True / False
1. In 2007, the value of the American dollar rose relative to the euro.
a.
True
b.
False
False
Easy
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
2. The exchange rate is the price of one currency in terms of another.
a.
True
b.
False
True
Easy
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
3. The exchange rate states the price, in terms of one currency, at which another currency can be bought.
a.
True
b.
False
True
Easy
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
4. There are at least three exchange rates between every pair of national currencies.
a.
True
b.
False
False
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
5. If the price of the dollar changes from 100 Japanese yen to 120 Japanese yen, the dollar has depreciated.
a.
True
b.
False
False
Moderate
6. When a government intentionally lowers the value of its currency, that is called depreciation.
a.
True
b.
False
False
Easy
7. The dollar has depreciated if it buys less of a foreign currency.
a.
True
b.
False
True
Easy
8. When one currency appreciates, another currency must depreciate.
a.
True
b.
False
True
Easy
9. Since its inception in January 1999 until 2011, the dollar has consistently appreciated against the euro.
a.
True
b.
False
False
Moderate
10. Fixed exchange rates are determined in free markets by the forces of demand and supply.
a.
True
b.
False
False
Easy
11. Exchange rates vis-a-vis the U.S. dollar have changed little over time.
a.
True
b.
False
False
Moderate
12. The demand for U.S. dollars is derived from foreign demand for U.S. exports.
a.
True
b.
False
True
Easy
13. The dollar appreciates against the euro when U.S. demand for European goods increases.
a.
True
b.
False
False
Moderate
14. The price of a currency will decrease when quantity demanded is less than quantity supplied.
a.
True
b.
False
True
Moderate
15. Higher interest rates in Iceland and the Baltic states in 2008-2009 were necessary to protect the value of their
currencies against capital flight.
a.
True
b.
False
True
Moderate
16. Purchasing power parity explains how the exchange rate will adjust to differences in price levels between two
countries.
a.
True
b.
False
True
Easy
17. Purchasing power parity explains how exchange rates cause price differences between two countries.
a.
True
b.
False
False
Moderate
18. Inflation plays a major role in determining whether a currency is appreciating or depreciating.
a.
True
b.
False
True
Moderate
19. Purchasing power parity is widely accepted as a better explainer of short-run changes in exchange rates than interest
rate effects.
a.
True
b.
False
False
Moderate
20. The Big Mac index uses prices of a common item to predict long-run changes in exchange rates.
a.
True
b.
False
True
Easy
21. An economic recession in the United States would shift the demand for foreign currencies outward, that is, increase
demand.
a.
True
b.
False
False
Difficult
22. Interest rate differentials can cause rapid fluctuations in short-run exchange rates.
a.
True
b.
False
True
Moderate
23. If British government bonds pay a higher interest rate than U.S. government bonds, the dollar should appreciate.
a.
True
b.
False
False
Difficult
24. In 2001, the Argentine peso was overvalued relative to the U.S. dollar.
a.
True
b.
False
True
Easy
25. An overvalued currency, such as the Argentinean peso in 2001, is an indicator of a balance of payments surplus.
a.
True
b.
False
False
Moderate
26. A country devaluing its currency reduces the official value of its currency.
a.
True
b.
False
True
Easy
27. The ability of a government to fix its currency’s exchange rate is limited by the size of its reserves.
a.
True
b.
False
True
Moderate
28. The gold standard established fixed exchange rates among all countries.
a.
True
b.
False
True
Easy
29. The gold standard prevented a nation from controlling its domestic economy through monetary policy.
a.
True
b.
False
True
Easy
30. Under the gold standard, a balance of payments surplus leads to an outflow of gold.
a.
True
b.
False
False
Moderate
31. The International Monetary Fund was established to manage the Bretton Woods System.
a.
True
b.
False
True
Easy
32. A fixed exchange rate system encourages speculators to attack weaker currencies.
a.
True
b.
False
True
Moderate
33. Balance of payments deficits arise whenever the exchange rate is set at an artificially high level.
a.
True
b.
False
True
Moderate
34. A deficit country, like Argentina in 2001, must follow restrictive monetary and fiscal policy in order to maintain a
fixed exchange rate.
a.
True
b.
False
True
Moderate
35. Countries experiencing balance of payments surpluses are usually eager to inflate their economies.
a.
True
b.
False
False
Moderate
36. A strong dollar helps U.S. exporters and hurts importers.
a.
True
b.
False
False
Moderate
37. A freely floating exchange rate brings some risks to people who are actively engaged in foreign trade.
a.
True
b.
False
True
Easy
38. In general, speculators tend to make a floating exchange rate system more stable.
a.
True
b.
False
True
Moderate
39. When a government influences the exchange rate of its currency, it is said to be practicing “dirty floating.”
a.
True
b.
False
True
Easy
40. The currency of the European Union, the euro, was established as part of the Bretton Woods agreements.
a.
True
b.
False
False
Easy
41. The purchasing power parity theory of exchange rate determination holds that the exchange rate between any two
national currencies is fixed to reflect differences in the price levels in the two countries.
a.
True
b.
False
False
Easy
42. The Big Mac index is a measure of how well the purchasing power parity theory works.
a.
True
b.
False
True
Moderate
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Exchange Rate Determination in a Free Market
43. One disadvantage of the gold standard was that no nation had control of its domestic monetary policies.
a.
True
b.
False
True
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
A Bit of History: The Gold Standard and the Bretton Woods System
Multiple Choice
44. In 2007, the value of the U.S. dollar
a.
b.
c.
d.
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
45. From the beginning of 2007, the value of the U.S. dollar
a.
dropped sharply against major currencies.
b.
increased mildly against major currencies.
c.
remained stable relative to major currencies.
d.
fluctuated with no major trend against major currencies.
a
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
What Are Exchange Rates?
46. When goods or services cross international borders
a.
countries must ship gold to make payment.
b.
money must generally move in the opposite direction.
c.
a future shipment must be made to offset the current purchase.
d.
payment must be made in another good, using barter.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
47. The exchange rate
a.
is the ratio of two countries’ GDPs.
b.
is the rate at which one country’s money is flowing into another country.
c.
states the price of one currency in terms of another currency.
d.
is closely related to the concept of absolute advantage.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
What Are Exchange Rates?
48. At any given moment there is one exchange rate
a.
for currencies in the free world.
b.
between every pair of currencies.
c.
for all the world’s currencies.
d.
established by the Federal Reserve Board.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
49. There is an exchange rate between
a.
every pair of currencies.
b.
the world’s major currencies but not between the currencies of less-developed countries.
c.
currencies on a fixed-exchange rate system but not for those on a floating-rate system.
d.
the currencies of the European Union but not for the nations outside the European Union.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
50. The exchange rate is
a.
another term for “interest rate.”
b.
another term for “growth rate.”
c.
the rate at which goods trade for one another across international borders.
d.
the price of one currency in terms of another currency.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
What Are Exchange Rates?
51. Appreciation is the term used to describe
a.
the conversion of one currency into another currency in the free market
b.
a reduction in the official value of a currency.
c.
the upward movement of currencies in a free market.
d.
an increase in the official value of a currency.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
What Are Exchange Rates?
52. If the dollar appreciates, it can be said that
a.
foreigners respect the United States more.
b.
it increases in value within the United States.
c.
other currencies depreciate.
d.
it takes more dollars to buy foreign currencies.
c
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
What Are Exchange Rates?
53. If the dollar depreciates, it can be said that
a.
foreign countries no longer respect the United States.
b.
it falls in value within the United States.
c.
it takes fewer dollars to buy foreign currencies.
d.
other currencies appreciate.
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
What Are Exchange Rates?
54. On May 12, 2011, the U.S. dollar was worth 0.61 British pounds. How many dollars did it take to buy one British
pound?
a.
1.19
b.
1.61
c.
1.64
d.
2.19
c
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
BLOOMS: Application
55. On May 12, 2011, it cost U.S. $1.64 to buy one British pound. How many British pounds would U.S. $1 buy?
a.
0.56
b.
0.61
c.
1.64
d.
2.64
Moderate
56. On May 12, 2011, the U.S. dollar was worth 28 Russian rubles. How many U.S. dollars did it take to buy one Russian
ruble?
a.
0.01
b.
0.04
c.
0.28
d.
0.40
Moderate
57. On May 12, 2011, it cost U.S. $.04 to buy one Russian ruble. How many Russian rubles would U.S. $1 buy?
a.
40
b.
33
c.
25
d.
14
c
Moderate
58. On May 12, 2011, it cost U.S. $1.44 to buy one euro. How many euros would U.S. $1 buy?
a.
0.69
b.
1.44
c.
1.69
d.
2.44
a
Moderate
International trade and finance
What Are Exchange Rates?
BLOOMS: Application
59. On May 12, 2011 the U.S. dollar was worth 0.70 euros. How many dollars did it take to buy one euro?
a.
0.70
b.
1.43
c.
1.70
d.
2.70
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
60. Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?
a.
No, a currency rises or falls against all currencies.
b.
No, this could happen only under the gold standard.
c.
Yes, but only if all governments agree on the new rates.
d.
Yes, this is possible in a world of floating rates.
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
What Are Exchange Rates?
61. If a currency decreases in value as a result of government decree rather than market forces, the process is known as
a.
devaluation.
b.
depreciation.
c.
deflation.
d.
degeneration.
a
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
What Are Exchange Rates?
62. The rate at which one currency is traded for another is called a(n)
a.
prime rate.
b.
trade rate.
c.
exchange rate.
d.
money rate.
c
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
What Are Exchange Rates?
63. If a currency increases in value as a result of government decree rather than market forces, the process is known as
a.
reflation.
b.
revaluation.
c.
appreciation.
d.
value-added.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
What Are Exchange Rates?
64. If a currency increases in value in response to market forces, this process is known as
a.
reflation.
b.
revaluation.
c.
appreciation.
d.
value-added.
c
Easy
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
65. If a currency decreases in value in response to market forces, this process is known as
a.
devaluation.
b.
depreciation.
c.
deflation.
d.
degeneration.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
What Are Exchange Rates?
66. On May 11, 2011, it cost 11.601 Mexican pesos to buy one U.S. dollar. How many U.S. dollars did it take to buy a
Mexican peso?
a.
$11.11
b.
$10.82
c.
$8.92
d.
$0.09
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
67. If market forces change the exchange rate value of one dollar from 80 yen to 83.25 yen, then the dollar has
a.
appreciated.
b.
depreciated.
c.
been revalued.
d.
been devalued.
a
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
68. On June 3, 2005, it cost 1.22 U.S. dollars to buy one euro. How many euros did it take to buy one U.S. dollar?
a.
0.82 euros
b.
0.88 euros
c.
1.22 euros
d.
88 euros
a
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
BLOOMS: Application
69. The currency value of Agraria is set by government decree. Which of the following happens when the government
alters the exchange rate so that its currency can buy more units of foreign currency?
a.
Reflation
b.
Devaluation
c.
Appreciation
d.
Revaluation
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
70. Exchange rates determined by the forces of demand and supply are called
a.
fixed exchange rates.
b.
floating exchange rates.
c.
equilibrium exchange rates.
d.
dirty exchange rates.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Exchange Rate Determination in a Free Market
71. If the quantity supplied of euro were greater than the quantity demanded, then the price of the
a.
euro would rise.
b.
euro would fall.
c.
dollar would fall.