A)   sale of a U.S. company to a Dutch investor.

B)   sale of U.S. made automobiles to Vietnamese consumers.

C)   purchase of Korean televisions by an American distributor.

Q11. Phil Howell, a foreign exchange trader, makes the following two statements about foreign exchange rates:

Statement 1: A decrease in the expected future exchange value of a currency will increase supply and decrease demand for that currency.

Statement 2: Interest rate parity (IRP) is the idea that exchange rates will adjust to reflect the difference in inflation rates between different countries.

With respect to these statements:

A)   both are correct.

B)   both are incorrect.

C)   only one is correct.

Q12. Which one of the following factors will most likely cause a country’s domestic currency to appreciate on the foreign exchange market? An increase in:

A)   its exports relative to its imports.

B)   the real rate of interest in others countries.

C)   its domestic rate of inflation.

答案和详解如下：

A)   sale of a U.S. company to a Dutch investor.

B)   sale of U.S. made automobiles to Vietnamese consumers.

C)   purchase of Korean televisions by an American distributor.

Correct answer is C)         

If an American distributor is purchasing Korean televisions, then the distributor will need to sell dollars and purchase won. This action will supply dollars to the foreign exchange market. The sale of U.S. automobiles to Vietnamese consumers would increase the demand for dollars as Vietnamese consumers sell dongs and buy dollars. The sale of a U.S. company to a Dutch investor would also increase the demand for the dollar in the foreign exchange market and increase the supply of euros as the Dutch investor sells euros and buys dollars.

Q11. Phil Howell, a foreign exchange trader, makes the following two statements about foreign exchange rates:

Statement 1: A decrease in the expected future exchange value of a currency will increase supply and decrease demand for that currency.

Statement 2: Interest rate parity (IRP) is the idea that exchange rates will adjust to reflect the difference in inflation rates between different countries.

With respect to these statements:

A)   both are correct.

B)   both are incorrect.

C)   only one is correct.

Correct answer is C)

Statement 1 is correct. A decrease in the expected future exchange rate has opposite effects on the supply and demand for a currency, decreasing demand for the currency and increasing its supply on the foreign exchange market. Statement 2 is incorrect. The idea that exchange rates will adjust to reflect the difference in inflation rates between different countries is purchasing power parity (PPP).

Q12. Which one of the following factors will most likely cause a country’s domestic currency to appreciate on the foreign exchange market? An increase in:

A)   its exports relative to its imports.

B)   the real rate of interest in others countries.

C)   its domestic rate of inflation.

Correct answer is A)

If a country’s exports are increasing at a faster rate than its imports it means that its exports are being purchased by foreigners at a faster rate than imports from abroad are being purchased by domestic consumers. In order for foreigners to buy a country’s exports they must first buy the exporting country’s currency causing it to appreciate. An increase in the domestic rate of inflation and real interest rates in other countries will each lead to depreciation of a country’s domestic currency on the foreign exchange market.

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