QUIZ

If the Bank of Japan wanted to increase the value of the Yen as compared to the dollar, which of the following would it do? a. buy Yen with dollars b. sell Yen with dollars c. attempt to increase Japanese inflation d. None of the answers are correct.

correct: a your answer:

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2

If real interest rates rise in the UK as compared to the U.S., and inflation does not correspondingly rise, the outcome would be: a. an increase in the demand for dollars and an increase in the value of the dollar as compared to the Pound. b. a decrease in the demand for dollars, and a decrease in the value of the dollar as compared to the Pound. c. an increase in the supply of dollars, and an increase in the value of the dollar as compared to the Pound. d. None of the answers are correct.

correct: b your answer:

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3	Government controls such as taxes on purchases of foreign bonds can impact the value of a currency. True    False
correct: true your answer:

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4	Which of the following would occur if inflation in the U.S. increased as compared to Canada? a. Canadians would demand more dollars. b. Americans would supply fewer dollars. c. The Canadian dollar would rise as compared to the U.S. dollar. d. None of the answers are correct.
correct: c your answer:

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5	For floating exchange rates, supply and demand generate the equilibrium price, just like for any other asset. True    False
correct: true your answer:

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6	The demand curve for foreign currency is upward sloping, because when the foreign currency is worth more, more people will want to buy it. True    False
correct: false your answer:

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7	If Canadian nominal interest rates decrease as compared to U.S. nominal interest rates, which of the following would occur? a. It depends on if the rise in interest rates is a result of an increase in inflation. b. Americans would demand more Canadian dollars. c. Canadians would supply fewer Canadian dollars. d. None of the answers are correct.
correct: a your answer:

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8	When news reports say that the dollar was mixed in trading, it means: a. other currencies were used more in speculation than the dollar. b. the dollar did not move very far in value. c. the dollar rose against some currencies and fell against others. d. None of the answers are correct.
correct: c your answer:

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9	The term "exchange rate" refers to the price of one currency in terms of another. True    False
correct: true your answer:

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10

When do relative interest rate increases in one country as compared to another lead to a depreciation of the currency of the country with the interest rate increase? a. When the interest rates are nominal rates, and the increase in rates reflects higher inflation. b. When the interest rates are real interest rates. c. When the interest rates are nominal rates, and the rates reflect a decline in inflation. d. More than one of these.

correct: a your answer:

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11	Today, the Euro spot rate is $1.25. Three days ago, the Euro spot rate was $1.30. The dollar floats against the Euro. The Euro has: a. revalued. b. appreciated. c. depreciated. d. devalued.
correct: c your answer:

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12	For fixed exchange rates, an increase in the value of a currency is referred to as: a. a devaluation. b. a revaluation. c. a depreciation. d. an appreciation.
correct: b your answer:

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13	An appreciation of a currency refers to a strengthening of the currency's value. True    False
correct: true your answer:

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14	Today, the indirect exchange rate of the Mexican peso is 10. Last year, the indirect exchange rate of the peso was 11. The peso's value ________ over the last year. a. depreciated by 1% b. depreciated by 10% c. appreciated by 1% d. appreciated by 10%
correct: d your answer:

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15	The Fisher Effect asserts that investors in a given money or bond market demand a higher nominal return to compensate them for loss of value due to inflation. True    False
correct: true your answer:

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16	If we are measuring the change in the $/Euro exchange rate, the formula (S-St-1)/St-1 tells us the % appreciation or depreciation of the Dollar as compared to the Euro. True    False
correct: false your answer:

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17	Which of the following would likely result in an increase in the dollar as compared to the Euro? a. The European Central Bank restricts the money supply. b. The Fed intervenes in the foreign exchange market and sells dollars for Euros. c. Political instability in the rest of the world causes a desire to hold a stable currency. d. None of the answers are correct.
correct: c your answer:

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18	Relatively higher inflation in the U.S. than the UK would cause a decline in demand for dollars. True    False
correct: true your answer:

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19	An increase in Canadian nominal interest rates, given that U.S. nominal interest rates remain constant, will lead to an increase in the value of the Canadian dollar irrespective of inflation. True    False
correct: false your answer:

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20	Political stability is an important factor affecting the equilibrium exchange rate for two countries. True    False
correct: true your answer:

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21	If the real interest rate rises in Canada as compared to the U.S., speculators will most likely: a. buy Canadian dollars. b. sell Canadian dollars. c. buy U.S. dollars. d. More than one of these.
correct: a your answer:

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22	If Japan has a low nominal interest rate and high inflation, the Yen should be strong. True    False
correct: false your answer:

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23	The depreciation or appreciation of a currency is measured by the percent change in the price of the currency in terms of another currency. True    False
correct: true your answer:

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24	Because exchange rates are always in equilibrium, companies cannot be negatively affected by exchange rate movements. True    False
correct: false your answer:

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25

If relative income rises in Switzerland as compared to the U.S., the impact would be: a. a higher demand for U.S. denominated goods, leading to an increase in the value of the dollar. b. a higher supply of Swiss Francs, leading to a decline in the value of the Swiss Franc. c. a higher U.S. demand for Swiss products, leading to an increase in the value of the Swiss Franc. d. more than one of these.

correct: d your answer:

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26	Which of the following affect the equilibrium exchange rate? a. relative inflation b. relative interest rates c. relative income levels d. All of the answers are correct.
correct: d your answer:

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27	For floating exchange rates, a decline in the value of a currency is referred to as: a. a devaluation. b. a revaluation. c. a depreciation. d. an appreciation.
correct: a your answer:

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28	Higher nominal interest rates in one country as compared to another are always accompanied by increases in the currency's value. True    False
correct: false your answer:

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29	Which of the following would cause an increase in the value of the U.S. dollar as compared to the Pound? a. A tax on the British for buying U.S. bonds. b. An increase in UK income levels relative to U.S. income levels. c. A decrease in UK inflation relative to U.S. inflation. d. All of the answers are correct.
correct: b your answer:

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30	It is not possible for interest rates in Canada to affect the U.S.$/Pound exchange rate. True    False
correct: false your answer: