Exchange Rate Determination Mcq
Chapter 4
Exchange Rate Determination
1. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar _______ by _______%. A) depreciated; 5.80 B) depreciated; 4.00 C) appreciated; 5.80 D) appreciated; 4.00
ANSWER: C
SOLUTION: ($0.73 – $0.69)/$0.69 = 5.80%
2. If a currency’s spot rate market is _______, its exchange rate is likely to be _______ to a single large purchase or sale transaction. A) liquid; highly sensitive B) illiquid; insensitive C) illiquid; highly sensitive D) none of these
ANSWER: C
3. _______ is not a factor that causes currency supply and demand schedules to change. A) Relative inflation rates B) Relative interest rates C) Relative income levels D) Expectations E) All of these are factors that cause currency supply and demand schedules to change.
ANSWER: E
4. A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) _______ in Mexican demand for U.S. goods, and the Mexican peso should _______. A) increase; appreciate B) increase; depreciate C) decrease; depreciate D) decrease; appreciate
ANSWER: B
5. An increase in U.S. interest rates relative to German interest rates would likely _______ the U.S. demand for euros and _______ the supply of euros for sale. A) reduce; increase B) increase; reduce C) reduce; reduce D) increase; increase
ANSWER: A
6. Investors from Germany, the United States, and Britain frequently invest in each other based on prevailing interest rates. If British interest rates increase, German investors are likely to buy _______ dollar-denominated securities, and the euro is likely to _______ relative to the dollar. A) fewer; depreciate B) fewer; appreciate C) more;
Exchange Rate Determination
1. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar _______ by _______%. A) depreciated; 5.80 B) depreciated; 4.00 C) appreciated; 5.80 D) appreciated; 4.00
ANSWER: C
SOLUTION: ($0.73 – $0.69)/$0.69 = 5.80%
2. If a currency’s spot rate market is _______, its exchange rate is likely to be _______ to a single large purchase or sale transaction. A) liquid; highly sensitive B) illiquid; insensitive C) illiquid; highly sensitive D) none of these
ANSWER: C
3. _______ is not a factor that causes currency supply and demand schedules to change. A) Relative inflation rates B) Relative interest rates C) Relative income levels D) Expectations E) All of these are factors that cause currency supply and demand schedules to change.
ANSWER: E
4. A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) _______ in Mexican demand for U.S. goods, and the Mexican peso should _______. A) increase; appreciate B) increase; depreciate C) decrease; depreciate D) decrease; appreciate
ANSWER: B
5. An increase in U.S. interest rates relative to German interest rates would likely _______ the U.S. demand for euros and _______ the supply of euros for sale. A) reduce; increase B) increase; reduce C) reduce; reduce D) increase; increase
ANSWER: A
6. Investors from Germany, the United States, and Britain frequently invest in each other based on prevailing interest rates. If British interest rates increase, German investors are likely to buy _______ dollar-denominated securities, and the euro is likely to _______ relative to the dollar. A) fewer; depreciate B) fewer; appreciate C) more;