questions 4foreign exchange determination.docx

questions 4foreign exchange determination.docx

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questions4foreignexchangedetermination

CHAPTER4

EXCHANGE-RATEDETERMINATION

MULTIPLE-CHOICEQUESTIONS

1.Therelationshipbetweentheexchangerateandthepricesoftradablegoodsisknownasthe:

a.Purchasing-power-paritytheory

b.Asset-marketstheory

c.Monetarytheory

d.Balance-of-paymentstheory

2.IftheexchangeratebetweenSwissfrancsandBritishpoundsis5francsperpound,thenthenumberofpoundsthatcanbeobtainedfor200francsequals:

a.20pounds

b.40pounds

c.60pounds

d.80pounds

3.LowrealinterestratesintheUnitedStatestendto:

a.Decreasethedemandfordollars,causingthedollartodepreciate

b.Decreasethedemandfordollars,causingthedollartoappreciate

c.Increasethedemandfordollars,causingthedollartodepreciate

d.Increasethedemandfordollars,causingthedollartoappreciate

4.HighrealinterestratesintheUnitedStatestendto:

a.Decreasethedemandfordollars,causingthedollartodepreciate

b.Decreasethedemandfordollars,causingthedollartoappreciate

c.Increasethedemandfordollars,causingthedollartodepreciate

d.Increasethedemandfordollars,causingthedollartoappreciate

5.AssumethattheUnitedStatesfacesan8percentinflationratewhileno（zero）inflationexistsinJapan.Accordingtothepurchasing-power-paritytheory,thedollarwouldbeexpectedto:

a.Appreciateby8percentagainsttheyen

b.Depreciateby8percentagainsttheyen

c.Remainatitsexistingexchangerate

d.Noneoftheabove

6.Inthepresenceofpurchasing-powerparity,ifonedollarexchangesfor2BritishpoundsandifaVCRcosts$400intheUnitedStates,theninGreatBritaintheVCRshouldcost:

a.200pounds

b.400pounds

c.600pounds

d.800pounds

7.Ifwheatcosts$4perbushelintheUnitedStatesand2poundsperbushelinGreatBritain,theninthepresenceofpurchasing-powerparitytheexchangerateshouldbe:

a.$.50perpound

b.$1.00perpound

c.$2.00perpound

d.$8.00perpound

8.AprimaryreasonthatexplainstheappreciationinthevalueoftheU.S.dollarinthe1980sis:

a.LargetradesurplusesfortheUnitedStates

b.HighinflationratesintheUnitedStates

c.LackofinvestorconfidenceintheU.S.monetarypolicy

d.HighinterestratesintheUnitedStates

9.ThehighforeignexchangevalueoftheU.S.dollarintheearly1980scanbestbeexplainedby:

a.Additionalinvestmentfundsmadeavailablefromoverseas

b.LackofinvestorconfidenceinU.S.fiscalpolicy

c.MarketexpectationsofrisinginflationintheUnitedStates

d.Americantouristsoverseasfindingcostsincreasing

10.Whenthepriceofforeigncurrency（i.e.,theexchangerate）isbelowtheequilibriumlevel:

a.Anexcessdemandforthatcurrencyexistsintheforeignexchangemarket

b.Anexcesssupplyofthatcurrencyexistsintheforeignexchangemarket

c.Thedemandforforeignexchangeshiftsoutwardtotheright

d.Thedemandforforeignexchangeshiftsbackwardtotheleft

11.Whenthepriceofforeigncurrency（i.e.,theexchangerate）isabovetheequilibriumlevel:

a.Anexcesssupplyofthatcurrencyexistsintheforeignexchangemarket

b.Anexcessdemandforthatcurrencyexistsintheforeignexchangemarket

c.Thesupplyofforeignexchangeshiftsoutwardtotheright

d.Thesupplyofforeignexchangeshiftsbackwardtotheleft

12.Theappreciationinthevalueofthedollarintheearly1980sisexplainedbyallofthefollowingexcept:

a.TheUnitedStatesbeingconsideredasafehavenbyforeigninvestors

b.RelativelyhighrealinterestratesintheUnitedStates

c.ConfidenceofforeigninvestorsintheU.S.economy

d.RelativelyhighinflationratesintheUnitedStates

13.SupposeMexicoandtheUnitedStatesweretheonlytwocountriesintheworld.Thereexistsanexcesssupplyofpesosontheforeignexchangemarket.Thissuggeststhat:

a.Mexico’scurrentaccountisinsurplus

b.Mexico’scurrentaccountisindeficit

c.TheU.S.currentaccountisindeficit

d.TheU.S.currentaccountisinequilibrium

14.IfCanadarunsacurrentaccountsurplusandexchangeratesarefloating:

a.Thevalueofothercurrencieswillriserelativetothedollar

b.Thedollarwilldepreciaterelativetoothercurrencies

c.ThepriceofforeigngoodswillbecomecheaperforCanadians

d.ThepriceofforeigngoodswillriseforCanadians

15.IfAustraliarunsacurrentaccountdeficitandexchangeratesarefloating:

a.Australianexportsbecomemoreexpensivetoforeignbuyers

b.Australianexportsbecomelessexpensivetoforeignbuyers

c.AustralianimportsbecomelessexpensiveforAustralianbuyers

d.AustralianimportsbecomemoreprestigioustoAustralianbuyers

16.TheinternationalexchangevalueoftheU.S.dollarisdeterminedby:

a.TherateofinflationintheUnitedStates

b.ThenumberofdollarsprintedbytheU.S.government

c.Theinternationaldemandandsupplyfordollars

d.ThemonetaryvalueofgoldheldatFortKnox,Kentucky

17.FortheUnitedStates,supposetheannualinterestrateongovernmentsecuritiesequals8percentwhiletheannualinflationrateequals4percent.ForJapan,supposetheannualinterestrateongovernmentsecuritiesequals10percentwhiletheannualinflationrateequals7percent.Thesevariableswouldcauseinvestmentfundstoflowfrom:

a.TheUnitedStatestoJapan,causingthedollartodepreciate

b.TheUnitedStatestoJapan,causingthedollartoappreciate

c.JapantotheUnitedStates,causingtheyentodepreciate

d.JapantotheUnitedStates,causingtheyentoappreciate

18.FortheUnitedStates,supposetheannualinterestrateongovernmentsecuritiesequals12percentwhiletheannualinflationrateequals8percent.ForJapan,supposetheannualinterestrateequals5percent.Thesevariableswouldcauseinvestmentfundstoflowfrom:

a.TheUnitedStatestoJapan,causingthedollartodepreciate

b.TheUnitedStatestoJapan,causingthedollartoappreciate

c.JapantotheUnitedStates,causingtheyentodepreciate

d.JapantotheUnitedStates,causingtheyentoappreciate

19.Givenasystemoffloatingexchangerates,risingincomeintheUnitedStateswouldtrigger:

a.Anincreaseinthedemandforimportsandanincreaseinthedemandforforeigncurrency

b.Anincreaseinthedemandforimportsandadecreaseinthedemandforforeigncurrency

c.Adecreaseinthedemandforimportsandanincreaseinthedemandforforeigncurrency

d.Adecreaseinthedemandforimportsandadecreaseinthedemandforforeigncurrency

20.Givenasystemoffloatingexchangerates,fallingincomeintheUnitedStateswouldtrigger:

a.Anincreaseinthedemandforimportsandanincreaseinthedemandforforeigncurrency

b.Anincreaseinthedemandforimportsandadecreaseinthedemandforforeigncurrency

c.Adecreaseinthedemandforimportsandanincreaseinthedemandforforeigncurrency

d.Adecreaseinthedemandforimportsandadecreaseinthedemandforforeigncurrency

21.Underasystemoffloatingexchangerates,relativelylowproductivityandhighinflationratesintheUnitedStatesresultin:

a.Anincreaseinthedemandforforeigncurrency,adecreaseinthesupplyofforeigncurrency,andadepreciationinthedollar

b.Anincreaseinthedemandforforeigncurrency,anincreaseinthesupplyofforeigncurrency,andanappreciationinthedollar

c.Adecreaseinthedemandforforeigncurrency,adecreaseinthesupplyofforeigncurrency,andadepreciationinthedollar

d.Adecreaseinthedemandforforeigncurrency,anincreaseinthesupplyofforeigncurrency,andanappreciationinthedollar

22.Underasystemoffloatingexchangerates,relativelyhighproductivityandlowinflationratesintheUnitedStatesresultin:

a.Anincreaseinthedemandforforeigncurrency,adecreaseinthesupplyofforeigncurrency,andadepreciationinthedollar

b.Anincreaseinthedemandforforeigncurrency,anincreaseinthesupplyofforeigncurrency,andanappreciationinthedollar

c.Adecreaseinthedemandforforeigncurrency,adecreaseinthesupplyofforeigncurrency,andadepreciationinthedollar

d.Adecreaseinthedemandforforeigncurrency,anincreaseinthesupplyofforeigncurrency,andanappreciationinthedollar

23.Whichexampleofmarketexpectationscausesthedollartoappreciateagainsttheyen?

ExpectationsthattheU.S.economywillhave:

a.FastereconomicgrowththanJapan

b.HigherfutureinterestratesthanJapan

c.MorerapidmoneysupplygrowththanJapan

d.HigherinflationratesthanJapan

24.Whichexampleofmarketexpectationscausesthedollartodepreciateagainsttheyen?

ExpectationsthattheU.S.economywillhave:

a.FastereconomicgrowththanJapan

b.HigherfutureinterestratesthanJapan

c.LessrapidmoneysupplygrowththanJapan

d.LowerinflationratesthanJapan

25.Startingatthepointofequilibriumbetweenthemoneysupplyandthemoneydemand,anincreaseinthedomesticmoneysupplycausesthevalueofthehomecurrencyto:

a.Depreciaterelativetoothercurrencies

b.Appreciaterelativetoothercurrencies

c.Notchangerelativetoothercurrencies

d.Noneoftheabove

26.Startingatthepointofequilibriumbetweenthemoneysupplyandthemoneydemand,adecreaseinthedomesticmoneysupplycausesthevalueofthehomecurrencyto:

a.Depreciaterelativetoothercurrencies

b.Appreciaterelativetoothercurrencies

c.Notchangerelativetoothercurrencies

d.Noneoftheabove

27.Startingatthepointofequilibriumbetweenthemoneysupplyandthemoneydemand,anincreaseinthedemandformoneyinthehomecountrycausesthevalueofthehomecurrencyto:

a.Depreciaterelativetoothercurre