土豆妮

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.

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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.

土豆妮

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

土豆妮

In a floating exchange rate system, if there is an excess demand for:

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.

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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.

土豆妮

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) appreciated more expensive

C) depreciated   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.

土豆妮

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.

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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.

土豆妮

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.

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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.

土豆妮

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?

A) Cannot be determined with the data given.

B) 1.333.

C) 0.750.

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8 MXN/USD / 6 DKK/USD = 1.333 MXN/DKK