Reading 19: Foreign Exchange Parity Relations - LOS d ～

答案和详解如下：

1．An analyst has the following expectations for three economies over the coming year:

Based on these forecasts, how should the analyst predict the currency of Dacia will change in value versus the currencies of Epirus and Noricum?

B)           Appreciate                             Appreciate

C)           Depreciate                             Appreciate

D)           Depreciate                             Depreciate

The correct answer was B)

Lower income growth, lower inflation, and a higher domestic real interest rate are factors that should cause a currency to appreciate. Dacia is expected to have a lower income growth rate and a higher real interest rate than Epirus, so Dacia’s currency should appreciate relative to that of Epirus. Dacia is expected to have a lower inflation rate than Noricum, so Dacia’s currency should also appreciate against the currency of Noricum.

2．A country’s currency will appreciate when its:

A)   imports rise in relation to its exports.

B)   exports rise in relation to its imports.

C)   current account moves from surplus to deficit.

D)   capital account is in surplus but not changing.

The correct answer was B)

A country’s currency will appreciate after its exports rise in relation to its imports. An increase in exports means that other countries are buying the country’s currency, which increases its value.

3． Which of the following is least likely to cause a country's currency to depreciate?

A)   A high inflation rate.

B)   Faster growth of imports relative to exports.

C)   Domestic real interest rates are less than those abroad.

D)   Slow growth of income relative to one's trading partners.

The correct answer was D)

Slow growth of income relative to one's trading partners will cause imports to lag behind exports. When the demand for a country's exports increases, the demand for their currency also increases causing their currency to appreciate.

4．When a country’s monetary authority increases the money supply, a unit of money:

A)   gains value both in terms of the domestic goods it can buy and in terms of the foreign currency it can buy.

B)   gains value in terms of the domestic goods it can buy but loses value in terms of the foreign currency it can buy.

C)   loses value both in terms of the domestic goods it can buy and in terms of the foreign currency it can buy.

D)   loses value in terms of the domestic goods it can buy but gains value in terms of the foreign currency it can buy.

The correct answer was C)

An expansionary monetary policy causes inflation, which reduces domestic purchasing power. In addition, inflation causes a currency to depreciate in value.

5．Under a system of flexible exchange rates, which one of the following is most likely to cause a nation’s currency to appreciate on the foreign exchange market?

A)   An increase in real foreign interest rates.

B)   A decrease in real domestic interest rates.

C)   A decrease in the nation’s domestic rate of inflation.

D)   An increase in the nation’s domestic rate of inflation.

The correct answer was C)

A decrease in the nation’s domestic rate of inflation means that the nation’s currency will tend to appreciate (or depreciate less rapidly) in value. Those outside the U.S. will trade their currency for dollars in order to take advantage of the relatively lower goods prices. This will cause an increase in the demand for dollars.