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| 1 | |
The nominal exchange rate: |
| | A) | Is the amount of one country's goods that could be obtained with the same goods of another country. |
| | B) | Is always expressed as units of a foreign currency per U.S. $. |
| | C) | Is the rate that one can exchange the currency of one country for the currency of another country. |
| | D) | Is a synonymous term for the swap rate. |
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| 2 | |
If an American traveling abroad can obtain 115 euros for $100 U.S., the current euro per $ exchange rate is: |
| | A) | 0.870 euros/$ |
| | B) | 1.15 euros/$ |
| | C) | 115euros/$ |
| | D) | 1euro/1.15$ |
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| 3 | |
If in late 2003 one U.S. dollar exchanged for 118 euros and in mid-2004 one U.S. dollar exchanged for 127 euros, then: |
| | A) | The euro appreciated relative to the dollar. |
| | B) | The dollar appreciated relative to the euro. |
| | C) | European goods became more expensive to Americans. |
| | D) | American goods became more expensive to Americans. |
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| 4 | |
If the Japanese yen appreciates against the U.S. dollar: |
| | A) | Americans should find Japanese goods are now less expensive. |
| | B) | Japanese residents would find Japanese goods are relatively less expensive than American goods. |
| | C) | U.S. 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. |
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| 5 | |
The real exchange rate is defined as: |
| | A) | The nominal exchange rate plus the rate of inflation. |
| | B) | The spot exchange rate. |
| | C) | The rate at which one can exchange the goods and services from one country for the goods and services from another country. |
| | D) | The exchange rate that would exist if nominal rates were not fixed by governments. |
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| 6 | |
If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/$U.S., then the dollar price of the Japanese automobile is: |
| | A) | 22,727 yen |
| | B) | $20,000 |
| | C) | $25,000 |
| | D) | $22,727 |
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| 7 | |
The theory of purchasing power parity says: |
| | A) | The real exchange rate is always greater than one. |
| | B) | A dollar should buy the same goods no matter where in the world you go. |
| | C) | The dollar price of a basket of goods in the U.S. should equal the yen price of a basket of goods in Japan. |
| | D) | The real exchange rate is always less than one. |
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| 8 | |
Concrete does not likely follow the law of one price due to: |
| | A) | Technical differences. |
| | B) | Lack of information regarding prices. |
| | C) | Tariffs. |
| | D) | High transportation costs. |
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| 9 | |
In the foreign exchange market, the demand for U.S. dollars is made up from: |
| | A) | Foreigners desiring to purchase U.S. goods, services, and assets. |
| | B) | Americans who want to hold more currency. |
| | C) | Americans wishing to purchase foreign goods, services, and assets. |
| | D) | Americans who want to invest in foreign assets. |
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| 10 | |
A decrease in Americans' preference for foreign goods will lead to the following in the foreign exchange market: |
| | A) | An increase in the demand for dollars. |
| | B) | A decrease in the supply of dollars. |
| | C) | A depreciation of the dollar relative to foreign currencies. |
| | D) | A movement down the demand curve for dollars. |
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| 11 | |
If Europeans increase their demand for American cars, everything else constant, we should observe the following change in the dollar-euro market: |
| | A) | The supply curve of dollars shifts left. |
| | B) | The demand curve for dollars shifts left. |
| | C) | The demand curve for dollars shifts right. |
| | D) | The supply curve of dollars shifts right. |
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| 12 | |
The real and nominal exchange rates differ in the sense that: |
| | A) | The real exchange rate does not express differences in the purchasing power of a currency. |
| | B) | The nominal exchange rate is adjusted for price differences between countries and the real is not. |
| | C) | The nominal exchange rate does not reflect differences in purchasing power between currencies. |
| | D) | Nominal exchange rates are fixed but real rates are flexible. |
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| 13 | |
The law of one price: |
| | A) | Is based on arbitrage. |
| | B) | Applies only to real goods and not financial assets. |
| | C) | Can explain short-run exchange rates but not long-run exchange rates. |
| | D) | Is a mathematical concept that is not useful in explaining exchange rates. |
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| 14 | |
If inflation in the United States averages more than inflation in Europe over a long period of time, we should expect: |
| | A) | The dollar to appreciate relative to the euro. |
| | B) | The euro dollar exchange rate to stay relatively fixed. |
| | C) | The dollar to depreciate relative to the euro. |
| | D) | No effect; there isn't a link between inflation and exchange rates over the long run. |
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| 15 | |
The empirical evidence on purchasing power parity seems to point out that: |
| | A) | Purchasing power parity can explain long run movements in exchange rates but does not hold up to scrutiny for short-run changes. |
| | B) | Purchasing power parity does a good job of explaining short-run movements in exchange rates, but does not hold up to scrutiny over the long run. |
| | C) | Purchasing power parity is a good theory for international trade, but is of little use in explaining exchange rate movements. |
| | D) | Inflation and a country's rate of currency appreciation are positively correlated. |
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