ECO 305 WK 9 Quiz 8 Chapters 12 and 13

ECO 305 WK 9 Quiz 8 - Chapters 12 and 13

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

27. Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso?

a. Relatively high interest rates in Mexico

b. Relatively high labor productivity in Mexico

c. Tariffs applied by Mexico on computer imports from the United States

d. Stronger Mexican preferences for goods produced in the United States

28. Long-run determinants of the dollar"s exchange value include all of the following except:

a. Preferences of Americans for foreign produced goods

b. U.S. tariffs placed on imports of foreign produced goods

c. Productivity of the American worker

d. Interest rates in U.S. financial markets

29. Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?

a. Balance-of-payments approach

b. Purchasing-power-parity approach

c. Asset-markets approach

d. Monetary approach

30. According to the purchasing-power-parity theory, the U.S. dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of:

a. U.S. interest rates over foreign interest rates

b. Foreign interest rates over U.S. interest rates

c. U.S. inflation over foreign inflation

d. Foreign inflation over U.S. inflation

31. An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response.

a. Overshoot

b. Undershoot

c. Depreciate

d. Appreciate

32. Concerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and economic data.

a. Econometric analysis

b. Technical analysis

c. Judgmental analysis

d. Sunspot analysis

33. Concerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements.

a. Econometric analysis

b. Judgmental analysis

c. Technical analysis

d. Sunspot analysis

34. Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values.

a. Fundamental analysis

b. Technical analysis

c. Judgmental analysis

d. Sunspot analysis

35. Concerning exchange-rate determination, "market fundamentals" include all of the following except:

a. Monetary policy and fiscal policy

b. Profitability and riskiness of investments

c. Speculative opinion about future exchange rates

d. Productivity changes affecting production costs

36. In the short run, exchange rates respond to market forces such as:

a. Inflation rates

b. Expectations of future exchange rates

c. Investment profitability

d. Government trade policy

37. Long-run exchange rate movements are governed by all of the following except:

a. National productivity levels

b. Consumer tastes and preferences

c. Rates of inflation

d. Interest rate levels

38. Exchange rate determination in the short run is underlied by which of the following assumptions:

a. Tariffs and quotas affect trade patterns only in the short run

b. Prices of goods and services affect trade patterns only in the short run

c. Expected returns on financial assets affect investment flows in the short run

d. Preferences for goods and services affect trade flows only in the short run

39. That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the:

a. Monetary approach to exchange-rate determination

b. Law of one price

c. Fundamentalist approach to exchange-rate determination

d. Exchange-rate-overshooting principle

40. The Canadian dollar would depreciate on the foreign exchange market if:

a. Canadian consumer tastes change in favor of goods produced domestically

b. The profitability of assets in Canada rises relative to the profitability of assets abroad

c. Canada experiences a disastrous wheat-crop failure, leading to imports of more wheat

d. Canada realizes technological improvements in the production of manufactured goods, leading to relatively low costs for Canada

41. The demand in the United States for yen will increase if, other things remaining equal:

a. Labor costs rise in Japan

b. Income rises in Japan

c. Prices rise in Japan

d. Interest rates rise in Japan

42. The quantity of Canadian dollars supplied to the foreign exchange market would increase if, other things remaining equal:

a. Preferences for imports rise in Canada

b. Labor productivity increases in Canada

c. Prices of goods and services decrease in Canada

d. Import tariffs rise in Canada

43. The U.S. demand for pesos would shift to the right if there occurred a (an):

a. Change in preferences toward U.S. manufactured goods

b. Increase in the dollar/peso exchange rate

c. Decrease in the U.S. population

d. Increase in the U.S. price level

44. The supply of francs, would shift to the right for all of the following reasons except:

a. An increase in Swiss real income

b. An increase in Swiss prices

c. An increase in the Swiss population

d. An increase in Swiss interest rates

Course Home Work

Tuesday, 30 June 2015

ECO 305 WK 9 Quiz 8 Chapters 12 and 13

ECO 305 WK 9 Quiz 8 Chapters 12 and 13

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