Question 1

One example of an optimal currency area is the states within the United States.

Accepted Answer

A) True 
 B)False

Question 2

An overvalued dollar makes U.S.

Accepted Answer

A)  imports rise in price.
B)  exports rise in price.
C)  monetary policy expansionary.
D)  fiscal policy contractionary.E) C) and D)
F) None of the above

Question 3

China has intervened in the foreign exchange market to maintain the value of its currency vis-à-vis other countries.

Accepted Answer

A) True 
 B)False

Question 4

You go on vacation to Mexico and take $1,000 with you. During your time in Mexico, the peso appreciates in value relative to the dollar. It follows that

Accepted Answer

A)  you will be able to buy more goods and services in Mexico after the peso appreciates.
B)  you will be able to buy fewer goods and services in Mexico after the peso appreciates.
C)  the purchasing power parity theory is incorrect.
D)  Mexican workers, paid in pesos, will be able to buy fewer goods and services in Mexico after the peso appreciates.E) B) and D)
F) B) and C)

Question 5

If, under a fixed exchange rate system, the dollar price of a Mexican peso is above its equilibrium level, then the

Accepted Answer

A)  dollar is undervalued.
B)  peso is undervalued.
C)  dollar has appreciated.
D)  peso has depreciated.E) B) and C)
F) A) and D)

Question 6

The answer is: "A geographic area in which exchange rates can be fixed or a common currency used without sacrificing domestic economic goals." What is the question?

Accepted Answer

A)  What is a flexible exchange rate system?
B)  What is a managed float area?
C)  What is a purchasing power parity area?
D)  What is an optimal currency area?E) None of the above
F) A) and B)

Question 7

If, under a fixed exchange rate system, the dollar price of Mexican pesos is below its equilibrium level, then the

Accepted Answer

A)  dollar is undervalued.
B)  peso is undervalued.
C)  dollar has depreciated.
D)  peso has appreciated.
E)  a and cF) B) and E)
G) D) and E)

Question 8

If the U.S. dollar depreciates in the foreign exchange market, U.S. exports will be __________ and U.S. imports will be __________.

Accepted Answer

A)  relatively less expensive; relatively less expensive
B)  relatively less expensive; relatively more expensive
C)  relatively more expensive; relatively more expensive
D)  relatively more expensive; relatively less expensive
E)  unaffected; relatively less expensiveF) A) and E)
G) None of the above

Question 9

Suppose that on Monday, a Big Mac cost $3.00 in the United States and 320 Japanese yen in Japan. On Monday, the exchange rate was $1 = 90 yen. According to the purchasing power parity theory, the yen was __________ by approximately __________ percent.

Accepted Answer

A)  overvalued; 22
B)  undervalued; 40
C)  overvalued; 29
D)  undervalued; 19
E)  overvalued; 19F) C) and D)
G) A) and E)

Question 10

When the official dollar price of a foreign currency is set below its equilibrium level, the foreign currency

Accepted Answer

A)  has been depreciated.
B)  is overvalued.
C)  is undervalued.
D)  is devalued.
E)  is revalued.F) C) and D)
G) B) and D)

Question 11

If the equilibrium exchange rate is $1 = 90 yen, then at an exchange rate of $1 = 80 yen there is a

Accepted Answer

A)  surplus of yen.
B)  shortage of yen.
C)  shortage of dollars.
D)  a and c
E)  b and cF) D) and E)
G) C) and D)

Question 12

If the equilibrium exchange rate between U.S. dollars and Japanese yen is $0.007 = 1 yen, but currently the exchange rate is $0.009 = 1 yen, then with flexible exchange rates the dollar price of a yen will __________, and the yen will __________.

Accepted Answer

A)  increase; appreciate
B)  decrease; appreciate
C)  increase; depreciate
D)  decrease; depreciateE) C) and D)
F) A) and D)

Question 13

There is a flexible exchange rate system and only two countries in the world, the United States and Mexico. If the inflation rate in the United States rises relative to the inflation rate in Mexico, it follows that

Accepted Answer

A)  the dollar will appreciate and the peso will depreciate.
B)  both the dollar and the peso will appreciate, although the peso will appreciate before the dollar appreciates.
C)  the dollar will depreciate and the peso will appreciate.
D)  both the dollar and the peso will depreciate, although the peso will depreciate before the dollar depreciates.
E)  There is not enough information to answer the question.F) C) and E)
G) B) and D)

Question 14

A currency has depreciated in value if it takes more of a foreign currency to buy it.

Accepted Answer

A) True 
 B)False

Question 15

If, as a result of market forces, the exchange rate changes from $1 equals 11 pesos to $1 equals 9 pesos, then the dollar has

Accepted Answer

A)  appreciated.
B)  been revalued.
C)  been devalued.
D)  depreciated.
E)  There is not enough information to answer the question.F) A) and B)
G) C) and D)

Question 16

The answer is: "The price of one currency in terms of another currency." What is the question?

Accepted Answer

A)  What is a foreign currency?
B)  What is an exchange rate?
C)  What is a flexible exchange rate system?
D)  What is a fixed exchange rate system?E) A) and D)
F) A) and C)

Question 17

In a foreign exchange market diagram with dollars per peso on the vertical axis, the quantity of __________ would be on the horizontal axis, and the U.S. demand for Mexican goods would help to determine the __________ curve.

Accepted Answer

A)  dollars; demand
B)  dollars; supply
C)  pesos; demand
D)  pesos; supplyE) B) and C)
F) C) and D)

Question 18

An American good with a price tag of $89 costs 809 pesos. The exchange rate must be approximately

Accepted Answer

A)  $11.00 = 1 peso
B)  $0.11 = 1 peso
C)  $0.89 = 1 peso
D)  $0.09 = 1 peso
E)  none of the aboveF) C) and E)
G) B) and D)

Question 19

The U.S. dollar has depreciated relative to the Japanese yen if it takes

Accepted Answer

A)  fewer yen to buy a dollar.
B)  more yen to buy a dollar.
C)  more dollars to buy a yen.
D)  fewer dollars to buy a yen.
E)  a and cF) C) and E)
G) A) and B)

Question 20

The concept of an optimal currency area arose from the debate over whether fixed or flexible exchange rates are better.

Accepted Answer

A) True 
 B)False

Exam 34: International Finance

There is a flexible exchange rate system and only two countries in the world, the United States and Mexico. If the inflation rate in the United States rises relative to the inflation rate in Mexico, it follows that

Correct AnswerverifiedShow Answer

If, as a result of market forces, the exchange rate changes from $1 equals 11 pesos to $1 equals 9 pesos, then the dollar has

Correct AnswerverifiedShow Answer

If, under a fixed exchange rate system, the dollar price of Mexican pesos is below its equilibrium level, then the

Correct AnswerverifiedShow Answer

An American good with a price tag of $89 costs 809 pesos. The exchange rate must be approximately

Correct AnswerverifiedShow Answer

One example of an optimal currency area is the states within the United States.

Correct AnswerverifiedShow Answer

A currency has depreciated in value if it takes more of a foreign currency to buy it.

Correct AnswerverifiedShow Answer

You go on vacation to Mexico and take $1,000 with you. During your time in Mexico, the peso appreciates in value relative to the dollar. It follows that

Correct AnswerverifiedShow Answer

If the equilibrium exchange rate is $1 = 90 yen, then at an exchange rate of $1 = 80 yen there is a

Correct AnswerverifiedShow Answer

When the official dollar price of a foreign currency is set below its equilibrium level, the foreign currency

Correct AnswerverifiedShow Answer

The answer is: "The price of one currency in terms of another currency." What is the question?

Correct AnswerverifiedShow Answer

In a foreign exchange market diagram with dollars per peso on the vertical axis, the quantity of __________ would be on the horizontal axis, and the U.S. demand for Mexican goods would help to determine the __________ curve.

Correct AnswerverifiedShow Answer

If the U.S. dollar depreciates in the foreign exchange market, U.S. exports will be __________ and U.S. imports will be __________.

Correct AnswerverifiedShow Answer

The U.S. dollar has depreciated relative to the Japanese yen if it takes

Correct AnswerverifiedShow Answer

An overvalued dollar makes U.S.

Correct AnswerverifiedShow Answer

Suppose that on Monday, a Big Mac cost $3.00 in the United States and 320 Japanese yen in Japan. On Monday, the exchange rate was $1 = 90 yen. According to the purchasing power parity theory, the yen was __________ by approximately __________ percent.

Correct AnswerverifiedShow Answer

China has intervened in the foreign exchange market to maintain the value of its currency vis-à-vis other countries.

Correct AnswerverifiedShow Answer

The answer is: "A geographic area in which exchange rates can be fixed or a common currency used without sacrificing domestic economic goals." What is the question?

Correct AnswerverifiedShow Answer

If the equilibrium exchange rate between U.S. dollars and Japanese yen is $0.007 = 1 yen, but currently the exchange rate is $0.009 = 1 yen, then with flexible exchange rates the dollar price of a yen will __________, and the yen will __________.

Correct AnswerverifiedShow Answer

If, under a fixed exchange rate system, the dollar price of a Mexican peso is above its equilibrium level, then the

Correct AnswerverifiedShow Answer

The concept of an optimal currency area arose from the debate over whether fixed or flexible exchange rates are better.

Correct AnswerverifiedShow Answer

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In a foreign exchange market diagram with dollars per peso on the vertical axis, the quantity of would be on the horizontal axis, and the U.S. demand for Mexican goods would help to determine the curve.

Correct Answer
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If the U.S. dollar depreciates in the foreign exchange market, U.S. exports will be and U.S. imports will be .

Correct Answer
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Suppose that on Monday, a Big Mac cost $3.00 in the United States and 320 Japanese yen in Japan. On Monday, the exchange rate was $1 = 90 yen. According to the purchasing power parity theory, the yen was by approximately percent.

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If the equilibrium exchange rate between U.S. dollars and Japanese yen is $0.007 = 1 yen, but currently the exchange rate is $0.009 = 1 yen, then with flexible exchange rates the dollar price of a yen will , and the yen will .

Correct Answer
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