e.
an increase in the supply of yen.
97. Assume a one year U.S. bond pays 4.0% interest and a similar U.K. bond pays 5.2% interest. Which of the following
changes will establish interest rate parity?
a.
The British pound would be expected to appreciate by 1.2% against the U.S. dollar.
b.
The U.S. dollar would be expected to depreciate by 1.2% against the British pound.
c.
The British pound would be expected to depreciate by 1.2% against the U.S. dollar.
d.
The British pound would be expected to appreciate by 9.2% against the U.S. dollar.
e.
The U.S. dollar would be expected to appreciate by 9.2% against the British pound.
Challenging
MACR.BOYE.16.111 – ch. 21, 9
United States – International Trade and Finance
Interest Rates and Exchange Rates
Application
98. Suppose the 12-month interest rate on a U.S. Treasury bill is 16 percent, and the one-year interest rate on a
comparable British Treasury bill is 6 percent. The exchange rate today is $2.00 per pound. What must be the expected
exchange rate at maturity for interest rate parity to hold?
a.
$1.00 = 0.50 pound
b.
$1.00 = 0.75 pound
c.
1 pound = $2.20
d.
1 pound = $1.80
e.
1 pound = $2.50
Challenging
MACR.BOYE.16.111 – ch. 21, 9
Interest Rates and Exchange Rates
Application
99. Countries that maintain a constant gold value for their currencies are said to be on a gold standard.
a.
True
b.
False
True
Easy
MACR.BOYE.16.103 – ch. 21, 1
Moderate
MACR.BOYE.16.111 – ch. 21, 9
Interest Rates and Exchange Rates
Comprehension
100. Suppose that the price of an ounce of gold is 120 pesos in Mexico and 2,400 yen in Japan. Then the Japanese yen is
worth two hundred times the value of a Mexican peso.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.103 – ch. 21, 1
Past and Current Exchange-Rate Adjustments
101. The gold standard ended in the 1970s because the gold supplies failed to keep pace with the increase in money
supplies required for industrialization and rapid economic growth witnessed in this era.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.103 – ch. 21, 1
Past and Current Exchange-Rate Adjustments
Knowledge
102. The exchange-rate arrangement that emerged from the Bretton Woods conference is often called a managed float
standard.
a.
True
b.
False
False
Easy
MACR.BOYE.16.103 – ch. 21, 1
United States – International Trade and Finance
Past and Current Exchange-Rate Adjustments
Knowledge
103. No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed
exchange rates.
a.
True
b.
False
Easy
United States – Analytic – BB-Legal
Past and Current Exchange-Rate Adjustments
Knowledge
104. Under both the gold standard and the gold exchange standard countries bought and sold U.S. dollars to maintain a
fixed exchange rate with the dollar.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.103 – ch. 21, 1
United States – International Trade and Finance
Knowledge
105. The World Bank was created to help finance economic development in poor countries.
a.
True
b.
False
106. The IMF comprises of 50 member countries including all developed countries, and a few countries of Asia and Latin
America.
a.
True
b.
False
False
Easy
MACR.BOYE.16.103 – ch. 21, 1
United States – International Trade and Finance
Past and Current Exchange-Rate Adjustments
Knowledge
107. If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian
dollars per ounce, we can say that the Australian dollar has appreciated in value.
a.
True
b.
False
Easy
United States – International Trade and Finance
United States – International Trade and Finance
Past and Current Exchange-Rate Adjustments
Knowledge
108. World Bank funds are largely acquired through interest earned on the deposits of member nations.
a.
True
b.
False
False
Easy
MACR.BOYE.16.103 – ch. 21, 1
Past and Current Exchange-Rate Adjustments
Knowledge
109. When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-
pegged rate.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.104 – ch. 21, 2
Knowledge
110. The euro floats against other currencies, but the member nations of the euro have no separate national money. For
this reason, Spain, that uses the euro as its currency is listed under the managed float arrangement.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.104 – ch. 21, 2
United States – Reflective Thinking
Past and Current Exchange-Rate Adjustments
Application
111. A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar
price of Korean won, the more won will be demanded.
a.
True
b.
False
Moderate
United States – International Trade and Finance
United States – Reflective Thinking
Past and Current Exchange-Rate Adjustments
Application
112. Fixed exchange rates serve as a constraint on inflationary government policies.
a.
True
b.
False
True
Easy
MACR.BOYE.16.105 – ch. 21, 3
Fixed or Floating Exchange Rates
Knowledge
113. An increase in the demand for rubles causes the ruble to appreciate.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.106 – ch. 21, 4
United States – Reflective Thinking
Fixed or Floating Exchange Rates
Application
114. Because of their greediness, speculators are considered bad for exchange-rate markets.
a.
True
b.
False
True
Easy
MACR.BOYE.16.106 – ch. 21, 4
United States – International Trade and Finance
Fixed or Floating Exchange Rates
Knowledge
115. Demand for U.S. dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.
a.
True
b.
False
False
Moderate
United States – International Trade and Finance
Application
United States – Reflective Thinking
Fixed or Floating Exchange Rates
Application
116. A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market
supply and demand curves.
a.
True
b.
False
117. Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of
the world.
a.
True
b.
False
False
Easy
MACR.BOYE.16.107 – ch. 21, 5
Fixed or Floating Exchange Rates
Knowledge
118. Fixed exchange rates allow countries to formulate their economic policies independently of other nations.
a.
True
b.
False
False
Easy
MACR.BOYE.16.107 – ch. 21, 5
United States – International Trade and Finance
Fixed or Floating Exchange Rates
Knowledge
119. The exchange rate affects the trade in goods and services between California and NewYork.
a.
True
b.
False
False
Easy
MACR.BOYE.16.108 – ch. 21, 6
Prices and Exchange Rates
False
Moderate
MACR.BOYE.16.106 – ch. 21, 4
Fixed or Floating Exchange Rates
Knowledge
120. Appreciation of the dollar means that now it takes more dollars to buy one unit of foreign currency.
a.
True
b.
False
121. If the euro per dollar exchange rate changes from $1 = 0.8 euros to $1 = 0.7 euros, it implies that the euro has
depreciated against the dollar.
a.
True
b.
False
False
Moderate
United States – Reflective Thinking
Analysis
122. When a U.S. importer needs $20,000 to settle an invoice for 228,000 Uruguayan pesos, the price of 1 dollar is 11.4
Uruguayan pesos.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.108 – ch. 21, 6
Application
123. When the domestic currency depreciates, domestic goods become more expensive to foreign buyers.
a.
True
b.
False
False
Moderate
Prices and Exchange Rates
Comprehension
124. Suppose the yen value of a $100,000 wheat import contract rises from ¥12,000,000 to ¥13,000,000 between the
False
Moderate
MACR.BOYE.16.108 – ch. 21, 6
Prices and Exchange Rates
Knowledge
contract and the payment date. This implies that the yen value of 1 dollar has declined so that, other things equal, we can
expect an increase in Japanese demand for U.S. goods.
a.
True
b.
False
125. Other things equal, an appreciation of the Algerian dinar in relation to the euro will act to increase Algerian demand
for European goods and to decrease European demand for Algerian goods.
a.
True
b.
False
True
Challenging
MACR.BOYE.16.108 – ch. 21, 6
United States – Reflective Thinking
Prices and Exchange Rates
Application
126. Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.108 – ch. 21, 6
Prices and Exchange Rates
Knowledge
127. Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the
domestic price level.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.109 – ch. 21, 7
Prices and Exchange Rates
False
Challenging
MACR.BOYE.16.108 – ch. 21, 6
Prices and Exchange Rates
Application
128. Suppose a 10-mile taxi ride costs £6.50 in London and $10.00 in Los Angeles. If the exchange rate is £1 = $1.70
purchasing power parity holds.
a.
True
b.
False
129. The dollar return on a foreign investment is less than the interest rate on the foreign asset, if the foreign currency
depreciates against the U.S. dollar between the purchase date and the maturity date.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.110 – ch. 21, 8
United States – Reflective Thinking
Interest Rates and Exchange Rates
Comprehension
130. Assume that a British investor buys a one-year U.S. Treasury bill that pays 6 percent annual interest. Given a yield of
4 percent on a comparable British Treasury bill, the U.S. dollar must depreciate 2 percent against the British pound during
the year for interest rate parity to hold.
a.
True
b.
False
True
Challenging
MACR.BOYE.16.110 – ch. 21, 8
Interest Rates and Exchange Rates
Application
131. If interest rates in Europe fall below interest rates in the United States, then, other things equal, the demand for euros
will decrease.
a.
True
b.
False
True
Moderate
Interest Rates and Exchange Rates
False
Challenging
MACR.BOYE.16.109 – ch. 21, 7
Prices and Exchange Rates
Application
132. To ensure interest rate parity, a decrease in the interest rate on Euroyen relative to Eurodollar deposits will require a
greater expected appreciation of the Japanese yen against the U.S. dollar.
a.
True
b.
False
Moderate
Comprehension