1) assume floating exchange rates. suppose there are a 5% growth in u.s output and a
5% increase in foreign inflation. then, which of the following will offset these changes?
a.10% increase in money supply
b.10% decrease in money supply
c.10% increase in the exchange rate
d.the two changes offset each other
2) figure 1.2
refer to figure 1.2. suppose that the market for euro is initially in equilibrium at point a
with the exchange rate $2.00 per euro. which of the following could shift the supply for
euro from s1 to s2?
a.americans want to buy german goods more than before
b.americans want to buy german goods less than before
c.germans want to buy american goods more than before
d.germans want to buy american goods less than before
3) use the portfolio-balance approach to answer this question. other things remaining
constant, if the supply of domestic bonds increases, what would happen to the domestic
currency?
a.the domestic currency would appreciate
b.the domestic currency would depreciate
c.the domestic currency would not change
d.the domestic currency would sharply depreciate and then appreciate later
4) base money equals to:
a.domestic credit plus domestic bonds
b.domestic credit plus international reserves
c.domestic credit minus international reserves
d.domestic bonds plus foreign bonds
5) ___________ assumes that domestic and foreign bonds are imperfect substitutes.
a.the monetary approach to exchange rate
b.the portfolio-balance approach
c.the currency substitution approach
d.the overshooting theory
6) the net value of flows of goods, services, investment income, and unilateral transfers
is called the:
a.capital account balance
b.current account balance
c.merchandise account balance
d.official settlements balance
7) figure 1.1
refer to figure 1.1. suppose that the market for british pound is initially in equilibrium at
point a with the exchange rate $2.00 per pound. which of the following could shift the
demand for pound from d1 to d2?
a.americans want to buy british goods more than before
b.americans want to buy british goods less than before
c.british want to buy american goods more than before
d.british want to buy american goods less than before
8) starting from a position where a countrys money demand equals the money supply
and its balance of payments is in equilibrium. according to the monetary approach, an
expansionary monetary policy will lead to a(n) ______ of the home currency under
flexible exchange rate regime; whereas it will cause trade _______ under fixed
exchange rate.
a.depreciation; deficit
b.depreciation; surplus
c.appreciation; deficit
d.appreciation; surplus
9) the following are benefits of a currency swap except:
a.swaps avoid dealing with any interest payments
b.swaps lower transaction costs of cross-currency cash management
c.swaps reduce foreign exchange risk for financing transactions
d.swaps allow firms to acquire financing for which it has a comparative advantage
10) assume the following:
you have $10,000 to invest.
the current spot rate: s$/£ = 2.00, the 90-day forward: f90$/£ = 1.80, annual interest
rates: ius = 4% and iuk = 8%.
if you invest $10,000 in the u.s. for 90 days, you will get $____________. if you invest
in the u.k. and cover in the forward market for 90 days, you will get $__________.
a.$10,100: $10,098
b.$10,400: $9,720
c.$10,100: $10,133
d.$10,400: $10,692