Q10. Mexico eliminates a high tariff on a major imported item. Under a system of flexible exchange rates, this action would tend to:

A)   decrease the balance of trade deficit of Mexico.

B)   cause the peso to appreciate in value.

C)   cause the peso to depreciate in value.

Q11. Which of the following is least likely to affect exchange rates? Differential:

A)   income growth.

B)   spending by firms.

C)   inflation rates.

Q12. If real interest rates in the U.S. are higher than the real interest rates of U.S. trading partners, what will tend to happen to the foreign exchange value of the dollar? The dollar will most likely:

A)   appreciate.

B)   remain steady.

C)   depreciate.

Q13. Which of the following would be most likely to cause a nation’s currency to depreciate relative to its trading partners?

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

B)   An increase in the nation's domestic rate of inflation.

C)   An increase in inflation rates of the nation's trading partners.

Q14. Assume that one year ago, the Canadian Dollar (CAD) was quoted at Australian Dollar (AUD) 0.82500 and that today the CAD is trading at AUD 0.8011. Assume that Canada and Australia are trading partners. Which of the following statements is least likely? Over the past year, the Canadian:

A)   government undertook an unanticipated expansionary monetary policy action.

B)   economy grew at a faster rate than the Australian economy.

C)   government recently undertook an unanticipated expansionary fiscal policy action.

Q15. 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 the nation’s domestic rate of inflation.

B)   An increase in real foreign interest rates.

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

答案和详解如下：

Q10. Mexico eliminates a high tariff on a major imported item. Under a system of flexible exchange rates, this action would tend to:

A)   decrease the balance of trade deficit of Mexico.

B)   cause the peso to appreciate in value.

C)   cause the peso to depreciate in value.

Correct answer is C)

By eliminating a high tariff on a major imported item under flexible exchange rates, demand for foreign goods increases, causing the peso to depreciate.

Q11. Which of the following is least likely to affect exchange rates? Differential:

A)   income growth.

B)   spending by firms.

C)   inflation rates.

Correct answer is B)

The main determinant of exchange rates is the supply and demand for a currency, which is determined by the difference between the two countries in their: income growth, inflation rates, and interest rates.

Q12. If real interest rates in the U.S. are higher than the real interest rates of U.S. trading partners, what will tend to happen to the foreign exchange value of the dollar? The dollar will most likely:

A)   appreciate.

B)   remain steady.

C)   depreciate.

Correct answer is A)

Demand for currency increases when real interest rates increase because of increased financial flows.

Q13. Which of the following would be most likely to cause a nation’s currency to depreciate relative to its trading partners?

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

B)   An increase in the nation's domestic rate of inflation.

C)   An increase in inflation rates of the nation's trading partners.

Correct answer is B)

With inflation, consumers will have higher nominal expenditures including those on foreign goods. They will increase their demand for foreign goods, which will cause the domestic currency to depreciate.

Q14. Assume that one year ago, the Canadian Dollar (CAD) was quoted at Australian Dollar (AUD) 0.82500 and that today the CAD is trading at AUD 0.8011. Assume that Canada and Australia are trading partners. Which of the following statements is least likely? Over the past year, the Canadian:

A)   government undertook an unanticipated expansionary monetary policy action.

B)   economy grew at a faster rate than the Australian economy.

C)   government recently undertook an unanticipated expansionary fiscal policy action.

Correct answer is C)

From the given exchange rates, we determine that the Canadian Dollar has depreciated against the Australian Dollar (the CAD now buys less units of AUD). An unanticipated shift to a more expansionary fiscal policy will, in the short run, (and we are told that the policy change was recent) lead to appreciation. The increased aggregate demand results in higher economic growth and higher inflation. These two factors normally result in currency depreciation. However, the third impact of the policy, increased budget deficits and government borrowing, increases real interest rates, resulting in currency appreciation. This last effect dominates in the short run.

The other statements would most likely lead to currency depreciation (or demand for foreign currency). An unanticipated shift to expansionary monetary policy would lead to currency depreciation. The expansionary policy leads to higher economic growth, an accelerated inflation rate (increased demand for foreign goods), and lower real interest rates (the country’s assets are less attractive to foreigners). All these factors cause a nation’s currency to depreciate.

Q15. 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 the nation’s domestic rate of inflation.

B)   An increase in real foreign interest rates.

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

Correct answer is 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.