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Page 1
1. The relationship between the exchange rate and the prices of tradable goods is known as the:
a.
Purchasing-power-parity theory
b.
Asset-markets theory
c.
Monetary theory
d.
Balance-of-payments theory
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
2. If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can
be obtained for 200 francs equals:
a.
20 pounds
b.
40 pounds
c.
60 pounds
d.
80 pounds
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – BUSPROG: Reflective Thinking
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
What Determines Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
3. Low real interest rates in the United States tend to:
a.
b.
c.
d.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
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Page 2
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
4. High real interest rates in the United States tend to:
a.
b.
c.
d.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – BUSPROG: Reflective Thinking
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
5. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to
the purchasing-power parity theory, the dollar would be expected to:
a.
Appreciate by 8 percent against the yen
b.
Depreciate by 8 percent against the yen
c.
Remain at its existing exchange rate
d.
None of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
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Page 3
6. In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the
United States, then in Great Britain the VCR should cost:
a.
200 pounds
b.
400 pounds
c.
600 pounds
d.
800 pounds
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
7. If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of
purchasing-power parity the exchange rate should be:
a.
$.50 per pound
b.
$1.00 per pound
c.
$2.00 per pound
d.
$8.00 per pound
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
8. A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is:
a.
Large trade surpluses for the United States
b.
Relatively high inflation rates in the United States
c.
Lack of investor confidence in the U.S. monetary policy
d.
Relatively high interest rates in the United States
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
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QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Remember
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
9. The high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by:
a.
Additional investment funds made available from overseas
b.
Lack of investor confidence in U.S. fiscal policy
c.
Market expectations of rising inflation in the United States
d.
American tourists overseas finding costs increasing
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Remember
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
10. When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level:
a.
An excess demand for that currency exists in the foreign exchange market
b.
An excess supply of that currency exists in the foreign exchange market
c.
The demand for foreign exchange shifts outward to the right
d.
The demand for foreign exchange shifts backward to the left
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
What Determines Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
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Page 5
11. When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level:
a.
An excess supply of that currency exists in the foreign exchange market
b.
An excess demand for that currency exists in the foreign exchange market
c.
The supply of foreign exchange shifts outward to the right
d.
The supply of foreign exchange shifts backward to the left
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
What Determines Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
12. The appreciation in the value of the dollar in the early 1980s is explained by all of the following except:
a.
The United States being considered a safe haven by foreign investors
b.
Relatively high real interest rates in the United States
c.
Confidence of foreign investors in the U.S. economy
d.
Relatively high inflation rates in the United States
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
13. Suppose Mexico and the United States were the only two countries in the world. There exists an excess supply of
pesos on the foreign exchange market. This suggests that:
a.
Mexico’s current account is in surplus
b.
Mexico’s current account is in deficit
c.
The U.S. current account is in deficit
d.
The U.S. current account is in equilibrium
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
Copyright Cengage Learning. Powered by Cognero.
Page 6
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
14. If Canada runs a trade surplus with Mexico and exchange rates are floating:
a.
The peso will depreciate relative to the dollar
b.
The dollar will depreciate relative to the peso
c.
The prices of all foreign goods will fall for Canadians
d.
The prices of all foreign goods will rise for Canadians
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
15. If Mexico’s labor productivity rises relative to Europe’s labor productivity:
a.
The peso tends to depreciate against the euro in the short run
b.
The peso tends to appreciate against the euro in the short run
c.
The peso tends to depreciate against the euro in the long run
d.
The peso tends to appreciate against the euro in the long run
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
16. The international exchange value of the U.S. dollar is determined by:
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Page 7
a.
The rate of inflation in the United States
b.
The number of dollars printed by the U.S. government
c.
The international demand and supply for dollars
d.
The monetary value of gold held at Fort Knox, Kentucky
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – BUSPROG: Reflective Thinking
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
What Determines Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
17. For the United States, suppose the annual interest rate on government securities equals 8 percent while the annual
inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent
while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from:
a.
The United States to Japan, causing the dollar to depreciate
b.
The United States to Japan, causing the dollar to appreciate
c.
Japan to the United States, causing the yen to depreciate
d.
Japan to the United States, causing the yen to appreciate
ANSWER:
c
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
18. For the United States, suppose the annual interest rate on government securities equals 12 percent while the annual
inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause
investment funds to flow from:
a.
The United States to Japan, causing the dollar to depreciate
b.
The United States to Japan, causing the dollar to appreciate
c.
Japan to the United States, causing the yen to depreciate
d.
Japan to the United States, causing the yen to appreciate
ANSWER:
a
POINTS:
1
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DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
19. Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:
a.
An increase in the demand for imports and an increase in the demand for foreign currency
b.
An increase in the demand for imports and a decrease in the demand for foreign currency
c.
A decrease in the demand for imports and an increase in the demand for foreign currency
d.
A decrease in the demand for imports and a decrease in the demand for foreign currency
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
20. Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger:
a.
An increase in the demand for imports and an increase in the demand for foreign currency
b.
An increase in the demand for imports and a decrease in the demand for foreign currency
c.
A decrease in the demand for imports and an increase in the demand for foreign currency
d.
A decrease in the demand for imports and a decrease in the demand for foreign currency
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
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Page 9
21. Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States
result in:
a.
An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a
depreciation in the dollar
b.
An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an
appreciation in the dollar
c.
A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a
depreciation in the dollar
d.
A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an
appreciation in the dollar
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
22. Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States
result in:
a.
An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a
depreciation in the dollar
b.
An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an
appreciation in the dollar
c.
A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a
depreciation in the dollar
d.
A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an
appreciation in the dollar
ANSWER:
d
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
23. Which example of market expectations causes the dollar to appreciate against the yen—expectations that the U.S.
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Page 10
economy will have:
a.
Faster economic growth than Japan
b.
Higher future interest rates than Japan
c.
More rapid money supply growth than Japan
d.
Higher inflation rates than Japan
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
24. Which example of market expectations causes the dollar to depreciate against the yen—expectations that the U.S.
economy will have:
a.
Faster economic growth than Japan
b.
Higher future interest rates than Japan
c.
Less rapid money supply growth than Japan
d.
Lower inflation rates than Japan
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
25. For an American investor, the expected rate of return on European securities depends on all of the following factors
except the:
a.
Rate of return on equivalent American securities
b.
The current exchange rate between the dollar and the pound
c.
Exchange rate anticipated to prevail when the securities mature
d.
Interest rate paid on European securities
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
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Page 11
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
26. Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro?
a.
Relatively low interest rates in the United States
b.
Relatively high labor productivity in the United States
c.
Tariffs levied by the United States on steel imports from Europe
d.
Stronger American preferences for goods produced in Europe
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
27. Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso?
a.
Relatively high interest rates in Mexico
b.
Relatively high labor productivity in Mexico
c.
Tariffs applied by Mexico on computer imports from the United States
d.
Stronger Mexican preferences for goods produced in the United States
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
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Page 12
28. Long-run determinants of the dollar’s exchange value include all of the following except:
a.
Preferences of Americans for foreign produced goods
b.
U.S. tariffs placed on imports of foreign produced goods
c.
Productivity of the American worker
d.
Interest rates in U.S. financial markets
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
29. Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock
exchange where future expectations are important and prices are volatile?
a.
Balance-of-payments approach
b.
Purchasing-power-parity approach
c.
Asset-markets approach
d.
Monetary approach
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
30. According to the purchasing-power-parity theory, the U.S. dollar maintains its purchasing-power parity if it
depreciates by an amount equal to the excess of:
a.
U.S. interest rates over foreign interest rates
b.
Foreign interest rates over U.S. interest rates
c.
U.S. inflation over foreign inflation
d.
Foreign inflation over U.S. inflation
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
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Page 13
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
31. An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its
long-run response.
a.
Overshoot
b.
Undershoot
c.
Depreciate
d.
Appreciate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange Rate Overshooting
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
32. Concerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and
economic data.
a.
Econometric analysis
b.
Technical analysis
c.
Judgmental analysis
d.
Sunspot analysis
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forecasting Foreign Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
Copyright Cengage Learning. Powered by Cognero.
Page 14
DATE MODIFIED:
6/22/2016 3:24 PM
33. Concerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values,
while ignoring the economic determinants of exchange rate movements.
a.
Econometric analysis
b.
Judgmental analysis
c.
Technical analysis
d.
Sunspot analysis
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – BUSPROG: Reflective Thinking
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forecasting Foreign Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
34. Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic
variables likely to affect currency values.
a.
Fundamental analysis
b.
Technical analysis
c.
Judgmental analysis
d.
Sunspot analysis
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forecasting Foreign Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
35. Concerning exchange-rate determination, “market fundamentals” include all of the following except:
a.
Monetary policy and fiscal policy
b.
Profitability and riskiness of investments
c.
Speculative opinion about future exchange rates
d.
Productivity changes affecting production costs
ANSWER:
c
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Page 15
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
What Determines Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
36. In the short run, exchange rates respond to market forces such as:
a.
Inflation rates
b.
Expectations of future exchange rates
c.
Investment profitability
d.
Government trade policy
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
37. Long-run exchange rate movements are governed by all of the following except:
a.
National productivity levels
b.
Consumer tastes and preferences
c.
Rates of inflation
d.
Interest rate levels
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
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Page 16
DATE MODIFIED:
6/22/2016 3:24 PM
38. Exchange rate determination in the short run is underlied by which of the following assumptions:
a.
Tariffs and quotas affect trade patterns only in the short run
b.
Prices of goods and services affect trade patterns only in the short run
c.
Expected returns on financial assets affect investment flows in the short run
d.
Preferences for goods and services affect trade flows only in the short run
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
39. That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and
there are no barriers to trade, is a reflection of the:
a.
Monetary approach to exchange-rate determination
b.
Law of one price
c.
Fundamentalist approach to exchange-rate determination
d.
Exchange-rate-overshooting principle
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Inflation Rates, Purchasing-Power-Parity, and Long Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
40. The Canadian dollar would depreciate on the foreign exchange market if:
a.
Canadian consumer tastes change in favor of goods produced domestically
b.
The profitability of assets in Canada rises relative to the profitability of assets abroad
c.
Canada experiences a disastrous wheat-crop failure, leading to imports of more wheat
d.
Canada realizes technological improvements in the production of manufactured goods, leading to relatively
low costs for Canada
ANSWER:
c
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Page 17
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
41. The demand in the United States for yen will increase if, other things remaining equal:
a.
Labor costs rise in Japan
b.
Income rises in Japan
c.
Prices rise in Japan
d.
Interest rates rise in Japan
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
42. The quantity of Canadian dollars supplied to the foreign exchange market would increase if, other things remaining
equal:
a.
Preferences for imports rise in Canada
b.
Labor productivity increases in Canada
c.
Prices of goods and services decrease in Canada
d.
Import tariffs rise in Canada
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
Copyright Cengage Learning. Powered by Cognero.
Page 18
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
43. The U.S. demand for pesos would shift to the right if there occurred a (an):
a.
Change in preferences toward U.S. manufactured goods
b.
Increase in the dollar/peso exchange rate
c.
Decrease in the U.S. population
d.
Increase in the U.S. price level
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
44. The supply of francs, would shift to the right for all of the following reasons except:
a.
An increase in Swiss real income
b.
An increase in Swiss prices
c.
An increase in the Swiss population
d.
An increase in Swiss interest rates
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
The figure below illustrates the supply and demand schedules of Swiss francs in a market of freely-floating exchange
rates.
Figure 12.1 The Market for Francs
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Page 19
45. Refer to Figure 12.1. Should preferences for imports rise in the United States and fall in Switzerland, there would
occur a (an):
a.
Increase in the demand for francs—decrease in the supply of francs-depreciation of the dollar
b.
Increase in the demand for francs—decrease in the supply of francs-appreciation of the dollar
c.
Decrease in the demand for francs—decrease in the supply of francs-appreciation of the dollar
d.
Decrease in the demand for francs—increase in the supply of francs-depreciation of the dollar
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
46. Refer to Figure 12.1. Should real interest rates in the United States rise relative to real interest rates in Switzerland,
there would occur a (an):
a.
Increase in the demand for francs—decrease in the supply of francs-depreciation of the dollar
b.
Increase in the demand for francs—decrease in the supply of francs-appreciation of the dollar
c.
Decrease in the demand for francs—increase in the supply of francs-appreciation of the dollar
d.
Decrease in the demand for francs—decrease in the supply of francs-depreciation of the dollar
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
Copyright Cengage Learning. Powered by Cognero.
Page 20
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
47. Refer to Figure 12.1. Should the U.S. price level rise relative to the Swiss price level, there would occur a (an):
a.
Increase in the demand for francs—increase in the supply of francs-appreciation of the dollar
b.
Decrease in the demand for francs—decrease in the supply of francs-depreciation of the dollar
c.
Increase in the supply of francs—decrease in the demand for francs-appreciation of the dollar
d.
Decrease in the supply of francs—increase in the demand for francs-depreciation of the dollar
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
48. Refer to Figure 12.1. Should the United States impose tariffs on imports from Switzerland, there would occur a (an):
a.
Increase in the demand for francs and a depreciation of the dollar
b.
Decrease in the demand for francs and an appreciation of the dollar
c.
Decrease in the supply of francs and an appreciation of the dollar
d.
Increase in the supply of francs and a depreciation of the dollar
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 12.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Determining Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:24 PM