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Holding all else constant, a decrease in the real interest rate on euro denominated assets will ____ the demand for euros in the foreign exchange market and lead to a(n)____ of the euro against other currencies. |
| | A) | Decrease; depreciation |
| | B) | Decrease; appreciation |
| | C) | Increase; depreciation |
| | D) | Increase; appreciation |
| | E) | Not affect; revaluation |
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| 2.
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Holding all else constant, an increase in European real GDP will ____ the supply of euros in the foreign exchange market and lead to a(n)____ of the euro against other currencies. |
| | A) | Decrease; depreciation |
| | B) | Decrease; appreciation |
| | C) | Increase; depreciation |
| | D) | Increase; appreciation |
| | E) | Not affect; devaluation |
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| 3.
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An iPod costs £240 in London and €300 in Paris. The nominal exchange rate is 1.10 euros per pound sterling. The real exchange rate (for iPods) between sterling and the euro is: |
| | A) | 0.80 |
| | B) | 1.25 |
| | C) | 1.375 |
| | D) | 0.88 |
| | E) | 0.72 |
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| 4.
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To counter a speculative attack, the monetary policymakers must _____ monetary policy and to fight a recession the monetary policymakers must ____ monetary policy. |
| | A) | Tighten; tighten |
| | B) | Tighten; ease |
| | C) | Tighten; abandon |
| | D) | Ease; tighten |
| | E) | Ease; ease |
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| 5.
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Flexible exchange rates ______ of monetary policy to stabilize the economy and fixed exchange rates _____ of monetary policy to stabilize the economy. |
| | A) | Offset the impact; reinforce the impact |
| | B) | Prevent the use; prevent the use |
| | C) | Strengthen the impact; strengthen the impact |
| | D) | Prevent the use; strengthen the ability |
| | E) | Strengthen the ability; prevent the use |
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| 6.
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The following data provides the nominal exchange rates for the euro, the British pound and the U.S. dollar: €1 = £0.7 €1 = $1.2. Based on these data, the nominal exchange rate equals ____ dollars per pound or equivalently _____ pounds per dollar. |
| | A) | 1.2; 0.7 |
| | B) | 0.7; 1.2 |
| | C) | 1.714; 0.583 |
| | D) | 1.428; 0.833. |
| | E) | 1.862; 0.543 |
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| 7.
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Net exports will tend to increase when the real exchange rate ____. |
| | A) | Is high |
| | B) | Is depreciating |
| | C) | Equals the nominal exchange rate |
| | D) | Is appreciating |
| | E) | Is strong |
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| 8.
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The purchasing power parity theory is not a good explanation of nominal exchange rate determination in the short run because: |
| | A) | There is no evidence that low inflation is associated with less rapid nominal exchange rate depreciation. |
| | B) | There is no evidence that high inflation is associated with more rapid nominal exchange rate depreciation. |
| | C) | Most goods and services are traded internationally and are standardised. |
| | D) | Many goods and services are non-traded internationally and not all traded goods are standardised. |
| | E) | Most nominal exchange rates are fixed and foreign exchange markets do not bring the supply and demand for currencies into equilibrium. |
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| 9.
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The demand and supply of Polish zloty in the foreign exchange market are:
Demand = 25,000 – 50,000e: Supply = 17,600 + 24,000e
Where e is the exchange rate measured in euros per zloty. The fundamental value of the zloty in terms of euros is: |
| | A) | 1.10 |
| | B) | 10.0 |
| | C) | 1.75 |
| | D) | 0.145 |
| | E) | 0.10 |
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| 10.
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The demand and supply of Polish zloty in the foreign exchange market are: Demand = 28,700 – 50,000e: Supply = 17,600 + 24,000e. Where e is the exchange rate measured in euros per zloty. If the Polish central bank fixes the exchange rate at an official value of 0.125 Poland will
experience a balance of payments _______ and the zloty will be _______. |
| | A) | Surplus; undervalued |
| | B) | Deficit; undervalued |
| | C) | Surplus; overvalued |
| | D) | Deficit; overvalued |
| | E) | Equilibrium; at its fundamental value |
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