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1) The high foreign exchange value of the U.S dollar in the early 1980s can best be explained by ? a. additional investment funds made available from overseas b. lack of investor confidence in U.S fiscal policy c. market expectations of rising inflation in the United States d. American tourists overseas finding costs increasing
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2) 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. $50 per pound b. $1.00 per pound c. $2.00 per pound d. $8.00 per pound
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3) Assume that the United States faces 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 ? a. appreciate by 8 percent against the yen b. depreciate by 8 percent against the yen c. remain at its existing exchange rate d. None of the above
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4) Relatively low real interest rates in the United States tend to ? a. decrease the foreign demand for dollars causing the dollar to depreciate b. decrease the foreign demand for dollars causing the dollar to appreciate c. increase the foreign demand for dollars causing the dollar to depreciate d. decrease the foreign demand for dollars causing the dollar to appreciate
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5) 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 ? a. 20 pounds b. 40 pounds c. 60 pounds d. 80 pounds
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6) Exchange rate overshooting often occurs because ? a. domestic prices adjust slowly to shifts in demand b. military spending during military conflicts c. elasticities are smaller in the long run than the short run d. elasticities are smaller in the short run than the long run
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7) According to the asset market approach increased investor confidence in the Mexican economy would cause the peso to ? a. appreciate because of an increase supply of peso denominated assets b. depreciate because of an increased supply of peso denominated assets c. appreciated because of an increased demand for peso denominated assets d. depreciated because of an increased demand for peso denominated assets
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8) The purchasing power parity theory has limitations in forecasting exchange rate fluctuations for all of the following reasons except ? a. inflation effects exchange rates b. international capital flows affect exchange rates c. governments sometimes impose trade restrictions such as tariffs and quotas d. not all products are internationally tradeable
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9) The asset market approach views exchange rates as being determined mainly by ? a. the use of import tariffs and quotas by governments b. the current account balance of each country c. the relative growth rate of national output between countries d. efforts of investors to balance their portfolios among financial assets denominated in different currencies
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10) The assets market approach is most helpful in explaining ? a. why exchange rates remain quite stable b. why governments change their money supplies c. long term exchange rate movements d. short term exchange rate movements
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