Question 1

A U.S.resident who wants to purchase a Japanese automobile:

Accepted Answer

A)  Will be supplying yen on the foreign exchange market
B)  Will make up part of the demand for dollars on the foreign exchange market
C)  Will make up part of the supply of dollars on the foreign exchange market
D)  Will not be a participant in the foreign exchange marketE) A) and B)
F) A) and C) C

Question 2

Ignoring risk differences, if we observe American investors purchasing foreign bonds when the U.S.interest rate is above the foreign interest rate, we could assume that:

Accepted Answer

A)  American investors lack good information
B)  These investors expect the dollar to appreciate over the life of their investment
C)  These investors expect the dollar to depreciate over the life of their investment
D)  These investors expect that U.S.inflation will increaseE) A) and D)
F) B) and D)

Question 3

In quoting exchange rates:

Accepted Answer

A)  One should always quote these as units of foreign currency over a unit of domestic currency
B)  One should always quote the rate as the units of domestic currency over a unit of foreign currency
C)  Usually one should quote the rate in such a way that the value is greater than one
D)  Each country's central bank determines how the rate is to be quotedE) A) and B)
F) A) and C) C

Question 4

A country that has a capital account deficit:

Accepted Answer

A)  Is a net seller of assets
B)  Is importing less than it exports
C)  Also has a current account deficit
D)  Is a net buyer of assetsE) A) and B)
F) All of the above

Question 5

Depreciation of the real exchange rate:

Accepted Answer

A)  Makes U.S.exports more expensive to foreigners
B)  Makes U.S.exports less expensive to foreigners
C)  Means a basket of U.S.goods would exchange for more foreign goods
D)  Means an appreciation of the nominal exchange rateE) A) and C)
F) A) and B)

Question 6

Briefly describe the foreign exchange market.

Accepted Answer

The foreign exchange market is enormous in terms of volume of transactions.On an average day, almost $2 trillion in foreign currency might be traded in a market that operates 24 hours a day.Significant foreign exchange trading takes place in London, New York, Tokyo, Singapore, Frankfurt and Zurich, with London having by far the greatest percentage of transactions (the U.K.is home to roughly one-third of foreign exchange trades).In terms of currency, though, the U.S.dollar is one side of roughly 90 percent of currency transactions.

Question 7

A country that has a capital account surplus:

Accepted Answer

A)  Is a net seller of assets
B)  Has a current account surplus
C)  Is a net buyer of assets
D)  Will see its currency remain steadyE) A) and B)
F) A) and C)

Question 8

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

Accepted Answer

A)  An American would be better off trading their bagels for European bagels
B)  A person from France would be better off trading their bagels for U.S.bagels
C)  The Theory of Purchasing Power Parity is working
D)  The nominal exchange rate and the real exchange rate are equalE) None of the above
F) All of the above

Question 9

The theory of purchasing power parity assumes:

Accepted Answer

A)  The real exchange and nominal exchange rates are fixed
B)  The nominal exchange rate is fixed but the real exchange rate is flexible
C)  The real exchange rate is fixed but the nominal exchange rate is flexible
D)  The real exchange rate varies with the inflation differentialE) None of the above
F) All of the above

Question 10

If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/$U.S., then the dollar price of the Japanese automobile is:

Accepted Answer

A)  22,727 yen
B)  $20,000
C)  $25,000
D)  $22,727E) A) and B)
F) C) and D)

Question 11

The nominal exchange rate:

Accepted Answer

A)  Is the price of a good in one country expressed in units of the same good in another country
B)  Is fixed by the central banks of countries
C)  Is the price of one country's currency stated in units of another country's currency
D)  Is adjusted once a year and is the price at which goods are tradedE) None of the above
F) All of the above

Question 12

In theory, the law of one price makes a lot of sense.So why do we see it fail so often?

Accepted Answer

The law of one price fails often because...

Question 13

The answer to the question of whether or not a U.S.dollar will buy more in the U.S.or in a foreign country is determined by:

Accepted Answer

A)  The nominal exchange rate
B)  The real exchange rate
C)  Whether the nominal exchange rate is > or 
D)  You cannot determine the answer until you travel to the foreign country and convert $ to the foreign currencyE) A) and B)
F) A) and C)

Question 14

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

Accepted Answer

A)  The nominal exchange rate is 0.74€/$
B)  This is a good example of the Theory of Purchasing Power of Parity working as it should
C)  The real exchange rate equals the nominal exchange rate
D)  The real exchange rate is 0.74 French bagel/1U.S.bagelE) C) and D)
F) A) and B)

Question 15

Considering the foreign exchange market, specifically the market for U.S.dollars and British pounds, who is supplying dollars in this market?

Accepted Answer

The supply of dollars on the foreign exc...

Question 16

An increase in the real interest rate on U.S.bonds, everything else equal, will have the following impact on the foreign exchange market:

Accepted Answer

A)  The demand for dollars will decrease
B)  The supply of dollars will increase
C)  The dollar will depreciate relative to foreign currencies
D)  The demand for dollars will increaseE) B) and C)
F) A) and D)

Question 17

Which of the following does not contribute to the failure of the law of one price?

Accepted Answer

A)  Tariffs
B)  Transportation costs
C)  Technical specifications
D)  Tastes are similar across countriesE) B) and D)
F) All of the above

Question 18

The theory of purchasing power parity says:

Accepted Answer

A)  The real exchange rate is always greater than one
B)  A dollar should buy the same goods no matter where in the world you go
C)  The dollar price of a basket of goods in the U.S.should equal the yen price of a basket of goods in Japan
D)  The real exchange rate is always less than oneE) A) and B)
F) C) and D)

Question 19

When a country's current account balance is added to its capital account balance, the sum should be:

Accepted Answer

A)  Twice the current account
B)  Zero
C)  Positive
D)  NegativeE) B) and C)
F) None of the above

Question 20

A country's capital account:

Accepted Answer

A)  Is synonymous with the current account
B)  Will be in a deficit position when the current account is in a deficit
C)  Will be in a surplus position if the current account is in a deficit position
D)  Reflects the sum of exports minus importsE) A) and B)
F) A) and C)

Exam 10: Foreign Exchange

A U.S.resident who wants to purchase a Japanese automobile:

Correct Answer
verified
C

Ignoring risk differences, if we observe American investors purchasing foreign bonds when the U.S.interest rate is above the foreign interest rate, we could assume that:

Correct Answer
verified

In quoting exchange rates:

Correct Answer
verified
C

A country that has a capital account deficit:

Correct Answer
verified

Depreciation of the real exchange rate:

Correct Answer
verified

Briefly describe the foreign exchange market.

A country that has a capital account surplus:

Correct Answer
verified

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

Correct Answer
verified

The theory of purchasing power parity assumes:

Correct Answer
verified

If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/$U.S., then the dollar price of the Japanese automobile is:

Correct Answer
verified

The nominal exchange rate:

Correct Answer
verified

In theory, the law of one price makes a lot of sense.So why do we see it fail so often?

Correct Answer
verified
The law of one price fails often because...
View Answer

The answer to the question of whether or not a U.S.dollar will buy more in the U.S.or in a foreign country is determined by:

Correct Answer
verified

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

Correct Answer
verified

Considering the foreign exchange market, specifically the market for U.S.dollars and British pounds, who is supplying dollars in this market?

Correct Answer
verified
The supply of dollars on the foreign exc...
View Answer

An increase in the real interest rate on U.S.bonds, everything else equal, will have the following impact on the foreign exchange market:

Correct Answer
verified

Which of the following does not contribute to the failure of the law of one price?

Correct Answer
verified

The theory of purchasing power parity says:

Correct Answer
verified

When a country's current account balance is added to its capital account balance, the sum should be:

Correct Answer
verified

A country's capital account:

Correct Answer
verified

Exam 10: Foreign Exchange

A U.S.resident who wants to purchase a Japanese automobile:

Correct AnswerverifiedC

Ignoring risk differences, if we observe American investors purchasing foreign bonds when the U.S.interest rate is above the foreign interest rate, we could assume that:

Correct AnswerverifiedShow Answer

In quoting exchange rates:

Correct AnswerverifiedC

A country that has a capital account deficit:

Correct AnswerverifiedShow Answer

Depreciation of the real exchange rate:

Correct AnswerverifiedShow Answer

Briefly describe the foreign exchange market.

A country that has a capital account surplus:

Correct AnswerverifiedShow Answer

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

Correct AnswerverifiedShow Answer

The theory of purchasing power parity assumes:

Correct AnswerverifiedShow Answer

If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/$U.S., then the dollar price of the Japanese automobile is:

Correct AnswerverifiedShow Answer

The nominal exchange rate:

Correct AnswerverifiedShow Answer

In theory, the law of one price makes a lot of sense.So why do we see it fail so often?

Correct AnswerverifiedThe law of one price fails often because...View AnswerShow Answer

The answer to the question of whether or not a U.S.dollar will buy more in the U.S.or in a foreign country is determined by:

Correct AnswerverifiedShow Answer

If the current exchange rate is 1€/1$U.S.and bagels cost 1€ in France and 1$ in the U.S.and the current exchange rate for bagels is 0.74 European bagel/1U.S.bagel and if the bagels are identical:

Correct AnswerverifiedShow Answer

Considering the foreign exchange market, specifically the market for U.S.dollars and British pounds, who is supplying dollars in this market?

Correct AnswerverifiedThe supply of dollars on the foreign exc...View AnswerShow Answer

An increase in the real interest rate on U.S.bonds, everything else equal, will have the following impact on the foreign exchange market:

Correct AnswerverifiedShow Answer

Which of the following does not contribute to the failure of the law of one price?

Correct AnswerverifiedShow Answer

The theory of purchasing power parity says:

Correct AnswerverifiedShow Answer

When a country's current account balance is added to its capital account balance, the sum should be:

Correct AnswerverifiedShow Answer

A country's capital account:

Correct AnswerverifiedShow Answer

Correct Answer
verified
C

Correct Answer
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Correct Answer
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C

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The law of one price fails often because...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The supply of dollars on the foreign exc...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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