MCQs of Economics – Exchange-Rate Determination

The relationship between the exchange rate and the prices of tradable goods is known as the:

If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals:

If a Big Mac hamburger sells for the same dollar value in New York as in London then:

Relatively low real interest rates in the United States tend to:

Relatively high real interest rates in the United States tend to:

Assume that the United States faces an a percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing power parity theory over the long run the dollar would be expected to:

In the presences of purchasing power parity, if one dollar exchanges for 2 British pounds and if a DVD player costs $400 in the United States then in Britain the DVD player should cost:

IF when cost $4 per bushel in the United States and 2 pounds per bushel in Great Britain then in the presence of purchasing power parity the exchange rate should be:

A primary reason that explains the appreciation in the value of U.S dollar would be:

The high foreign exchange value of the U.S dollar in the early 1980s can best be explained by:

When the price of foreign currency (i.e the exchange rate) is below the equilibrium level:

When the price of foreign currency (the exchange rate) is above the equilibrium level:

The appreciation in the value of the dollar in the early 1980s is explained by all of the following except:

Suppose Canada and Switzerland were the only two countries in the world There exists an excess supply of Swiss francs on the foreign exchange market This suggests that:

If Canada runs a balance of payments surplus and exchange rates are floating:

If Japan runs current account deficit and exchange rates are floating:

The exchange value of the U.S dollar is primarily determined by:

For the United States suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent, For Switzerland the annual interest rate on government securities equal 10 percent while the annual inflation rate equals 7 percent The above variables would cause investment funds to flow from:

For the United States suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent For Japan the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 5 percent the above variables would cause investment funds to flow from:

Given a system of floating exchange rates rising income in the United States would trigger a (an):

Given a system of floating exchange rates falling income in the United States would trigger a (an):

Under a system of floating exchange rates relatively low productivity and high inflation rates in the United States results in a (an):

Under a system of floating exchange rates relatively high productivity and low inflation rates in the United States results in a (an):

Which example of market expectations causes the dollar to appreciate against the yen– expectations that the U.S economy will have:

Which example of market expectations causes the dollar to depreciate against the yen – expectation that the U.S economy will have:

Starting from a position where the nation’s money demand equals the money supply and its balance of payments is in equilibrium its balance of payments would move into a surplus position if there occurred in the nation a (an):

Starting from a position where the nation’s money demand equals the money supply and its balance of payments is in equilibrium economic theory suggests that the nation’s balance of payments would move into a surplus position if there occurred in the nation a (an):

Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S dollar will depreciate against foreign currencies. investment funds would tend to:

Suppose that rising U.S income leads to higher sales and profits in the United States This would likely result in:

Due to Japan’s high saving rate, suppose that the Japanese invest abroad. This investment may result in a/an ___ of the Japanese yen and therefore a for Japan

Suppose that the purchasing power parity estimate of the dollar/euro exchange rate is $1.30 per euro,and the current spot rate is $1.3 8 per euro. Comparing these two exchange rates from a long-run viewpoint you would:

Assume that a Big Mac hamburger cost $3 in the United States 2 pesos in Mexico The implied purchasing power parity exchange rate between the peso and the dollar is:

Consulting firms that use large-scale econometric models to forecast exchange rate movements are engaging in:

Exchange rate overshooting often occurs because:

The assets market approach is most helpful in explaining:

According to the asset market approach increased investor confidence in the Mexican economy would cause the peso to:

The asset market approach views exchange rates as being determined mainly by:

The purchasing power parity theory has limitations in forecasting exchange rate fluctuations for all of the following reasons except