ECO 305 Week 9 Quiz – Strayer
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Quiz 8 Chapter 12 and 13
EXCHANGE-RATE DETERMINATION
MULTIPLE CHOICE
1. The relationship between the exchange rate and the prices of tradable goods is known as the:
a. Purchasing-power-parity theory
b. Asset-markets theory
c. Monetary theory
d. Balance-of-payments theory
2. If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals:
a. 20 pounds
b. 40 pounds
c. 60 pounds
d. 80 pounds
3. Low real interest rates in the United States tend to:
a. Decrease the demand for dollars, causing the dollar to depreciate
b. Decrease the demand for dollars, causing the dollar to appreciate
c. Increase the demand for dollars, causing the dollar to depreciate
d. Increase the demand for dollars, causing the dollar to appreciate
4. High real interest rates in the United States tend to:
a. Decrease the demand for dollars, causing the dollar to depreciate
b. Decrease the demand for dollars, causing the dollar to appreciate
c. Increase the demand for dollars, causing the dollar to depreciate
d. Increase the demand for dollars, causing the dollar to appreciate
5. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to:
a. Appreciate by 8 percent against the yen
b. Depreciate by 8 percent against the yen
c. Remain at its existing exchange rate
d. None of the above
6. In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost:
a. 200 pounds
b. 400 pounds
c. 600 pounds
d. 800 pounds
7. If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:
a. $.50 per pound
b. $1.00 per pound
c. $2.00 per pound
d. $8.00 per pound
8. A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is:
a. Large trade surpluses for the United States
b. Relatively high inflation rates in the United States
c. Lack of investor confidence in the U.S. monetary policy
d. Relatively high interest rates in the United States
9. The high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by:
a. Additional investment funds made available from overseas
b. Lack of investor confidence in U.S. fiscal policy
c. Market expectations of rising inflation in the United States
d. American tourists overseas finding costs increasing
10. When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level:
a. An excess demand for that currency exists in the foreign exchange market
b. An excess supply of that currency exists in the foreign exchange market
c. The demand for foreign exchange shifts outward to the right
d. The demand for foreign exchange shifts backward to the left
11. When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level:
a. An excess supply of that currency exists in the foreign exchange market
b. An excess demand for that currency exists in the foreign exchange market
c. The supply of foreign exchange shifts outward to the right
d. The supply of foreign exchange shifts backward to the left
12. The appreciation in the value of the dollar in the early 1980s is explained by all of the following except:
a. The United States being considered a safe haven by foreign investors
b. Relatively high real interest rates in the United States
c. Confidence of foreign investors in the U.S. economy
d. Relatively high inflation rates in the United States
13. Suppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that:
a. Mexico's current account is in surplus
b. Mexico's current account is in deficit
c. The U.S. current account is in deficit
d. The U.S. current account is in equilibrium
14. If Canada runs a trade surplus with Mexico and exchange rates are floating:
a. The peso will depreciate relative to the dollar
b. The dollar will depreciate relative to the peso
c. The prices of all foreign goods will fall for Canadians
d. The prices of all foreign goods will rise for Canadians
15. If Mexico's labor productivity rises relative to Europe's labor productivity:
a. The peso tends to depreciate against the euro in the short run
b. The peso tends to appreciate against the euro in the short run
c. The peso tends to depreciate against the euro in the long run
d. The peso tends to appreciate against the euro in the long run
16. The international exchange value of the U.S. dollar is determined by:
a. The rate of inflation in the United States
b. The number of dollars printed by the U.S. government
c. The international demand and supply for dollars
d. The monetary value of gold held at Fort Knox, Kentucky
17. For the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from:
a. The United States to Japan, causing the dollar to depreciate
b. The United States to Japan, causing the dollar to appreciate
c. Japan to the United States, causing the yen to depreciate
d. Japan to the United States, causing the yen to appreciate
18. For the United States, suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause investment funds to flow from:
a. The United States to Japan, causing the dollar to depreciate
b. The United States to Japan, causing the dollar to appreciate
c. Japan to the United States, causing the yen to depreciate
d. Japan to the United States, causing the yen to appreciate
19. Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:
a. An increase in the demand for imports and an increase in the demand for foreign currency
b. An increase in the demand for imports and a decrease in the demand for foreign currency
c. A decrease in the demand for imports and an increase in the demand for foreign currency
d. A decrease in the demand for imports and a decrease in the demand for foreign currency
20. Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger:
a. An increase in the demand for imports and an increase in the demand for foreign currency
b. An increase in the demand for imports and a decrease in the demand for foreign currency
c. A decrease in the demand for imports and an increase in the demand for foreign currency
d. A decrease in the demand for imports and a decrease in the demand for foreign currency
21. Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in:
a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar
b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar
d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
22. Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in:
a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar
b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar
d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
23. Which example of market expectations causes the dollar to appreciate against the yen--expectations that the U.S. economy will have:
a. Faster economic growth than Japan
b. Higher future interest rates than Japan
c. More rapid money supply growth than Japan
d. Higher inflation rates than Japan
24. Which example of market expectations causes the dollar to depreciate against the yen--expectations that the U.S. economy will have:
a. Faster economic growth than Japan
b. Higher future interest rates than Japan
c. Less rapid money supply growth than Japan
d. Lower inflation rates than Japan
25. For an American investor, the expected rate of return on European securities depends on all of the following factors except the:
a. Rate of return on equivalent American securities
b. The current exchange rate between the dollar and the pound
c. Exchange rate anticipated to prevail when the securities mature
d. Interest rate paid on European securities
26. Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro?
a. Relatively low interest rates in the United States
b. Relatively high labor productivity in the United States
c. Tariffs levied by the United States on steel imports from Europe
d. Stronger American preferences for goods produced in Europe
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