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Chapter 33 Exchange Rates and the Balance of Payments 669
33) Which of the following will lead to a depreciation of the U.S. dollar against the British pound?
A) An increase in British demand for U.S. imports
B) An increase in U.S. interest rates
C) A decrease in British demand for U.S. assets
D) A decrease in U.S. demand for British goods
34) If U.S. residents boycotts French goods, this will
A) reduce the demand for euros in the foreign exchange market.
B) increase the demand for euros in the foreign exchange market.
C) cause the euro to appreciate.
D) have no effect on the euro.
35) Which of the following will lead to an appreciation of the U.S. dollar against the British pound?
A) An increase in British demand for U.S. imports
B) An increase in U.S. demand for British imports
C) An increase in British interest rates
D) A decrease in British demand for U.S. assets
36) When the dollar price of a British pound is $0.20, it is correct to state that an American traveling
in England will receive ________ pounds per dollar.
A) 2 B) 4 C) 5 D) 20
37) When a dinner in Bulgaria costs 150 Bulgarian levas, it will cost a U.S. resident ________ dollars,
if the exchange rate is 1.5 Bulgarian levas to the dollar.
A) $10 B) $75 C) $120 D) $150
38) Under a flexible exchange rate system, an increase in the value of a domestic currency in terms
of other currencies is referred to as
A) an appreciation. B) a depreciation.
C) a devaluation. D) a revaluation.
39) If the foreign exchange rate for 1 Hungarian forint is 0.5 cent, then
A) a dinner priced at 400 forints will cost $20.
B) a wine that sells for 600 forints will cost $3,000.
C) a Big Mac hamburger priced at 50 forints will cost $1.
D) a hotel room renting for 40,000 forints will cost $200.
40) Demand for the Brazilian real is
A) determined by how well the real maintains its value.
B) a function of the Brazilian banking system.
C) derived from the supply of U.S. dollars.
D) derived from the demand for Brazilian goods.
41) An increase in the U.S. interest rate will most likely
A) reduce the attractiveness of investment in the United States.
B) lead to a decrease in the value of the U.S. dollar.
C) lead to an inflow of funds to the United States and an appreciation of the dollar.
D) provide a stimulus to U.S. export industries.
42) Under a flexible exchange rate system, one factor that does NOT directly affect rates of exchange
is
A) changes in the inflation rate in each country.
B) changes in productivity in each country.
C) changes in gold holdings in each country.
D) changes in economic stability in each country.
43) All of the following are market determinants of exchange rates EXCEPT
A) changes in productivity in one country relative to another.
B) changes in real interest rates in one country relative to another.
C) changes in product preferences between countries.
D) changes in the relative prices of goods and services within a country.
44) If the United States looks more economically and politically stable relative to the rest of the
world, this will
A) decrease the demand for dollars.
B) increase the demand for dollars.
C) have no effect on the demand for dollars.
D) stop all trading between the currencies of the United States and other countries.
45) Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners,
we expect
A) political instability in the United States.
B) a worsening of the U.S. balance of payments.
C) an appreciation of U.S. currency.
D) that a dirty float will emerge.
46) The demand for dollars will increase when
A) real interest rates in the United States fall.
B) U.S. labor productivity increases relative to the world.
C) the world is perceived as more stable than it used to be.
D) U.S. residents develop a taste for more imported products.
47) The market in which households, firms and governments buy and sell national currencies is
known as
A) the foreign exchange market. B) standard drawing rights.
C) the exchange rate. D) flexible exchange rates.
48) The foreign exchange market is
A) a market in which exchange rates are allowed to fluctuate in the open market in response
to changes in supply and demand.
B) the increase in the exchange value of one nation s currency in terms of an other nation.
C) a market in which households, firms, and governments buy and sell national currencies.
D) the decrease in the exchange value of one nation s currency in terms of another nation.
49) Caitlin has just decided to order a computer that is made in Japan. She needs to convert U.S.
dollars for Japanese yen. This conversion takes place in the
A) International Monetary Fund. B) target zone.
C) foreign exchange markets. D) SDRs.
50) Exchange rates that are allowed to fluctuate in response to changes in supply and demand is
known as
A) the foreign exchange markets. B) standard drawing rights.
C) fixed exchange rates. D) flexible exchange rates.
51) The price of one currency in terms off another currency is called
A) foreign reserves. B) the foreign exchange rate.
C) the foreign trade deficit. D) the balance of payments.
52) The price of one currency in terms of another is the
A) price of gold. B) price of a SDR.
C) foreign exchange rate. D) price of foreign stock.
53) If the foreign exchange rate is 70 cents for one Swiss franc, then
A) a car that costs 40,000 francs will cost $7,143.00.
B) a wine that costs 200 francs will cost $14.00.
C) a clock that costs 500 francs will cost $350.00.
D) a house that costs 100,000 francs will cost $700,000.00.
54) If the foreign exchange rate is one dollar for 10 South African rand, then how many dollars are
needed to purchase an item that costs 400 rand?
A) 10 B) 40 C) 400 D) 4,000
55) The demand for Canadian cheese by a U.S. store is also a
A) demand for Canadian dollars. B) demand for SDRs.
C) supply of U.S. dollars. D) supply of Canadian dollars.
56) Every transaction concerning the importation of goods into the United States constitutes a
A) supply of foreign currency with no effect on the market for the dollar.
B) demand for dollars with no effect on markets for foreign currencies.
C) supply of foreign currencies and a demand for dollars.
D) demand for foreign currencies and a supply of dollars.
57) Every transaction concerning the exportation of goods from the United States constitutes a
A) supply of foreign currency with no effect on the market for the dollar.
B) demand for dollars with no effect on markets for foreign currencies.
C) supply of foreign currencies and a demand for dollars.
D) demand for foreign currencies and a supply of dollars.
58) If the price of the Brazilian real is 60 cents and a U.S. resident purchases a
Brazilian manufactured item for 60,000 real, there will be
A) a quantity demanded of 60,000 real and a quantity supplied of $60,000.
B) a quantity demanded of 60,000 real and a quantity supplied of $36,000.
C) a quantity demanded of 60,000 real, but we cannot determine the effect in the market for
dollars.
D) a quantity supplied of 60,000 real and a quantity demanded of 60,000 yen.
59) The term flexible exchange rates refers to
A) a situation in which exchange rates are allowed to fluctuate in the open market in response
to changes in supply and demand.
B) the increase in the exchange value of one nation s currency in terms of an other nation.
C) a nation in which households, firms, and governments buy and sell national currencies.
D) the decrease in the exchange value of one nation s currency in terms of another nation.
60) Under flexible exchange rates, the exchange rate is set by
A) the International Monetary Fund.
B) the U.S. Federal Reserve s Board of Governors.
C) the intersection of demand and supply curves in the currency markets.
D) negotiations among central banks of the major industrial powers.
61) Flexible exchange rates occur when
A) speculators bet that a currency will soon depreciate.
B) governments and central banks spend foreign exchange to prop an exchange rate at a
certain level.
C) no one knows the true value of a currency.
D) exchange rates are determined by forces of supply and demand.
62) Suppose the U.S. dollar price of the Japanese yen decreases. Given this information, which of
the following is correct?
A) the dollar has appreciated. B) the dollar has depreciated.
C) the yen has appreciated. D) the yen price of the dollar decreased.
63) An appreciation of a nation s currency is
A) a situation in which exchange rates are allowed to fluctuate in the open market in response
to changes in supply and demand.
B) the increase in the exchange value of one nation s currency in terms of an other nation.
C) a nation in which households, firms, and governments buy and sell national currencies.
D) the decrease in the exchange value of one nation s currency in terms of another nation.
64) A depreciation of a nation s currency is
A) a situation in which exchange rates are allowed to fluctuate in the open market in response
to changes in supply and demand.
B) the increase in the exchange value of one nation s currency in terms of an other nation.
C) a nation in which households, firms, and governments buy and sell national currencies.
D) the decrease in the exchange value of one nation s currency in terms of another nation.
65) A U.S. automobile dealer has ordered a fleet of Japanese cars worth 10 million yen. The terms of
payment is C.O.D. (cash on delivery). At the time the order was placed, the exchange rate was
100 yen per U.S. dollar. When the fleet arrived the exchange rate had become 200 yen per U.S.
dollar.
A) This change in the foreign exchange rate will hurt the U.S. importer.
B) This change in the foreign exchange rate will hurt the Japanese exporter.
C) This change in the foreign exchange rate will benefit the U.S. importer.
D) This change in the foreign exchange rate will benefit the Japanese exporter.
66) The supply of dollars in foreign exchange markets is
A) determined by the Federal Reserve s Board of Governors.
B) determined by the demand for U.S. goods.
C) determined by the U.S. demand for foreign goods.
D) a function of the international banking system.
67) If the dollar used to buy 360 yen and now buys 100 yen, there has been
A) a decrease in the demand for yen. B) depreciation of the yen.
C) depreciation of the dollar. D) appreciation of the dollar.
68) If the dollar used to buy 100 yen and now buys 360 yen, there has been
A) appreciation of the dollar. B) depreciation of the dollar.
C) appreciation of the yen. D) an increase in special drawing rights.
69) If people in the United States buy more of a foreign good when its price falls, then
A) the demand curve for U.S. dollars will slope up.
B) the supply curve for U.S. dollars will slope up.
C) the exchange rate will increase when there is inflation.
D) fixed exchange rates will make foreign exchange markets more efficient.
70) An appreciation of the U.S. dollar relative to the Japanese yen causes
A) A lower dollar price of Japanese goods which induces the U.S. to increase their
purchasing of Japanese goods.
B) the quantity demanded of U.S. dollars to increase because the Japanese want to buy more
U.S. goods.
C) the Japanese to buy more U.S. goods, causing the dollars to appreciate further.
D) the U.S. to buy less Japanese goods, causing the U.S. to depreciate.
71) An increase in the U.S. demand for Japanese yen causes
A) an increase in the dollar price of a yen.
B) an increase in the yen price of a dollar.
C) an increase in the demand for U.S. goods.
D) a decrease in the supply of yens.
72) Refer to the above figure. Suppose E is the original equilibrium. An increase in the U.S. demand
for Japanese made goods will lead to
A) a depreciation of the yen and an increase in the quantity of yen sold per week.
B) a depreciation of the yen and a decrease in the quantity of yen sold per week.
C) an appreciation of the yen and an increase in the quantity of yen sold per week.
D) an appreciation of the yen and a decrease in the quantity of yen sold per week.
73) Refer to the above figure. Suppose E is the original equilibrium. Japanese residents have
increased their demand for U.S. goods. This will lead to
A) a depreciation of the yen and an increase in the quantity of yens sold per week.
B) a depreciation of the yen and a decrease in the quantity of yens sold per week.
C) an appreciation of the yen and an increase in the quantity of yens sold per week.
D) an appreciation of the yen and a decrease in the quantity of yens sold per week.
74) Refer to the above figure. Suppose E is the original equilibrium. An increase in the demand for
dollars will be reflected in this figure by
A) an increase in the demand for yen as both imports and exports increase.
B) a decrease in the demand for yen as the U.S. balance of payments improves.
C) an increase in the supply of yen as Japan tries to buy more U.S. goods.
D) a decrease in the supply of yen as Japan is able to pay less for U.S. goods.
75) Which of the following will cause an increase in the demand for the Venezuelan currency, the
Venezuelan bolivar?
A) real interest rates in Venezuela fall
B) U.S. residents change preferences in favor of goods produced in the United States
C) real interest rates in the United States increase
D) none of the above
76) If the U.S. interest rate, adjusted for people s expectation of inflation, increases sharply relative
to the rest of the world, then
A) there will be a decrease in the demand for dollars in foreign exchange markets.
B) there will be no change in the demand for dollars in foreign exchange markets but there
will be an increase in demand for foreign currency.
C) the dollar will appreciate.
D) the dollar will depreciate.
77) In the diagram above, which of the following could cause a movement from point E to point E ?
A)
J
apanese residents incomes rise, so they increase their purchases of U.S. goods.
B) the dollar depreciates, including Japanese residents to buy more U.S. goods.
C) U.S. residents incomes rise, so they increase their purchases of Japanese goods.
D) the dollar depreciates, inducing U.S. residents to buy more Japanese goods.
78) Refer to the above figure. Suppose the equilibrium moves from E to E . An event that could have
caused this movement is
A) an increase in the real interest rate in the United States.
B) an increase in U.S. productivity.
C) an increase in the perceived stability of the U.S. economy.
D) an increase in demand for Japanese produced goods by U.S. residents.
79) A market in which national currencies are traded by households, firms and governments, is
referred to as a(n)
A) foreign exchange market. B) fed funds market.
C) international reserves market. D) gold certificate market.
80) The price of one nation s currency in terms of the currency of another nation is called the
A) IMF rate. B) fed funds ratio.
C) exchange rate. D) discount rate.
81) If the exchange rate measured in euros per dollar increases, then
A) the dollar depreciates relative to the euro.
B) the euro appreciates relative to the dollar.
C) the euro depreciates relative to the dollar.
D) neither currency appreciates or depreciates.
82) A market in which businesses, households, and governments buy and sell national currencies is
A) the foreign exchange market. B) the currency exchange market.
C) the money exchange market. D) the dollar exchange market.
83) Assume the following exchange rates for today: $1 140 yen and 1 Danish krone $0.10. We can
conclude
A) 1 yen 280 kr. B) 1 yen 14 kr. C) 1 kr. 28 yen D) 1 kr. 14 yen
84) One source of the supply of dollars in the world is
A) the purchase of U.S. exports by foreign residents.
B) the sale of U.S. domestic assets to foreigner residents.
C) U.S. imports of foreign merchandise.
D) U.S. sales of gold to foreigner residents.
85) The exchange rate for a foreign currency that is determined by supply and demand is
A) a fixed exchange rate. B) a controlled exchange rate.
C) a constrained exchange rate. D) a flexible exchange rate.
86) An increase in the market clearing exchange value of the home nation s currency in terms of the
currency of another nation is a home currency
A) appreciation. B) depreciation. C) devaluation. D) revaluation.
87) A decrease in the market clearing exchange value of the home nation s currency in terms of the
currency of another nation is a home currency
A) appreciation. B) revaluation. C) depreciation. D) devaluation.
88) If the Mexican peso appreciates against the U.S. dollar
A) Mexican exports will become cheaper in the United States.
B) Mexican exports will become more expensive in the United States.
C) U.S. exports will become more expensive in Mexico.
D) there will be no change in the price of Mexican imports in the United States.
89) If the Japanese yen depreciates against the U.S. dollar
A) the price of Japanese imports to the United States decreases.
B) the price of United States exports to Japan decreases.
C) the price of Japanese imports from the United States will decrease.
D) there is no change in the price of Japanese exports to the United States.
90) The demand curve for Japanese yen will shift to the right when
A) there is a decrease in demand for Japanese made goods in the United States.
B) there is no change in the demand for Japanese made goods in the United States.
C) there is a decrease in the demand for U.S. made goods in Japan.
D) there is an increase in the demand for Japanese made goods in the United States.
91) When a Mexican resident buys a ukulele from a U.S. producer, there is a(n)
A) increase in the supply of dollars in the foreign exchange market.
B) decrease in the supply of dollars in the foreign exchange market.
C) increase in the demand for dollars in the foreign exchange market.
D) decrease in the demand for dollars in the foreign exchange market.
92) When a Japanese resident buys a good or service from a U.S. producer, there is a(n)
A) increase in the supply of yen in the foreign exchange market.
B) decrease in the supply of yen in the foreign exchange market.
C) increase in the demand for yen in the foreign exchange market.
D) decrease in the demand for yen in the foreign exchange market.
93) When numerous Japanese companies buy $100,000,000 worth of goods or services from U.S.
producers, ceteris paribus, there will be
A) appreciation in the value of the yen against the dollar.
B) depreciation in the value of the yen against the dollar.
C) depreciation of the dollar against the yen.
D) no change in values of the currencies.
94) If interest rates in Sweden go up relative to the rest of the world, the
A) demand for Swedish currency will fall. B) demand for Swedish currency will rise.
C) supply of Swedish currency will fall. D) supply of Swedish currency will rise.
95) Which of the following will cause a change in the exchange rate?
A) changes in real interest rates
B) changes in consumer preferences
C) changes in the perception of economic stability
D) all of the above
96) If there is a world wide fad for U.S. automobiles, the
A) demand for dollars will fall. B) demand for dollars will rise.
C) supply of dollars will fall. D) supply of dollars will rise.
97) If there is unrest in the Middle East that threatens the economic stability of Saudi Arabia, the
A) demand for Saudi Arabian currency will fall.
B) demand for Saudi Arabian currency will rise.
C) supply of Saudi Arabian currency will fall.
D) supply of Saudi Arabian currency will rise.
98) If there is unrest in the Middle East, and Saudi Arabian investors purchase German securities,
the
A) demand for Saudi Arabian currency will fall.
B) demand for Saudi Arabian currency will rise.
C) supply of Saudi Arabian currency will fall.
D) supply of Saudi Arabian currency will rise.
99) In March 2004, $1 was worth 220 Hungarian forints and in July 2004, $1 was worth 230
Hungarian forints. We can therefore conclude that
A) the Hungarian forint depreciated.
B) the Hungarian forint appreciated.
C) the U.S. dollar has depreciated.
D) the value of the U.S. dollar has fluctuated.
100) In the market for euros, the demand for euros () is
A) downward sloping, because at lower dollar prices for the euro, U.S. residents will buy
more European goods and services.
B) upward sloping, because at higher dollar prices for the euro, U.S. residents will buy more
European goods and services.
C) upward sloping, because at higher dollar prices for the euro, Europeans will buy more
U.S. goods and services.
D) horizontal, because dollar prices of euros and euro prices of dollars are directly related.
101) In the market for euros, the supply of euros () is
A) downward sloping
,
because lower dollar prices of euros mean that U.S. goods are cheaper
to Europeans.
B) downward sloping, because higher dollar prices of euros mean that U.S. goods are cheaper
to Europeans.
C) upward sloping, because higher dollar prices of euros means that U.S. goods are cheaper
to Europeans.
D) upward sloping, because lower dollar prices of euros means that U.S. goods are cheaper to
Europeans.
