Reading 19: Foreign Exchange Parity Relations-LOS a习题精选 2010, face, exchange, Foreign, system

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Session 4: Economics: Economics for Valuation
Reading 19: Foreign Exchange Parity Relations

LOS a: Explain how exchange rates are determined in a flexible (or floating) exchange rate system.

 

 

 

If the exchange rate value of the euro goes from $0.95 to $1.10, then the euro has:

A) depreciated and the Dutch will find U.S. goods more expensive.

B) appreciated and the Dutch will find U.S. goods cheaper.

C) depreciated and the Dutch will find U.S. goods cheaper.

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An exchange rate is a ratio that describes how many units of one currency you can buy per unit of another currency. The numerator will be in the currency in which the quote is made, and the denominator is the other unit of the currency you are comparing. A currency appreciates when it rises in value relative to another foreign currency. Likewise, a currency depreciates when it falls in value relative to another foreign currency. An appreciation in value of a currency makes that country's goods more expensive to residents of other countries. The depreciation of the value of a currency makes a country's goods more attractive to foreign buyers.

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In a flexible exchange rate system, exchange rates are determined by:

A) the total value of the country's gold reserves.

B) supply and demand in the currency market.

C) governmental fiat.

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Exchange rates are determined by supply and demand. British importers needing dollars to purchase U.S. goods will buy U.S. dollars and sell British pounds. British exporters needing to convert dollars to pounds will sell dollars and buy pounds.

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Under a system of flexible exchange rates, a decrease in the foreign demand for a nation’s currency will cause the nation’s:

A) currency to appreciate in value.

B) consumer prices to increase, in terms of foreign currencies.

C) currency to depreciate in value.

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As foreign demand for a currency decreases, its price decreases and it depreciates.

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Depreciation in the value of the U.S. dollar on the foreign exchange market will:

A) make imports less expensive for U.S. consumers.

B) cause the U.S. to run a balance of payments surplus in the long run.

C) make U.S. exports cheaper to foreigners.

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Depreciation of a currency makes a country's goods more attractive to foreign buyers. "Make imports less expensive for U.S. consumers" would be true if the dollar was appreciating.The balance of payments equation should always equal 0.

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Current account		Official reserve account

A) measures the exchange of merchandise goods, the exchange of services, the exchange of investment income, and unilateral transfers. consists of all metal commodities like gold and silver.

B) measures the flow of funds for debt and equity investment into and out of the country. funds held at the International Monetary Fund (IMF) in the form of gold, other foreign currencies, and special drawing rights.

C) measures the exchange of merchandise goods, the exchange of services, the exchange of investment income, and unilateral transfers. funds held at the International Monetary Fund (IMF) in the form of gold, other foreign currencies, and special drawing rights.

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The Balance of Payments (BOP) equation is comprised of three parts:

• The Current Account measures the exchange of merchandise goods, the exchange of services, the exchange of investment income, and unilateral transfers.
• The Capital Account measures the flow of funds for debt and equity investment into and out of the country.
• The Official Reserve Account transactions are funds held at the IMF in the form of gold, other foreign currencies, and SDRs.

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

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

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

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

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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.

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

A) supply of dollars and a demand for pounds.

B) demand for dollars and a supply of pounds.

C) supply of both dollars and pounds.

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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.

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A U.S. tourist planning to visit Germany exchanges $500 for euros at a rate of $0.95/