Question 1

Which of the following holds true, if goods sell for the same price worldwide when converted to a common currency?

Accepted Answer

A)  A high rate of inflation exists
B)  A fixed exchange-rate system exists
C)  Purchasing power parity exists
D)  The foreign exchange market is in equilibrium
E)  Arbitrage opportunities exist

Question 2

Suppose a 10-mile taxi ride costs £6.50 in London and $10.00 in Los Angeles.If the exchange rate is £1 = $1.70 purchasing power parity holds.

Accepted Answer

A) True 
 B)False

Question 3

Fixed exchange rates require the economic policies of countries linked by the exchange rate to be:

Accepted Answer

A)  completely independent.
B)  complementary to each other.
C)  determined by the World Bank.
D)  similar in nature.
E)  determined by the International Monetary Fund.

Question 4

The U.S.provides about _____ percent of the annual membership fees of IMF member countries.

Accepted Answer

A)  5.6
B)  10.2
C)  15.3
D)  17.3
E)  22.4

Question 5

Assume that a Chrysler automobile sells for $15, 000 in the United States and that the exchange rate is $1 = €1.3.For purchasing power parity to hold, the same car should sell in Germany for:

Accepted Answer

A)  €15, 000.
B)  €11, 538.
C)  €19, 500.
D)  €1, 538.
E)  €15, 500.

Question 6

Suppose you observe that with a given supply curve, the Peruvian demand for Argentinean pesos steadily decreases.This will most likely mean:

Accepted Answer

A)  the supply of Peruvian nuevos soles has increased on the foreign exchange market.
B)  the Argentinean peso will appreciate in value relative to the Peruvian nuevo sol.
C)  the Argentinean peso will depreciate in value relative to the Peruvian nuevo sol.
D)  the Peruvian demand for Argentinean goods has increased.
E)  the supply of Argentinean pesos has increased on the foreign exchange market.

Question 7

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 1: A) the price of dollar per British pound is $1.50 and the quantity of British pounds being traded is 225. B) the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 225. C) the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 300. D) the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 350. E) the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 300." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 22.2.At the initial equilibrium point, with demand curve D and supply curve S1:

Accepted Answer

A)  the price of dollar per British pound is $1.50 and the quantity of British pounds being traded is 225.
B)  the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 225.
C)  the price of dollar per British pound is $1.60 and the quantity of British pounds being traded is 300.
D)  the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 350.
E)  the price of dollar per British pound is $1.75 and the quantity of British pounds being traded is 300.

Question 8

Foreign exchange market intervention is most effective when:

Accepted Answer

A)  each country's political leaders agree to cooperate fully with the process.
B)  leading economists in each country concur that intervention is needed.
C)  permanent differences between the free market exchange rate and the fixed exchange rate are expected.
D)  temporary differences between the free market exchange rate and the fixed exchange rate are expected.
E)  all the countries restrict the international movement of goods and services.

Question 9

Currency speculators are traders who seek to profit from a(n) :

Accepted Answer

A)  shift in global demand and supply patterns.
B)  increase in the price of oil.
C)  sudden shift in interest rates.
D)  exchange rate change by selling the currency expected to appreciate and buying the currency expected to depreciate.
E)  exchange rate change by selling the currency expected to depreciate and buying the currency expected to appreciate.

Question 10

A reserve currency is a currency that is:

Accepted Answer

A)  used exclusively to settle domestic debts.
B)  specifically designed for use by commercial banks to settle accounts.
C)  held only by bureaucrats.
D)  used to settle international debts by private corporations.
E)  held by governments to facilitate foreign exchange market interventions.

Question 11

Countries that maintain a constant gold value for their currencies are said to be on a gold standard.

Accepted Answer

A) True 
 B)False

Question 12

How many dollars do you need to buy a Swedish Kronor (SEK) when the exchange rate is $1 = 6.429 SEK?

Accepted Answer

A)  $0.016
B)  $1.056
C)  $0.649
D)  $0.156
E)  $1.56

Question 13

When a U.S.importer needs $20, 000 to settle an invoice for 228, 000 Uruguayan pesos, the price of 1 dollar is 11.4 Uruguayan pesos.

Accepted Answer

A) True 
 B)False

Question 14

If prices rise within a country, then, other things equal, the value of a unit of domestic currency will:

Accepted Answer

A)  rise in both the domestic and the foreign exchange markets.
B)  fall in both the domestic and the foreign exchange markets.
C)  rise in the domestic market and fall in the foreign exchange market.
D)  fall in the domestic market and rise in the foreign exchange market.
E)  fluctuate unpredictably in both domestic and foreign exchange markets.

Question 15

A country on a gold standard was able to maintain people's confidence in the value of its currency by:

Accepted Answer

A)  printing more and more paper money.
B)  restricting international exchange of goods and services.
C)  ensuring the convertibility of paper money into gold.
D)  maintaining a fixed stock of foreign currencies.
E)  ensuring balance of payment surplus.

Question 16

Purchasing power parity exists when domestic currency:

Accepted Answer

A)  maintains a fixed exchange rate with foreign currency.
B)  is not convertible into foreign currency.
C)  buys more goods at home than abroad.
D)  buys as many goods at home as it does abroad.
E)  appreciates in value against foreign currency.

Question 17

Carlos Silva, a Colombian singer, goes on tour to the United States for one month, following high American demand for his live shows.Assuming that all the show's expenses are paid by the U.S.promoters, other things equal, the U.S.tour will bring about:

Accepted Answer

A)  a decreased supply of Colombian pesos in the foreign exchange market.
B)  an increased supply of American dollars in the foreign exchange market.
C)  an increased supply of Colombian pesos in the foreign exchange market.
D)  a decreased demand for Colombian pesos in the foreign exchange market.
E)  an increased demand for American dollars in the foreign exchange market.

Question 18

Under the flexible exchange rate system, when a country tries to stimulate economic growth and improve its employment rates, it is likely to cause:

Accepted Answer

A)  the domestic inflation rate to rise and the domestic currency to depreciate.
B)  the domestic inflation rate to rise and the domestic currency to appreciate.
C)  the domestic inflation rate and the value of the domestic currency to remain constant.
D)  the domestic inflation rate to fall and the domestic currency to appreciate.
E)  the domestic inflation rate to fall and the domestic currency to depreciate.

Question 19

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.

Accepted Answer

A) True 
 B)False

Question 20

If the price of an ounce of gold is 200 ZARs in South Africa and $75 in Canada, what will be the South African Rand (ZAR) per Canadian dollar (C$) exchange rate?

Accepted Answer

A)  C$1 = 4.25 ZAR
B)  C$1 = 1.75 ZAR
C)  C$1 = 2 ZAR
D)  C$1 = 2.67 ZAR
E)  C$1 = 4 ZAR

Exam 42: Exchange Rates and Financial Links Between Countries

Suppose a 10-mile taxi ride costs £6.50 in London and $10.00 in Los Angeles.If the exchange rate is £1 = $1.70 purchasing power parity holds.

Correct AnswerverifiedShow Answer

A country on a gold standard was able to maintain people's confidence in the value of its currency by:

Correct AnswerverifiedShow Answer

Countries that maintain a constant gold value for their currencies are said to be on a gold standard.

Correct AnswerverifiedShow Answer

A reserve currency is a currency that is:

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Purchasing power parity exists when domestic currency:

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Carlos Silva, a Colombian singer, goes on tour to the United States for one month, following high American demand for his live shows.Assuming that all the show's expenses are paid by the U.S.promoters, other things equal, the U.S.tour will bring about:

Correct AnswerverifiedShow Answer

Which of the following holds true, if goods sell for the same price worldwide when converted to a common currency?

Correct AnswerverifiedShow Answer

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.At the initial equilibrium point, with demand curve D and supply curve S1:

Correct AnswerverifiedShow Answer

If prices rise within a country, then, other things equal, the value of a unit of domestic currency will:

Correct AnswerverifiedShow Answer

Suppose you observe that with a given supply curve, the Peruvian demand for Argentinean pesos steadily decreases.This will most likely mean:

Correct AnswerverifiedShow Answer

The U.S.provides about _____ percent of the annual membership fees of IMF member countries.

Correct AnswerverifiedShow Answer

Assume that a Chrysler automobile sells for $15, 000 in the United States and that the exchange rate is $1 = €1.3.For purchasing power parity to hold, the same car should sell in Germany for:

Correct AnswerverifiedShow Answer

Fixed exchange rates require the economic policies of countries linked by the exchange rate to be:

Correct AnswerverifiedShow Answer

How many dollars do you need to buy a Swedish Kronor (SEK) when the exchange rate is $1 = 6.429 SEK?

Correct AnswerverifiedShow Answer

Currency speculators are traders who seek to profit from a(n) :

Correct AnswerverifiedShow Answer

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.

Correct AnswerverifiedShow Answer

Foreign exchange market intervention is most effective when:

Correct AnswerverifiedShow Answer

If the price of an ounce of gold is 200 ZARs in South Africa and $75 in Canada, what will be the South African Rand (ZAR) per Canadian dollar (C$) exchange rate?

Correct AnswerverifiedShow Answer

When a U.S.importer needs $20, 000 to settle an invoice for 228, 000 Uruguayan pesos, the price of 1 dollar is 11.4 Uruguayan pesos.

Correct AnswerverifiedShow Answer

Under the flexible exchange rate system, when a country tries to stimulate economic growth and improve its employment rates, it is likely to cause:

Correct AnswerverifiedShow Answer

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The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.At the initial equilibrium point, with demand curve D and supply curve S₁:

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