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Foreign Exchange

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9 views3 pages

Foreign Exchange

Uploaded by

loan Nguyễn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Foreign Exchange

1. If the U.S. dollar depreciates in terms of the Euro


A. The relative price of U.S. exports would rise.
B. European goods would be cheaper for Americans
C. American goods would be cheaper for Europeans
D. Americans would have to pay fewer dollars for one Euro.
2. What accounts for most of the activity in the foreign exchange market?
A. Currency trade among central banks
B. Trading currency between importers and exporters
C. Interbank trading
D. Trading by financial institutions
3. Which of the following is most actively traded currency?
A. USD
B. GBP
C. EUR
D. CNY
4. The statement “the yen rose today from 121 to 117” makes sense because
a. The U.S. gains when Japan loses.
b. These numbers measure yen per dollar, not dollars per yen.
c. These numbers are indexes, defined relative to a base of 100.
d. These numbers refer to time of day that the change took place.
e. The yen is a reserve currency.
5. Forward exchange rates are useful for those who wish to
a. Protect themselves from the risk that the exchange rate will change before a transaction is
completed.
b. Gamble that a currency will rise in value.
c. Gamble that a currency will fall in value.
d. Exchange currencies at a point in time in the future.
e. All of the above.
6. Based on the supply and demand model of the exchange rate, which of the following
should cause the Philippine peso to appreciate?
a. Concern abroad over the safety of Philippine toy exports.
b. An increase in remittances from Philippine workers abroad to their families at home.
c. Repayment by the Philippine government of its debt to the IMF.
d. Increased imports by Philippine consumers of electronics made in Taiwan.
e. An increase in Philippine savings that is used to purchase financial assets in Europe.
True-False Questions
1. Exchange rate in a free market is determined by both supply and demand conditions.
2. An increase in the demand for pounds makes the demand curve shift leftward.
3. Exchange rate index is the weighted average of the exchange rates between the domestic
currency and the nation’s most important trading partners with weighted given by relative
importance of the nation’s trade with each of these trade partners.
4. In forward market, currencies are bought and sold in the future for current delivery.
5. Exchange rate fluctuations slightly change the returns on assets denominated in foreign
currency.
Short Answer Questions
1. What are the advantages and disadvantages of a strengthening dollar?
2. Explain and show graphically the effect of a decrease in the expected future exchange rate
on the equilibrium exchange rate.
3. Explain and show graphically the effect of a decrease in the domestic nominal interest
rate due to a decrease in expected inflation on the equilibrium exchange rate.

4. Explain the law of one price and the theory of purchasing power parity. Why doesn’t
the purchasing power parity explain all exchange rate movements? What factors
determine long-run exchange rates?

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