we are looking for the change in the USD against the dinar, so we need to flip the percentage to get a positive number:

45% x (-1) = -45%

Therefore, the USD will appreciate against the dinar by 45% x 1.82 (the inverse of the original 1 dinar = 1 USD rate) = 82%.

Question 19

Suppose that the Brazilian real devalues by 40% against the U.S.dollar.By how much will the dollar appreciate against the real?
A)67%
B)40%
C)32%
D)28%

Accepted Answer

If the Brazilian real devalues by 40% against the U.S. dollar, it means that you now need 40% more reals to buy the same amount of dollars. To find out by how much the dollar appreciates against the real, you can use the formula for percentage increase, which is (New Value - Original Value) / Original Value * 100%. If the original value is 1 (representing a 1:1 ratio for simplicity), and it devalues by 40%, the new value becomes 1.4. The appreciation of the dollar is then (1.4 - 1) / 1 * 100% = 40%. However, to directly calculate how much more valuable the dollar has become in terms of the real, you consider the inverse of the devaluation. If 1 dollar was worth 1 real and now is worth 1.4 reals, the calculation is 1 / (1 - 0.4) = 1.67, indicating a 67% increase in value from the perspective of the real.

Question 20

On Friday,September 13,1992,the lira was worth DM 0.0013.Over the weekend the lira devalued against the DM to DM 0.0012.By how much had the lira devalued against the DM?
A)7.69%
B)8.33%
C)5.21%
D)9.27%

Accepted Answer

The devaluation percentage is calculated as ((0.0013 - 0.0012) / 0.0013) * 100 = 7.69%.

Quiz 2: The Determination of Exchange Rates

If the U.S.dollar appreciates against the Nigerian naira by 150%,the naira depreciates against the dollar by

If the peso depreciates against the U.S dollar by 80%,the US dollar will appreciate against the peso by

The U.S.dollar weakened during the 1970s for the following reasons EXCEPT

If the U.S.dollar appreciates against the euro by 25%,the euro will depreciate against the U.S.dollar

When the U.S.dollar becomes weaker,U.S.exports become more ____ in foreign markets.

To some U.S.manufacturers and labor unions,a cheap yuan value gives China's __________ an unfair advantage in the global economy.

Of the following,exchange rates depend the most upon relative

______ is another name for the complete replacement of the local currency with the U.S.dollar.

During the 1994 peso problem,Mexico made a fundamental error by not allowing the ________ of pesos to fall.

When the U.S.Federal Reserve sells or purchases Treasury securities in order to sterilize the impact of their foreign exchange market interventions,it is referred to as an.________ operation.

The French euro devalued by 17% against the U.S.dollar.This is equivalent to a revaluation of the dollar against the euro by

If the Australian dollar devalues against the Japanese yen by 10%,the yen will appreciate by

If the euro depreciates against the U.S.dollar by 50%,the dollar appreciates against the euro by

When monetary authorities have not insulated their domestic money supplies from the foreign exchange transactions,it is known as ________ intervention.

The asset market view of exchange rate determination does NOT statee that the spot rate

The most likely explanation for the rise of the U.S.dollar during the early 1980s is that the U.S.

Although the mechanics of central bank interventions in the global currency markets may vary from country to country,the goal is always the same,to the demand for one currency by __ the supply of another.

If the dinar devalues against the U.S.dollar by 45%,the U.S.dollar will appreciate against the dinar by

Suppose that the Brazilian real devalues by 40% against the U.S.dollar.By how much will the dollar appreciate against the real?

On Friday,September 13,1992,the lira was worth DM 0.0013.Over the weekend the lira devalued against the DM to DM 0.0012.By how much had the lira devalued against the DM?