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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.

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.

You observe that the exchange rate for pesos is 8 per U.S. dollar, and the exchange rate for Danish krones is 6 per U.S. dollar. What is the peso to krone (MXN/DKK) exchange rate?

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

A)	British pounds by the Belgians, Belgians will lower their interest rates so as to enable their citizens to borrow more easily in order to buy British goods.

B)	German goods by Americans, Americans will have to sell more goods to Germans so as to be able to buy more German goods.

C)	United States dollars by the British, then the British will sell pounds and buy dollars. This will cause the pound to depreciate relative to the dollar.

In a floating exchange rate system, exchange rates between countries are based on the demand and supply of currencies relative to each other. If British demand dollars, they will sell pounds and buy dollars in exchange, thus depressing their own currency. The dollar will appreciate relative to the pound. Both remaining choices are incorrect because they are not based on the supply and demand argument underlying floating exchange rates.

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.

appreciated

cheaper

appreciated

more expensive

depreciated

more expensive

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.

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

A)	sell dollars for kunas.

B)	sell kunas for dollars.

C)	make the dollar appreciate.

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.

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

A)	demand for dollars and a supply of euros.

B)	supply of both dollars and euros.

C)	supply of dollars and a demand for euros.

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.

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.

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.

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.

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.

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

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)	cause the dollar to depreciate in value.

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

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.

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

B)	supply and demand in the currency market.

C)	governmental fiat.

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.

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.

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.

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.

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.

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.

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.

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.