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| 1 | |
The countries in the European Monetary Union all use _______ as their official currency. |
| | A) | the U.S. dollar |
| | B) | separate national currencies |
| | C) | the euro |
| | D) | the British pound |
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| 2 | |
Suppose that the value of a pound rises from $1.90 to $2.00 over the course of a year. This indicates that the: |
| | A) | nominal exchange rate has changed. |
| | B) | real exchange rate has changed. |
| | C) | nominal and real exchange rates have necessarily changed. |
| | D) | dollar has appreciated relative to the pound. |
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| 3 | |
If the exchange value of $1 rises from 27 to 29 Russian rubles, then the: |
| | A) | Russian ruble has depreciated from $0.0370 to $0.0345. |
| | B) | Russian ruble has appreciated from $0.0345 to $0.0370. |
| | C) | value of the Russian ruble may have risen or fallen relative to the dollar. There is insufficient information to determine whether the value of the ruble has appreciated or depreciated with respect to the U.S. dollar. |
| | D) | None of the above is correct. |
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| 4 | |
If the dollar appreciates relative to the pound, then the pound: |
| | A) | must have depreciated relative to the dollar. |
| | B) | must have appreciated relative to the dollar. |
| | C) | may have either appreciated or depreciated relative to the dollar; this cannot be determined without additional information. |
| | D) | None of the above is correct. |
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| 5 | |
If the real exchange rate is greater than 1: |
| | A) | imports are more expensive than domestic goods. |
| | B) | imports are less expensive than domestic goods. |
| | C) | the law of one price holds. |
| | D) | domestic inflation must be high. |
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| 6 | |
Suppose that the current exchange rate between the U.S. dollar and the British pound is 2$U.S /1£ and identical CDs cost 9£ in England and $16 in the U.S. If there are no differences in shipping costs between domestic and imported CDs in the U.S., then: |
| | A) | an American would be better off buying imported CDs from England. |
| | B) | an American would be better off buying domestic CDs instead of imported CDs. |
| | C) | purchasing power parity holds. |
| | D) | None of the above is correct. |
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| 7 | |
The current exchange rate for foreign exchange transactions to be conducted at a specific future date is called the: |
| | A) | spot rate. |
| | B) | forward rate. |
| | C) | backward rate. |
| | D) | None of the above is correct. |
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| 8 | |
The real exchange rate equals: |
| | A) | price of domestic goods / foreign price of imported goods. |
| | B) | foreign price of imported goods / price of domestic goods. |
| | C) | price of domestic goods / domestic price of imported goods. |
| | D) | domestic price of imported goods / price of domestic goods. |
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| 9 | |
The law of one price suggests that, in the long run, the real exchange rate: |
| | A) | will exceed one. |
| | B) | will be less than one. |
| | C) | equals one. |
| | D) | None of the above is correct. |
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| 10 | |
Purchasing power parity occurs if the real exchange rate: |
| | A) | equals 1. |
| | B) | exceeds 1. |
| | C) | is less than 1. |
| | D) | None of the above is correct. |
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| 11 | |
If the euro/$ U.S. exchange rate is 1.20€/$ in New York but 1.15€/$ in London, we should see: |
| | A) | people selling dollars and buying euros in New York and then selling those euros and buying dollars in London. |
| | B) | people selling euros and buying dollars in New York and then buying euros by selling dollars in London. |
| | C) | the price differential between the markets increase as people seek to take advantage of the situation. |
| | D) | the dollar appreciate in New York relative to the euro. |
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| 12 | |
Differences in inflation rates between countries can explain: |
| | A) | most short-run fluctuations in the exchange rate, but cannot explain long-run fluctuations. |
| | B) | long-run fluctuations in the exchange rate. |
| | C) | both long-run and short-run exchange rate fluctuations equally well. |
| | D) | none of the fluctuations that occur in the exchange rate. |
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| 13 | |
Under purchasing power parity, an increase in the domestic inflation rate, relative to foreign inflation rates, will cause the domestic currency to: |
| | A) | appreciate. |
| | B) | depreciate. |
| | C) | maintain the same exchange rate. |
| | D) | change in a manner that cannot be predicted. |
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| 14 | |
If the inflation rate in the U.S. consistently exceeds the Canadian inflation rate by 2%, we would expect the Canadian dollar to: |
| | A) | appreciate by approximately 2% per year. |
| | B) | depreciate by approximately 2% per year. |
| | C) | maintain its current value since this exchange rate is fixed. |
| | D) | None of the above is correct. |
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| 15 | |
If the U.S. imports more than it exports, it must: |
| | A) | have a trade surplus. |
| | B) | have a trade deficit. |
| | C) | Both of the above are possible. |
| | D) | None of the above is correct. |
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| 16 | |
An increase in U.S. wealth, ceteris paribus, will cause the U.S. dollar to: |
| | A) | appreciate. |
| | B) | depreciate. |
| | C) | maintain a constant value. |
| | D) | depreciate at an accelerating rate over time. |
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| 17 | |
Interest-rate differentials across countries are a primary explanation of: |
| | A) | short-run exchange rate fluctuations, but not long-run exchange rate fluctuations. |
| | B) | long-run exchange rate fluctuations, but not short-run exchange rate fluctuations. |
| | C) | both short-run and long-run exchange rate fluctuations. |
| | D) | neither short-run nor long-run exchange rate fluctuations. |
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| 18 | |
The demand for dollars will rise when: |
| | A) | U.S. interest rates rise. |
| | B) | foreign interest rates rise. |
| | C) | U.S. income rises. |
| | D) | None of the above is correct. |
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