1. The nominal exchange rate is the
a.
nominal interest rate in one country divided by the nominal interest rate in the other country.
b.
the ratio of a foreign country’s interest rate to the domestic interest rate.
c.
rate at which a person can trade the currency of one country for another.
d.
the real exchange rate minus the inflation rate.
2. If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs
a.
$1.80.
b.
$4.80.
c.
$5.
d.
None of the above is correct.
3. If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs
a.
125 Egyptian pounds
b.
50 Egyptian pounds
c.
5 Egyptian pounds
d.
None of the above is correct.
4. If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take
to buy a meal in Rio?
a.
40 and your purchase will increase Brazil’s net exports.
b.
10 and your purchase will increase Brazil’s net exports.
c.
40 and your purchase will decrease Brazil’s net exports.
d.
10 and your purchase will decrease Brazil’s net exports.
5. The dollar is said to depreciate against the euro if
a.
the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.
b.
the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods.
c.
the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods.
d.
the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.
6. The dollar is said to appreciate against the euro if
a.
the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.
b.
the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods.
c.
the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods.
d.
the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.
7. If you go to the bank and notice that a dollar buys more Japanese yen than it used to, then the dollar has
a.
appreciated. Other things the same, the appreciation would make Americans less likely to travel to Japan.
b.
appreciated. Other things the same, the appreciation would make Americans more likely to travel to Japan.
c.
depreciated. Other things the same, the depreciation would make Americans less likely to travel to Japan.
d.
depreciated. Other things the same, the depreciation would make Americans more likely to travel to Japan.
8. You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then
a.
the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars.
b.
the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars.
c.
the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
d.
the dollar buys more pesos. Your hotel room in Mexico will require more dollars.
9. You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean
peso, then other things the same
a.
it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
b.
it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.
c.
it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
d.
it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow.
10. You are staying in London over the summer and you have a number of dollars with you. If the dollar appreciates
relative to the British pound, then other things the same,
a.
the dollar would buy more pounds. The appreciation would discourage you from buying as many British
goods and services.
b.
the dollar would buy more pounds. The appreciation would encourage you to buy more British goods and
services.
c.
the dollar would buy fewer pounds. The appreciation would discourage you from buying as many British
goods and services.
d.
the dollar would buy fewer pounds. The appreciation would encourage you to buy more British goods and
services.
11. You are planning a graduation trip to Mexico. Other things the same, if the dollar depreciates relative to the peso, then
a.
the dollar buys fewer pesos. Your hotel room in Mexico will require fewer dollars.
b.
the dollar buys fewer pesos. Your hotel room in Mexico will require more dollars.
c.
the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.
d.
the dollar buys more pesos. Your hotel room in Mexico will require more dollars.
12. If you are vacationing in France and the dollar depreciates relative to the euro, then
a.
the dollar buys more euros. It will take fewer dollars to buy a good that costs 50 euros.
b.
the dollar buys more euros. It will take more dollars to buy a good that costs 50 euros.
c.
the dollar buys fewer euros. It will take fewer dollars to buy a good that costs 50 euros.
d.
the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.
13. If the exchange rate rises from .65 British pounds per dollar to .70 pounds per dollar, then compared to British goods,
U.S. goods become
a.
relatively more expensive for both British and U.S. residents.
b.
relatively more expensive for British residents and relatively less expensive for U.S. residents.
c.
relatively less expensive for British residents and relatively more expensive for U.S. residents.
d.
relatively less expensive for both British and U.S. residents.
14. Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar,
the dollar has
a.
appreciated and so buys more Algerian goods.
b.
appreciated and so buys fewer Algerian goods.
c.
depreciated and so buys more Algerian goods.
d.
depreciated and so buys fewer Algerian goods.
15. Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the
dollar has
a.
appreciated and so buys more Thai goods.
b.
appreciated and so buys fewer Thai goods.
c.
depreciated and so buys more Thai goods.
d.
depreciated and so buys fewer Thai goods.
16. Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar
a.
depreciates so U.S. goods become less expensive relative to foreign goods.
b.
depreciates so U.S. goods become more expensive relative to foreign goods.
c.
appreciates so U.S. goods become less expensive relative to foreign goods.
d.
appreciates so U.S. goods become more expensive relative to foreign goods.
17. Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then
the dollar
a.
appreciates and buys more Chinese goods.
b.
appreciates and buys fewer Chinese goods.
c.
depreciates and buys more Chinese goods.
d.
depreciates and buys fewer Chinese goods.
18. If the exchange rate changes from 148 Kazakhstan tenge per dollar to 155 Kazakhstan tenge per dollar, the dollar has
a.
appreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.
b.
appreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods.
c.
depreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.
d.
depreciated. Other things the same, it now takes more dollars to buy Kazakhstani goods.
19. If a dollar currently purchases 12.5 pesos and someone forecasts that in a year it will purchase 14 pesos, then the
forecast is given in
a.
real terms and implies the dollar will appreciate.
b.
real terms and implies the dollar will depreciate.
c.
nominal terms and implies the dollar will appreciate.
d.
nominal terms and implies the dollar will depreciate.
20. The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times
a.
U.S. prices minus foreign prices.
b.
U.S. prices divided by foreign prices.
c.
foreign prices divided by U.S. prices.
d.
None of the above is correct.
21. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then
the real exchange rate is defined as
a.
e(P*/P).
b.
e(P/P*).
c.
e + P*/P.
d.
e – P/P*.
22. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then
the real exchange rate is defined as
a.
P*/(Pe).
b.
P/(P*e).
c.
e(P*/P).
d.
e(P/P*),
23. Other things the same, an increase in the foreign price level
a.
reduces the real exchange rate. This reduction could be offset by a decrease in the domestic price level.
b.
reduces the real exchange rate. This reduction could be offset by an increase in the domestic price level.
c.
increases the real exchange rate. This increase could be offset by a decrease in the domestic price level.
d.
increases the real exchange rate. This increase could be offset by an increase in the domestic price level.
24. Other things the same, the real exchange rate between U.S. and Belgian goods would be higher if
a.
prices in the U.S. were higher, or the number of euro the dollar purchased were higher.
b.
prices in the U.S. were higher, or the number of euro the dollar purchased were lower.
c.
prices in the U.S. were lower, or the number of euro the dollar purchased were higher.
d.
prices in the U.S. were lower, or the number of euro the dollar purchased were lower.
25. Other things the same, the real exchange rate between American and Chinese goods would be higher if
a.
prices of Chinese goods were higher, or the number of yuan a dollar purchased was higher.
b.
prices of Chinese goods were higher, or the number of yuan a dollar purchased was lower.
c.
prices of Chinese goods were lower, or the number of yuan a dollar purchased was higher.
d.
prices of Chinese goods were lower, or the number of yuan a dollar purchased was lower.
26. Other things the same, the real exchange rate between American and French goods would be lower if
a.
prices of French goods were higher, or the number of euros a dollar purchased was higher.
b.
prices of French goods were higher, or the number of euros a dollar purchased was lower.
c.
prices of French goods were lower, or the number of euros a dollar purchased was higher.
d.
prices of French goods were lower, or the number of euros a dollar purchased was lower.
27. If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what
is the real exchange rate?
a.
2
b.
3/2
c.
2/3
d.
1/2
28. If the exchange rate is 1.25 New Zealand dollars per U.S dollar, the price of apples is $2 a pound in the U.S. and 1
New Zealand dollar per pound in New Zealand, what is the real exchange rate?
a.
2.50
b.
2
c.
1.25
d.
.75
29. If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3
player in the U.S. is $150, then what is the real exchange rate?
a.
1/.70 French MP3 players per U.S. MP3 player
b.
1 French MP3 players per U.S. MP3 player
c.
.70 French MP3 players per U.S. MP3 player.
d.
None of the above are correct.
30. The nominal exchange rate is 2 Barbados dollars per U.S. dollar. If the price of a good in Barbados is 3 Barbados
dollars and the price in the U.S. is 2 U.S. dollars, what is the real exchange rate to the nearest 100th?
a.
3 Barbados goods per U.S. good
b.
1.33 Barbados goods per U.S. good
c.
.75 Barbados goods per U.S. good
d.
none of the above is correct
31. Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs
6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest
beer, in that order?
a.
Cancun, New York
b.
Munich, Tokyo
c.
Tokyo, Munich
d.
New York, Cancun
32. The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 60 Indian rupees, or .8 euros per U.S.
dollar. A fast food breakfast costs $5 in the U.S., 30 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian
rupees in India, and 5 euros in France. According to these numbers, where is the real exchange rate between American
and foreign goods the lowest?
a.
Saudi Arabia
b.
Morocco
c.
India
d.
Britain
33. The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a
particular good are consistent with these exchange rates?
a.
$4 in the U.S. and 3 euros in Italy.
b.
$4 in the U.S. and 3.75 euros in Italy.
c.
$5 in the U.S. and 3 euros in Italy.
d.
$6 in the U.S. and 2.50 euros in Italy.
34. The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in
the U.S. it is $1,000. The real exchange rate is
a.
9/5
b.
5/4
c.
4/5
d.
None of the above are correct.
35. In the U.S. a digital camera costs $200. The same camera in London sells for 90 pounds. If the exchange rate were .50
pounds per dollar, then which of the following would be correct?
a.
The real exchange rate is greater than 1. A person in London with $200 could exchange them for pounds and
have more than enough to buy the camera there.
b.
The real exchange rate is greater than 1. A person in London with $200 could exchange them for pounds but
then wouldn’t have enough to buy the camera there.
c.
The real exchange rate is less than 1. A person in London with $200 could exchange them for pounds and have
more than enough to buy the camera there.
d.
The real exchange rate is less than 1. A person in London with $200 could exchange them for pounds but then
wouldn’t have enough to buy the camera.
36. The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700
Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real
exchange rate?
a.
700/600
b.
600/700
c.
700/720
d.
None of the above is correct.
37. In the United States, a three-pound can of coffee costs about $5. If the exchange rate is 0.8 euros per dollar and a
three-pound can of coffee in Belgium costs 7 euros. What is the real exchange rate?
a.
7/4 cans of Belgian coffee per can of U.S. coffee
b.
5.6/5 cans of Belgian coffee per can of U.S. coffee
c.
5/5.6 cans of Belgian coffee per can of U.S. coffee
d.
4/7 cans of Belgian coffee per can of U.S. coffee
38. In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot chocolate costs 6.5 units of
that country’s currency. If the exchange rate were 1.3 units of foreign currency per U.S. dollar, what is the real exchange
rate?
a.
1/2 cup of that country’s hot chocolate per cup of U.S. hot chocolate
b.
1 cup of that country’s hot chocolate per cup of U.S. hot chocolate
c.
2 cups of that country’s hot chocolate per cup of U.S. hot chocolate
d.
None of the above is correct.
39. In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8
euros per Australian dollar, what is the real exchange rate?
a.
4/2.4 pints of Irish beer per pint of Australian beer
b.
3/3.2 pint of Irish beer per pint of Australian beer
c.
3.2/3 pints of Irish beer per pint of Australian beer
d.
2.4/4 pints of Irish beer per pint of Australian beer
40. In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9
pounds per euro, what is the real exchange rate?
a.
4/2.7 loaves of British bread per loaf of French bread
b.
3.6/3 loaves of British bread per loaf of French bread
c.
3/3.6 loaves of British bread per loaf of French bread
d.
2.7/4 loaves of British bread per loaf of French bread
41. If a bushel of wheat costs $6.40 in the United States, costs 40 pesos in Mexico, and the nominal exchange rate is 10
pesos per dollar, then the real exchange rate is
a.
1.60
b.
1.25
c.
.625
d.
None of the above is correct.
42. The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars
in the U.S. and 120 bhat in Thailand. The real exchange rate is
a.
3/8
b.
2/3
c.
3/2
d.
8/3