Chapter 2, The Determination of Exchange Rates
CHAPTER 2 The Determination of Exchange Rates EASY
2.1 The most most likely likely explanatio explanation n for the the rise rise of the the U.S. dollar dollar dring dring the early early 1!"#s 1!"#s is is that the U.S. a. $dget deficit lo%ered U.S. interest rates rates $. trade deficit accelerated U.S. inflation c. economy slo%ed dramatically d. $dget deficit raised U.S. interest rates rates &ns' c Section' Expectations and the asset market model of exchange rates (e)el' Easy 2.2 The U.S. U.S. dollar dollar %eakene %eakened d dring dring the the 1!*#s 1!*#s for for the the follo%in follo%ing g reasons reasons E+CET E+CET a. U.S. inflation accelerated $. the U.S. economy %eakened c. foreigners didn-t %ant to to hold as many dollars as $efore d. foreigners did %ant to hold many more more dollars than $efore &ns' d Section' Expectations and the asset market model of exchange rates (e)el' Easy 2. /f the foll follo%i o%ing, ng, exchan exchange ge rates rates depend depend the the most pon pon relat relati)e i)e a. monetary systems $. political systems c. trade deficits d. inflation rates $et%een nations nations &ns' d Section' The natre of money and crrency )ales (e)el' Easy 2.0 is another name for the complete replacement replacement of the local crrency %ith %ith the U.S. dollar. a. Seignorage $. Dollariation c. Depreciation d. &ppreciation &ns' $ Section' Dollariation (e)el' Easy *You *You can buy compete chapters by! "##$Testban%&$com Contact &s! Testban%&'ao$com Testban%&'ao$com
Chapter 2, The Determination of Exchange Rates
2.3 To some U.S. manfactrers and la$or nions, a cheap yan )ale gi)es China4s an nfair ad)antage in the glo$al economy. a. imports $. s$sidies c. $ankers d. exporters &ns' d Section' 5ini6Case' & yen for yan (e)el' Easy 2.7 The asset market )ie% of exchange rate determination does 8/T statee that the spot rate a. shold follo% a random %alk $. is affected primarily $y a nation-s long6rn economic prospects c. is inflenced $y a nation4s annal economic gro%th d. shold $e strongly affected $y a nation-s $alance of trade &ns' d Section' Expectations and the asset market model of exchange rates (e)el' Easy 2.* 9hen monetary athorities ha)e not inslated their domestic money spplies from the foreign exchange transactions, it is kno%n as inter)ention. a. nsterilied $. sterilied c. foreign market d. s$sidied &ns' a Section' Sterilied )erss nsterilied inter)ention (e)el' Easy 2." 9hen the U.S. :ederal Reser)e sells or prchases Treasry secrities in order to sterilie the impact of their foreign exchange market inter)entions, it is referred to as a;n. operation. a. floating crrency $. spot rate c. re)alation d. open market &ns' d Section' Sterilied )erss nsterilied inter)ention (e)el' Easy
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Chapter 2, The Determination of Exchange Rates
2.! Dring the 1!!0 peso pro$lem, 5exico made a fndamental error $y not allo%ing the of pesos to fall. a< demand $< spply c< de)alation d< real exchange rate &ns' $ Section' The peso pro$lem (e)el' Easy 2.1# 9hen the U.S. dollar $ecomes %eaker, U.S. exports $ecome more in foreign markets. a. competiti)e $. costly c. credit %orthy d. prodcti)e &ns' a Section' =o% Real Exchange Rates &ffect Relati)e Competiti)eness (e)el' Easy 2.11 <hogh the mechanics of central $ank inter)entions in the glo$al crrency markets may )ary from contry to contry, the goal is al%ays the same, to the demand for one crrency $y the spply of another. a. increase, increasing $. decrease, decreasing c. increase, decreasing d. decrease, increasing &ns' a Section' :oreign Exchange 5arket >nter)ention (e)el' Easy (ED)&( appie+,
2.12 /n :riday, Septem$er 1, 1!!2, the lira %as %orth D5 #.##1. /)er the %eekend the lira de)aled against the D5 to D5 #.##12. ?y ho% mch had the lira de)aled against the D5@ a. *.7!A $. ".A c. 3.21A d. !.2*A &ns' a Section' Setting the eBili$rim spot exchange rate *You can buy compete chapters by! "##$Testban%&$com Contact &s! Testban%&'ao$com
Chapter 2, The Determination of Exchange Rates
(e)el' 5edim 2.1 Sppose that the ?railian real de)ales $y 0#A against the U.S. dollar. ?y ho% mch %ill the dollar appreciate against the real@ a. 7*A $. 0#A c. 2A d. 2"A &ns' a Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.10 The :rench ero de)aled $y 1*A against the U.S. dollar. This is eBi)alent to a re)alation of the dollar against the ero $y a< 1*A $< 17.1A c< 2#.0"A d< 1*.30A &ns' c Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.13 >f the &stralian dollar de)ales against the apanese yen $y 1#A, the yen %ill appreciate $y a. .2A $. 23.33A c. 1#.11A d. 11.11A &ns' d Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.17 >f the ero depreciates against the U.S. dollar $y 3#A, the dollar appreciates against the ero $y a. 33A $. 1##A c. 2##A d. 1,###A &ns' $ Section' Setting the eBili$rim spot exchange rate (e)el' 5edim
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Chapter 2, The Determination of Exchange Rates
2.1* >f the U.S. dollar appreciates against the 8igerian naira $y 13#A, the naira depreciates against the dollar $y a. 7#A $. *3A c. 123A d. ##A &ns' a Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.1" >f the dinar de)ales against the U.S. dollar $y 03A, the U.S. dollar %ill appreciate against the dinar $y a. 03A $. "2A c. 33A d. 2A &ns' $ Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.1! >f the peso depreciates against the U.S dollar $y "#A, the US dollar %ill appreciate against the peso $y a. ##A $. 2##A c. 23#A d. 0##A &ns' d Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.2# >f the U.S. dollar appreciates against the ero $y 23A, the ero %ill depreciate against the U.S. dollar a. 23A $. 2#A c. #A d. 1#A &ns' $ Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.21 >f a foreigner prchases a U.S. go)ernment secrity the a. spply of dollars rises *You can buy compete chapters by! "##$Testban%&$com Contact &s! Testban%&'ao$com
Chapter 2, The Determination of Exchange Rates
$. federal go)ernment deficit declines c. demand for dollars rises d. U.S. money spply rises &ns' c Section' Setting the eBili$rim spot exchange rate (e)el' 5edim 2.22 The foreign crrency price of foreign goods in terms of the local crrency price of domestic goods is called a. the real exchange rate $. the $alance of trade c. the trade6%eighted exchange rate d. prchasing parity &ns' a Section' The fndamentals of central $ank inter)ention (e)el' 5edim 2.2 &n increase in the real exchange rate %ill a. raise national income $. lo%er national income c. make a contry less competiti)e in international trade d. lo%er the cost of foreign goods e. c and d &ns' e Section' The fndamentals of central $ank inter)ention (e)el' 5edim 2.20 & slo%do%n in U.S. economic gro%th %ill a. $oost the )ale of the dollar $ecase inflation fears %ill $e calmed $. $oost the )ale of the dollar $ecase the :ederal Reser)e %ill expand the money spply c. lo%er the )ale of the dollar $ecase the U.S. %ill $e a less attracti)e place to in)estors d. lo%er the )ale of the dollar $ecase interest rates %ill rise &ns' c Section' The fndamentals of central $ank inter)ention (e)el' 5edim 2.23 The %illingness of people to hold money a. increases %ith the interest rate $. rises %ith price sta$ility c. rises %ith national income *You can buy compete chapters by! "##$Testban%&$com Contact &s! Testban%&'ao$com
Chapter 2, The Determination of Exchange Rates
d. $ and c only &ns' d Section' The fndamentals of central $ank inter)ention (e)el' 5edim 2.27 Sond economic policies %ill a. raise the )ale of a nation-s crrency $y $oosting the economy $. lo%er the )ale of a nation-s crrency $y increasing the precationary demand for money c. lo%er the )ale of a nation-s crrency $y leading to lo%er interest rates d. $oth $ and c &ns' a Section' The fndamentals of central $ank inter)ention (e)el' 5edim 2.2* (arge go)ernment $dget deficits %ill a. raise the )ale of a nation-s crrency $y raising domestic interest rates $. raise the )ale of a nation-s crrency $y stimlating the domestic economy c. lo%er the )ale of a nation-s crrency $y leading to higher inflation d. $e irrele)ant since historical experience sho%s no correlation $et%een go)ernment $dget deficits and the )ale of the nation-s crrency &ns' d Section' The natre of money and crrency )ales (e)el' 5edim 2.2" >f yo %ere a monetary athority and %anted to netralie the effects of central $ank crrency inter)entions sch as interest rate changes, %hich of the follo%ing %old $e most effecti)e@ a. the sale or prchase of Treasry secrities $. the creation of a crrency $oard c. pegging the exchange rate to another crrency d. con)incing in)estors that the crrencies in)ol)ed in the inter)ention are perfect complements to each other &ns' a Section' Sterilied )erss Unsterilied >nter)ention (e)el' 5edim D)--)C&.T a+/ance+,
2.2! 9hich type of money is most likely to see its )ale flctate in the foreign exchange market@ a. fiat money *You can buy compete chapters by! "##$Testban%&$com Contact &s! Testban%&'ao$com
Chapter 2, The Determination of Exchange Rates
$. commodity money c. price6indexed money d. pegged6exchange rate &ns' a Section' Central $ank reptations and crrency )ales (e)el' Difficlt 2.# &n increase in the spply of U.S. dollars $y the :ederal Reser)e %ill a. raise the )ale of the dollar $ecase it %ill stimlate U.S. economic gro%th $. raise the )ale of the dollar $ecase it %ill lead to higher U.S. interest rates c. redce the )ale of the dollar $ecase of inflation fears in the United States d. decrease the )ale of the dollar $ecase it %ill force other contries to raise their interest rates &ns' c Section' The fndamentals of central $ank inter)ention (e)el' Difficlt 2.1 /n ly 1!, 1!"3, the >talian lira de)aled $y 1*A against the U.S. dollar. This is eBi)alent to a re)alation of the dollar against the lira of a. 1*A $. 17.1A c. 2#.0"A d. 1*.30A &ns' c Section' Setting the eBili$rim spot exchange rate (e)el' Difficlt 2.2 9hich of the follo%ing is an example of foreign exchange market inter)ention@ a. the U.S. go)ernment pays Social Secrity checks to pensioners li)ing in oland $. >?5 sells eros it recei)ed in international trade c. the Canadian go)ernment pays interest to Sadi &ra$ian in)estors d. the :rench go)ernment sells dollars in the foreign exchange market to prop p the )ale of the ero &ns' d Section' The fndamentals of central $ank inter)ention (e)el' Difficlt 2. Dring 1!!3, the yen %ent from #.#123 to #.##!32". ?y ho% mch did the dollar appreciate against the yen@ a. 2."1A $. 1.23A c. 13.7*A d. 0#.*"A *You can buy compete chapters by! "##$Testban%&$com Contact &s! Testban%&'ao$com
Chapter 2, The Determination of Exchange Rates
&ns' $ Section' Setting the eBili$rim spot exchange rate (e)el' Difficlt 2.0 The forFof foreign crrency in the U.S. is deri)ed from the demand for $y &merican consmers. a. Demand, foreign prodcts $. Demand, tax loopholes c. Spply, lo%er tariffs d. Spply, local prodcts &ns' a' Section' Setting the eBili$rim spot exchange rate (e)el' Difficlt 2.3 9hich one of the follo%ing is 8/T associated %ith dollariation of a nation4s crrency@ a. >n anama #6year mortgages %ere no longer a)aila$le $. central $anks may lose the profit on the crrency they hold c. it has $een kno%n to pro)ide price sta$ility d. some capital may retrn and the economy $egin to gro% again &ns' a Section' Central ?ank Reptations and Crrency Gales H Dollariation (e)el' Difficlt 2.7 9hich one of the follo%ing is 8/T a disad)antage of a strong dollar@ a. Chrysler Corporations competiti)eness diminishes in foreign markets $. &merican6made Dell compters lose sales to their Chinese conterparts c. U.S. nemployment le)els rise in some sectors d. &mericans %ill $e less prone to $y foreign %ines &ns' d Section' The :ndamentals of Central ?ank >nter)entions H =o% Real Exchange Rates &ffect Relati)e Competiti)eness (e)el' Difficlt
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