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Page 41
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 Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
97. Economies with relatively high growth rates in labor productivity tend to find their currencies’ exchange values
appreciating under a floating exchange-rate system.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
98. Under floating exchange rates, relatively low domestic interest rates tend to promote depreciation of a currency’s
exchange value while relatively high domestic interest rates lead to currency appreciation.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
99. Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent while tight
monetary policy in Switzerland leads to interest rates rising to 8 percent. With floating exchange rates, the dollar would
appreciate against the franc.
a.
True
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Page 42
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
100. The purchasing-power-parity theory is used to predict exchange-rate movements in the short run.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
101. According to the law of one price, identical goods should cost the same in all nations, assuming there are no shipping
costs nor trade barriers.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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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102. The purchasing- power-parity theory predicts that if the U.S. inflation rate exceeds the Japanese inflation rate by 4
percent, the dollar’s exchange value will appreciate by 4 percent against the yen.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
103. Assume the initial yen/dollar exchange rate to be 100 yen per dollar. If the U.S. inflation rate is 2 percent and the
Japanese inflation rate is 7 percent, the exchange rate should move to 105 yen per dollar according to the purchasing-
power-parity theory.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
104. Assume the initial dollar/pound exchange rate to be $2 per pound. If the U.S. inflation rate is 8 percent and the U.K.
inflation rate is 3 percent, the exchange rate should move to $2.10 per pound according to the purchasing-power-parity
theory.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
Copyright Cengage Learning. Powered by Cognero.
Page 44
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
105. If consumer tastes in the United States change in favor of goods produced in France, the demand for francs will
increase which causes an appreciation of the dollar against the franc under a floating exchange rate system.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
106. As the profitability of Japanese assets rises relative to the profitability of Australian assets, Australian residents will
make additional investments in Japan; this results in an increased demand for yen and a depreciation of the dollar under a
system of floating exchange rates.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
107. If the United States experiences an enormous wheat crop failure, it will have to import more wheat and the dollar’s
exchange value will depreciate under a system of floating exchange rates.
a.
True
b.
False
ANSWER:
True
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Page 45
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
108. If Japan realizes technological improvements in the production of automobiles, which lowers its production costs
relative to foreign producers, Japanese exports will rise and the yen’s exchange value will appreciate under a system of
floating exchange rates.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
109. If Mexico applies tariffs to imports of manufactured goods, Mexico’s demand for foreign exchange will rise and the
peso will depreciate under a system of floating exchange rates.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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 46
110. According to the “Big Mac” index, if a Big Mac costs $2.28 in the United States and 25.75 krone in Denmark
(equivalent to $4.25), the Danish krone is an undervalued currency.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
111. According to the “Big Mac” index, if a Big Mac costs $2.28 in the United States and 48 baht in Thailand (equivalent
to $1.91), the baht is an undervalued currency.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
112. In the short run, exchange rates are primarily determined by investor expectations of returns on assets such as
government securities and bank accounts.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
Copyright Cengage Learning. Powered by Cognero.
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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
113. Long-run determinants of exchange rate include labor productivity levels, inflation rates, consumer preferences for
goods and services, and trade barriers.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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 Long-Run Exchange Rates
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:24 PM
DATE MODIFIED:
6/22/2016 3:24 PM
114. Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to
the short run.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
115. If it is widely expected that the British economy will experience more rapid inflation than the Australian economy,
the pound will depreciate against the dollar under a system of floating exchange rates.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
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Page 48
QUESTION TYPE:
True / False
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
116. According to the asset-markets approach, adjustments among financial assets are a key determinant of long-run
movements in exchange rates.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
117. The asset-markets approach views exchange-rate determination as similar to the stock market in which prices are
volatile and expectations are important.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
118. According to the principle of exchange-rate overshooting, a short-run depreciation of a currency is likely to be
greater than a long-run depreciation of that currency.
a.
True
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Page 49
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
119. Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short
run than in the long run.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
120. According to exchange-rate overshooting, an appreciation of the Australian dollar is likely to be greater over a long
time period than over a short time period.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
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Page 50
DATE MODIFIED:
6/22/2016 3:24 PM
121. Concerning exchange rate forecasting, fundamental analysis involves consideration of a variety of macroeconomic
variables and policies that tend to affect currency values.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
122. Econometric models are best suited for forecasting long-run exchange rates rather than short-run exchange rates.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
123. Concerning exchange rate forecasting, technical analysis extrapolates from past exchange-rate trends while ignoring
economic and political determinants of exchange rates.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
Copyright Cengage Learning. Powered by Cognero.
Page 51
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
124. Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of
the forward rate that will exist at the end of the forward period.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
True / False
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
125. A forward premium on the British pound serves as a rough benchmark of the expected rate of appreciation in the
pound’s spot rate.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
126. A forward discount on Mexico’s peso serves as a rough benchmark of the expected appreciation in the peso’s spot
rate.
a.
True
b.
False
ANSWER:
False
POINTS:
1
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Page 52
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
127. If you were considering hiring a forecasting firm to predict future spot rates of the yen, you would hope that the firm
could predict better what would be implied by the yen’s forward rate.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
128. Although the law of one price predicts that identical goods should cost the same in all nations, transportation costs
and tariffs tend to prevent this prediction from actually occurring.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
129. If real interest rates decline in the United States relative to real interest rates abroad, the dollar’s exchange value will
appreciate under a floating exchange-rate system.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
True / False
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
130. What is the purchasing power parity approach to exchange rate determination?
ANSWER:
The purchasing power parity approach asserts that changes in relative national price levels
determine changes in exchange rates over the long run. A currency maintains its purchasing
power parity if it depreciates (appreciates) by an amount equal to the excess of domestic
(foreign) inflation over foreign (domestic) inflation.
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Subjective Short Answer
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
131. In a free market, what determines exchange rates in the long run and the short run?
ANSWER:
The long-run determinants of exchange rates include market fundamentals such as consumer
preferences for domestic and foreign goods, government trade policies, productivity levels,
and relative price levels. In the short run, exchange rates are determined by interest rate
differentials and market expectations concerning economic growth, inflation rates, and
interest rates.
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Essay
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
132. What is exchange rate overshooting?
ANSWER:
An exchange rate is said to overshoot when its short-run response to a change in market
fundamentals is greater than its long-run response.
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Subjective Short Answer
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
133. What is the asset market approach to exchange rate determination?
ANSWER:
Over short periods of time, decisions to hold domestic or foreign financial assets play a much
greater role in exchange rate determination than the demand for imports and exports does.
According to the asset market approach, investors consider two key factors when deciding
between domestic and foreign investments: relative interest rates and expected changes in
exchange rates. Changes in these factors, in turn, account for fluctuations in exchange rates
that we observe in the short run.
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Essay
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
134. During the Great Recession of 2008-2009, the dollar increasingly was viewed as a safe-haven currency as investors
fled to it when they worried about the stability of the global economy. As investors fled to the dollar
a.
b.
c.
d.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
dollar appreciation
all three European investors expect that the dollar will depreciate against the euro
d.
all three European investors expect that the dollar will appreciate against the euro
ANSWER:
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
PREFACE NAME:
Question 136 and 137
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – BUSPROG: Reflective Thinking
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 3:14 AM
DATE MODIFIED:
7/7/2016 3:17 AM
135. Suppose that Barclays Bank of the United Kingdom expects the exchange rate to be $1.40 per pound at the end of the
year. If today’s exchange rate is $1.50 per pound, Barclays will
a.
sell dollars today since it anticipates losses from buying dollars and holding them
b.
buy dollars today since it anticipates profits from buying dollars and holding them
c.
not buy dollars nor sell dollars because no profits can be realized
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
STATE STANDARDS:
United States – PA – DISC: The role of money
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
7/7/2016 3:17 AM
DATE MODIFIED:
7/7/2016 3:21 AM
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Page 56
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: Analyze
DATE CREATED:
7/7/2016 3:25 AM
DATE MODIFIED:
7/7/2016 3:27 AM
137. If the current exchange value of the dollar is $1.25 per euro
a.
European Investor #1 has less incentive to invest in the United States, and thus demands fewer dollars
b.
European Investor #2 has less incentive to invest in the United States, and thus demands fewer dollars
c.
European Investor #3 has less incentive to invest in the United States, and thus demands fewer dollars
d.
all three European investors have less incentive to invest in the United States, and thus demands fewer dollars
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Question 136 and 137
NATIONAL STANDARDS:
United States – BUSPROG: Analytic Reflective Thi – 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: Analyze
DATE CREATED:
7/7/2016 3:33 AM
DATE MODIFIED:
7/7/2016 3:38 AM
138. Factors that will shift the demand curve for pounds include all of the following except
a.
the expected future exchange rate of the pound
b.
inflation rates around the world
c.
interest rates around the world
d.
the current exchange rate of the pound
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: The role of money
TOPICS:
What Determines Exchange Rates?
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
7/7/2016 3:38 AM
DATE MODIFIED:
7/7/2016 3:40 AM
139. Which of the following would cause the demand curve for pounds to shift to the left?
a.
a decrease in Britain’s rate of inflation relative to U.S. inflation
b.
an increase in U.S. interest rates relative to British interest rates
c.
a rise in British labor productivity relative to U.S. labor productivity
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Page 57
d.
improving American tastes for British goods
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 3:40 AM
DATE MODIFIED:
7/7/2016 3:46 AM
140. The demand curve for euros in the foreign exchange market will increase (shift rightward) if
a.
European interest rates fall relative to foreign interest rates
b.
the current exchange value of the euro depreciates
c.
Europe increases tariffs and applies more stringent quotas on imported goods
d.
the rate of inflation in Europe is less than the rate of inflation throughout the world
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 3:46 AM
DATE MODIFIED:
7/7/2016 3:48 AM
141. If the interest rate in Japan increases while the interest rate in the United States remains constant,
a.
the demand curve for dollars shifts to the left
b.
the demand curve for dollars shifts to the right
c.
the demand curve for yen shifts to the left
d.
the demand curves for both yen and dollars remain constant
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 3:49 AM
Copyright Cengage Learning. Powered by Cognero.
Page 58
DATE MODIFIED:
7/7/2016 3:51 AM
142. If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains
constant,
a.
the demand curve for dollars shifts to the left
b.
the demand curve for dollars shifts to the right
c.
the demand curve for yen shifts to the right
d.
the demand curves for both yen and dollars remain constant
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 3:51 AM
DATE MODIFIED:
7/7/2016 3:53 AM
143. If German tastes for Microsoft software become stronger
a.
the demand curve for dollars shifts to the right
b.
the demand curve for dollars shifts to the left
c.
the demand curve for euro shifts to the right
d.
the demand curve for both euros and dollars remain constant
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 3:53 AM
DATE MODIFIED:
7/7/2016 3:55 AM
144. Suppose that the exchange value of the dollar currently equals 100 yen. As a result of changing economic
conditions, suppose that people anticipate that the dollar will be worth 120 yen in three months. This expectation results in
a.
an increase in the value of U.S. exports to Japan
b.
an increase in the demand for the yen
c.
a decrease in the demand for dollars
d.
an increase in the demand for dollars
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
Copyright Cengage Learning. Powered by Cognero.
Page 59
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: The role of money
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
7/7/2016 3:56 AM
DATE MODIFIED:
7/7/2016 3:58 AM
145. If economic growth perks up in the United States so that investors think they can realize larger profits from American
assets, the
a.
supply of U.S. dollars will increase in the foreign exchange market
b.
the demand for U.S. dollars will increase in the foreign exchange market
c.
the demand for U.S. dollars will decrease in the foreign exchange market
d.
the demand for U.S. dollars will remain constant in the foreign exchange market
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 3:58 AM
DATE MODIFIED:
7/7/2016 4:00 AM
146. A shift in the U.S. supply curve of dollars in the foreign exchange market could be caused by all of the following
except a change in
a.
the current exchange rate of the dollar
b.
the expected future exchange rate of the dollar
c.
the rate of inflation in the United States
d.
productivity of the U.S. labor force
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
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:
7/7/2016 4:00 AM
DATE MODIFIED:
7/7/2016 4:02 AM
147. The supply curve of dollars decreases (shifts to the left) in the foreign exchange market. This could be the result of
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Page 60
a.
the current exchange rate of the dollar rising (appreciating)
b.
the current exchange rate of the dollar falling (depreciating)
c.
an increase in the U.S. inflation rate relative to the inflation rate in other countries
d.
a decrease in the U.S. inflation rate relative to the inflation rate in other countries
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
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:
7/7/2016 4:03 AM
DATE MODIFIED:
7/7/2016 4:05 AM
148. If the U.S. interest rate rises relative to the foreign interest rate, then in the foreign exchange market
a.
the demand for dollars increases and the supply of dollars increases
b.
the demand for dollars increases and the supply of dollars decreases
c.
the demand for dollars decreases and the supply of dollars increases
d.
the demand for dollars decreases and the supply of dollars decreases
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: The role of money
TOPICS:
Determining Short Run Exchange Rates: The Asset Market Approach
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
7/7/2016 4:50 AM
DATE MODIFIED:
7/7/2016 4:52 AM
149. If the U.S. inflation rate rises to the foreign inflation rate, then in the foreign exchange market
a.
the demand for dollars increases and the supply of dollars increases
b.
the demand for dollars increases and the supply of dollars decreases
c.
the demand for dollars decreases and the supply of dollars increases
d.
the demand for dollars decreases and the supply of dollars decreases
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance