Exchange-Rate Determination MCQs

Option A: 0.67 pesos = $1

Option B: 0.8 pesos = $1

Option C: 1.25 pesos = $1

Option D: 1.67 pesos = $1

Correct Answer: 0.67 pesos = $1 ✔

Option A: appreciation; trade surplus

Option B: appreciation; trade deficit

Option C: depreciation; trade surplus

Option D: depreciation; trade deficit

Correct Answer: depreciation; trade surplus ✔

Option A: flow from the United States to foreign countries

Option B: flow from foreign countries to the United States

Option C: remain totally in foreign countries

Option D: remain totally in the United States

Correct Answer: flow from the United States to foreign countries ✔

Option A: decrease in the money supply

Option B: increase in the money supply

Option C: decrease in the money demand

Option D: None of the above

Correct Answer: decrease in the money supply ✔

Option A: faster economic growth than Japan

Option B: higher future interest rates than Japan

Option C: more rapid money supply growth than japan

Option D: higher inflation rates than japan

Correct Answer: higher future interest rates than Japan ✔

Option A: increase in the demand for imports and an increase in the demand for foreign currency

Option B: increase in the demand for imports and a decrease in the demand for foreign currency

Option C: decrease in the demand for imports and an increase in the demand for foreign currency

Option D: decrease in the demand for imports and a decrease in the demand for foreign currency

Correct Answer: decrease in the demand for imports and a decrease in the demand for foreign currency ✔

Option A: The United States to Japan causing the dollar to depreciate

Option B: The United States to Japan causing the dollar to appreciate

Option C: The Japan to United States, causing the dollar to depreciate

Option D: The Japan to United States, causing the dollar to appreciate

Correct Answer: The United States to Japan causing the dollar to depreciate ✔

Option A: Japanese exports become more expensive to foreign buyers

Option B: Japanese exports become less expensive for foreign buyers

Option C: Japanese imports become less expensive for German buyers

Option D: Japanese imports become more prestigious to German buyers

Correct Answer: Japanese exports become less expensive for foreign buyers ✔

Option A: the Canadian current account balance is in surplus

Option B: the Swiss current account balance is in deficit

Option C: the Canadian current account balance is in equilibrium

Option D: the Swiss current account balance is in equilibrium

Correct Answer: the Swiss current account balance is in deficit ✔

Option A: an excess supply of that currency exists in the foreign exchange market

Option B: an excess demand for that currency exists in the foreign exchange market

Option C: the supply of foreign exchange shifts outward to the right

Option D: the supply of foreign exchange shifts backward to the left

Correct Answer: an excess supply of that currency exists in the foreign exchange market ✔

Option A: additional investment funds made available from overseas

Option B: lack of investor confidence in U.S fiscal policy

Option C: market expectations of rising inflation in the United States

Option D: American tourists overseas finding costs increasing

Correct Answer: additional investment funds made available from overseas ✔

Option A: $50 per pound

Option B: $1.00 per pound

Option C: $2.00 per pound

Option D: $8.00 per pound

Correct Answer: $2.00 per pound ✔

A. appreciate by 8 percent against the yen
B. depreciate by 8 percent against the yen
C. remain at its existing exchange rate
None of the above

Correct Answer: depreciate by 8 percent against the yen ✔

Option A: decrease the foreign demand for dollars causing the dollar to depreciate

Option B: decrease the foreign demand for dollars causing the dollar to appreciate

Option C: increase the foreign demand for dollars causing the dollar to depreciate

Option D: decrease the foreign demand for dollars causing the dollar to appreciate

Correct Answer: decrease the foreign demand for dollars causing the dollar to depreciate ✔

Option A: 20 pounds

Option B: 40 pounds

Option C: 60 pounds

Option D: 80 pounds

Correct Answer: 40 pounds ✔

Option A: domestic prices adjust slowly to shifts in demand

Option B: military spending during military conflicts

Option C: elasticities are smaller in the long run than the short run

Option D: elasticities are smaller in the short run than the long run

Correct Answer: elasticities are smaller in the short run than the long run ✔

Option A: appreciate because of an increase supply of peso denominated assets

Option B: depreciate because of an increased supply of peso denominated assets

Option C: appreciated because of an increased demand for peso denominated assets

Option D: depreciated because of an increased demand for peso denominated assets

Correct Answer: appreciated because of an increased demand for peso denominated assets ✔

Option A: inflation effects exchange rates

Option B: international capital flows affect exchange rates

Option C: governments sometimes impose trade restrictions such as tariffs and quotas

Option D: not all products are internationally tradeable

Correct Answer: inflation effects exchange rates ✔

Option A: the use of import tariffs and quotas by governments

Option B: the current account balance of each country

Option C: the relative growth rate of national output between countries

Option D: efforts of investors to balance their portfolios among financial assets denominated in different currencies

Correct Answer: efforts of investors to balance their portfolios among financial assets denominated in different currencies ✔

Option A: why exchange rates remain quite stable

Option B: why governments change their money supplies

Option C: long term exchange rate movements

Option D: short term exchange rate movements

Correct Answer: short term exchange rate movements ✔

Option A: judgmental analysis

Option B: fundamental analysis

Option C: technical analysis

Option D: nontechnical analysis

Correct Answer: fundamental analysis ✔

Option A: anticipate the dollar to depreciate against the euro

Option B: anticipate the dollar to appreciate against the euro

Option C: anticipate the dollar’s exchange rate against the euro to remain constant

Option D: have no anticipation concerning future movements in the dollar/euro exchange rate

Correct Answer: anticipate the dollar to appreciate against the euro ✔

Option A: increasing portfolio investment into the United States

Option B: decreasing portfolio investment into the United States

Option C: increasing direct investment into the United States

Option D: decreasing direct investment into the United States

Correct Answer: increasing direct investment into the United States ✔

Option A: increase in the money demand

Option B: decrease in the money demand

Option C: increase in the money demand

Option D: None of the above

Correct Answer: increase in the money demand ✔

Option A: faster growth than Japan

Option B: higher future interest rates than Japan

Option C: more rapid money supply growth than Japan

Option D: lower inflation rates than Japan

Correct Answer: faster growth than Japan ✔

Option A: increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option B: increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar

Option C: decrease in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option D: decrease in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar

Correct Answer: increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar ✔

Option A: increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option B: increase in the demand for foreign currency an increase in the supply of foreign currency and a appreciation in the dollar

Option C: decrease in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar

Option D: decrease in the demand for foreign currency and increase in the supply of foreign currency and a appreciation in the dollar

Correct Answer: increase in the demand for foreign currency a decrease in the supply of foreign currency and a depreciation in the dollar ✔

Option A: increasing in the demand for imports and an increasing in the demand for foreign currency

Option B: increase in the demand for imports and decrease in the demand for foreign currency

Option C: decrease in the demand for imports and an increase in the demand for foreign currency

Option D: decrease in the demand for imports and a decrease in the demand for foreign currency

Correct Answer: increasing in the demand for imports and an increasing in the demand for foreign currency ✔

Option A: the United States to Switzerland causing the dollar to depreciate

Option B: the United States to Switzerland causing the dollar to appreciate

Option C: Switzerland to the United States causing the franc to depreciate

Option D: Switzerland to the United States causing the franc to appreciate

Correct Answer: Switzerland to the United States causing the franc to depreciate ✔

Option A: the rate of inflation in the United States

Option B: the number of dollars printed by the U.S government

Option C: the international demand and supply for dollars

Option D: the monetary value of gold held at Fort Knox, Kentucky

Correct Answer: the international demand and supply for dollars ✔

Option A: the value of other currencies will rise relative to the dollar

Option B: the dollar will depreciate relative to other currencies

Option C: the price of foreign goods will become cheaper to Canadians

Option D: the price of foreign goods will rise for Canadians

Correct Answer: the price of foreign goods will become cheaper to Canadians ✔

Option A: the United States being considered a safe haven by foreign investors

Option B: relatively high real interest rates in the United States

Option C: confidence of foreign investors in the U.S economy

Option D: relatively high inflation rates in the United States

Correct Answer: relatively high inflation rates in the United States ✔

Option A: an excess demand for that currency exists in the foreign exchange market

Option B: an excess supply of the currency exists in the foreign exchange market

Option C: the demand for foreign exchange shifts outward to the right

Option D: the demand for foreign exchange shifts backward to the left

Correct Answer: an excess demand for that currency exists in the foreign exchange market ✔

Option A: large trade surpluses for the United States

Option B: high inflation rates in the United States

Option C: lack of investor confidence in U.S money policy

Option D: high interest rates in the United States

Correct Answer: high interest rates in the United States ✔

Option A: 200 pounds

Option B: 400 pounds

Option C: 600 pounds

Option D: 800 pounds

Correct Answer: 800 pounds ✔

Option A: decrease the foreign demand for dollars causing the dollar to depreciate

Option B: decrease the foreign demand for dollars causing the dollar to appreciate

Option C: increase the foreign demand for dollars causing the dollar to depreciate

Option D: increase the foreign demand for dollars causing the dollar to appreciate

Correct Answer: increase the foreign demand for dollars causing the dollar to appreciate ✔

Option A: the inflation rate in each country will necessarily equal zero

Option B: the inflation rate in each country will necessarily equal 1 percent

Option C: the exchange rates are said to be fixed pegged to each other

Option D: purchasing power parity holds

Correct Answer: purchasing power parity holds ✔

Option A: purchasing power parity theory

Option B: asset markets theory

Option C: monetary theory

Option D: balance of payments theory

Correct Answer: purchasing power parity theory ✔