Reading 19: Foreign Exchange Parity Relations-LOS a 习题精选 Foreign, exchange, 2011, class, system

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Session 4: 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) depreciated and the Dutch will find U.S. goods cheaper.

C) appreciated 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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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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Which of the following accurately describes current account and official reserve account, respectively?

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 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.

C) 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.

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

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The U.S. eliminates high tariffs on major imported goods. Under a system of flexible exchange rates, this would tend to:

A) cause the dollar to appreciate in value.

B) decrease the U.S. balance of payments.

C) cause the dollar to depreciate in value.

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The elimination of tariffs causes imported goods to be cheaper and the demand for imported goods to increase. In order to purchase the goods, Americans will sell dollars to purchase other currencies, thus causing the dollar to depreciate.

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

A) supply and demand in the currency market.

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

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 depreciate in value.

B) currency to appreciate in value.

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

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

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If the exchange rate value of the English pound goes from $1.75 to $1.50, determine if the pound depreciates or appreciates relative to the dollar and if the English will find U.S. goods cheaper or more expensive.

      

Pound

U.S. goods

A) appreciated cheaper

B) depreciated more expensive

C) appreciated more expensive

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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, and 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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If there is an excess demand for dollars by Croatians, Croatians will least likely:

A) sell kunas for dollars.

B) make the dollar appreciate.

C) sell dollars for kunas.

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If there is excess demand for dollars by Croatians, they will sell kunas and buy dollars thereby making the dollar appreciate relative to the kuna.

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A 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 dollars and a supply of euros.

C) supply of dollars and a demand for euros.

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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.