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
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
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