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| 1 | |
An American traveling to Europe will find it easier to make purchases now because: |
| | A) | Most countries in Europe have adopted the U.S. dollar as their currency. |
| | B) | Many of the countries in Europe now use the same currency, the euro. |
| | C) | Most of the countries of Europe have adopted the British pounds as the standard currency. |
| | D) | None of the above. |
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| 2 | |
The nominal exchange rate: |
| | A) | Is measured in goods. |
| | B) | Is a synonymous term for the swap rate. |
| | C) | Is always expressed as units of a foreign currency per U.S. $. |
| | D) | Is the rate that one can exchange the currency of one country for the currency of another country. |
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| 3 | |
If the Japanese yen depreciates against the U.S. dollar: |
| | A) | American should find Japanese goods are now more expensive. |
| | B) | Japanese residents would find Japanese goods are relatively less expensive than American goods. |
| | C) | US goods should have an easier time competing against Japanese goods in both countries. |
| | D) | Japanese goods should have an easier time competing against U.S. goods in both countries. |
| | E) | b and d |
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| 4 | |
The forward exchange rate: |
| | A) | Is the same as the spot rate. |
| | B) | Is a synonymous term for the nominal exchange rate. |
| | C) | Is the rate at which foreign exchange dealers are willing to commit to buying or selling a currency in the future. |
| | D) | Since it carries greater risk, it is always above the spot rate. |
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| 5 | |
If the current exchange rate is 1€/1$U.S. and bagels cost 1€ in France and 1$ in the U.S. and the current exchange rate for bagels is 1.15 European bagel/1US bagel and if the bagels are identical: |
| | A) | An American would be better off trading their bagels for European bagels. |
| | B) | A person from France would be better off trading their bagels for U.S. bagels. |
| | C) | The Theory of Purchasing Power Parity is working. |
| | D) | a and c. |
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| 6 | |
If we let P = the domestic price of a basket of goods and Pf the foreign price of the same basket of goods, and ε = the nominal exchange rate of foreign currency/$U.S., the real exchange rate is best expressed as: |
| | A) | ε · (P / Pf) |
| | B) | Pf / P |
| | C) | Pf / (P · ε) |
| | D) | P / (Pf · ε) |
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| 7 | |
The Law of One Price: |
| | A) | Is based on the law of diminishing marginal returns. |
| | B) | Applies only to financial assets and not real assets. |
| | C) | Can explain long run exchange rates but not short-run exchange rates. |
| | D) | Is more of a mathematical concept but not useful in explaining exchange rates. |
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| 8 | |
If the euro/$ U.S. exchange rate is 1.05 €/$ in New York but 1.1 €/$ in London, we should see: |
| | A) | People selling $'s and buying euros in New York and then selling those euros and buying $'s in London. |
| | B) | People selling euros and buying $'s in New York and then buying euros by selling $'s in London. |
| | C) | The price differential between the markets increase as people seek to take advantage of the situation. |
| | D) | The $ should appreciate in New York relative to the euro. |
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| 9 | |
Differences in inflation rates between two countries can: |
| | A) | Explain long run changes in the exchange rate but not short run changes. |
| | B) | Explain changes in the real exchange rate over the long run, but not changes in the nominal exchange rate. |
| | C) | Explain well short run changes in the exchange rate but not long run changes. |
| | D) | None of the above. |
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| 10 | |
Considering the Theory of Purchasing Power Parity, if inflation in the U.S. is 5% while prices in Mexico are stable; we should expect: |
| | A) | The dollar to appreciate 5% relative to the peso. |
| | B) | The peso to appreciate 5% relative to the dollar. |
| | C) | The nominal exchange rate to stay fixed. |
| | D) | The real exchange rate of U.S. goods / Mexican goods to appreciate 5%. |
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| 11 | |
When a currency is described as overvalued, this implies: |
| | A) | It is overvalued relative to what the describer believes purchasing power parity to be. |
| | B) | It is overvalued relative to the exchange rate set by the nation's central bank. |
| | C) | The exchange rate is greater than one. |
| | D) | The exchange rate is lower than one year previous. |
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| 12 | |
A country with a current account deficit: |
| | A) | Has imported more than it has exported. |
| | B) | Has borrowed heavily from the rest of the world. |
| | C) | Has exported more than it has imported. |
| | D) | Also has a capital account surplus. |
| | E) | c and d |
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| 13 | |
Short run movements in nominal exchange rates are primarily due to: |
| | A) | Changing prices of goods and services in the countries involved. |
| | B) | Inflation differentials. |
| | C) | Changes in the real exchange rate. |
| | D) | None of the above. |
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| 14 | |
If Americans lose their taste for Mexican made goods, we should observe the following change(s) in the dollar-peso market: |
| | A) | The supply curve of dollars shifts right. |
| | B) | The demand curve for dollars shifts left. |
| | C) | The supply curve of dollars shifts left. |
| | D) | The demand curve for dollars shifts right. |
| | E) | a and d. |
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| 15 | |
An expected depreciation of the dollar, everything else held constant, should cause: |
| | A) | The supply of dollars to increase. |
| | B) | The demand for dollars to increase. |
| | C) | The demand for dollars to decrease. |
| | D) | The dollar to appreciate now relative to other currencies. |
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