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Reading 19: Foreign Exchange Parity Relations - LOS a ~

6.An English textile manufacturer builds a plant in the United States. In the foreign exchange market, this action creates a:

A)   supply of both dollars and pounds.

B)   demand for both dollars and pounds.

C)   supply of dollars and a demand for pounds.

D)   demand for dollars and a supply of pounds.

7If the U.S. dollar appreciates relative to the Elbonian peso, it becomes:

A)   cheaper for foreigners to buy U.S. goods.

B)   more expensive for foreigners to buy U.S. goods.

C)   less valuable.

D)   more expensive for U.S. citizens to buy Elbonian goods.

8A German parts manufacturer builds a manufacturing plant in the United States. In the foreign exchange market, this action creates:

A)   supply of both dollars and euros.

B)   demand for both dollars and euros.

C)   supply of dollars and a demand for euros.

D)   demand for dollars and a supply of euros.

9Currency quotes at the closing of the European market were 105 yen/$ and 0.9350 $/

答案和详解如下:

6.An English textile manufacturer builds a plant in the United States. In the foreign exchange market, this action creates a:

A)   supply of both dollars and pounds.

B)   demand for both dollars and pounds.

C)   supply of dollars and a demand for pounds.

D)   demand for dollars and a supply of pounds.

The correct answer was D)

The English manufacturer will need dollars to pay for the plant. Dollars will be bought and pounds sold, increasing the demand for dollars and increasing the supply of pounds.

7If the U.S. dollar appreciates relative to the Elbonian peso, it becomes:

A)   cheaper for foreigners to buy U.S. goods.

B)   more expensive for foreigners to buy U.S. goods.

C)   less valuable.

D)   more expensive for U.S. citizens to buy Elbonian goods.

The correct answer was B)

Appreciation is an increase in the value of a domestic currency, relative to foreign currencies, leading to increased purchasing power of the domestic currency for foreign goods. As a result of appreciation of a domestic currency, domestic goods become more expensive to foreigners.

8A German parts manufacturer builds a manufacturing plant in the United States. In the foreign exchange market, this action creates:

A)   supply of both dollars and euros.

B)   demand for both dollars and euros.

C)   supply of dollars and a demand for euros.

D)   demand for dollars and a supply of euros.

The correct answer was D)

The German manufacturer will need to purchase U.S. assets, labor, etc., to build the plant. In order to pay the workers, they will need to sell euros and buy dollars, thus increasing the supply of euros and increasing the demand for dollars.

9Currency quotes at the closing of the European market were 105 yen/$ and 0.9350 $/

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