Question 1

If a country is a member of a single currency area, it cannot use ________ to improve its competitiveness; rather, it should concentrate on its ________.

Accepted Answer

A)   fiscal policy; monetary policy
B)   inflation; interest rates
C)   exchange rates; unit labor costs
D)   sovereign debt; short-term interest rates
E)   tax policy; exchange rateF) A) and E)
G) C) and E)

Question 2

The natural goal(s)  of an international monetary system is/are:

Accepted Answer

A)   a stable exchange rate.
B)   monetary policy autonomy.
C)   free flow of international finance.
D)   All of these answers are correct.
E)   None of these answers is correct.F) A) and B)
G) A) and C)

Question 3

The Big Mac index is compiled by:

Accepted Answer

A)   the Financial Times.
B)   The Wall Street Journal.
C)   The American Economic Review.
D)   The Economist.
E)   Forbes.F) B) and D)
G) A) and D)

Question 4

Refer to the following table when answering the following questions.
Table 20.1: Annual Average Exchange Rates: 2005-2015 
-Consider Table 20.1. According to the table, in 2010, one Australian dollar buys ________ Japanese yen.

Accepted Answer

A)   69.6
B)   95.4
C)   0.01
D)   80.8
E)   85.0F) A) and C)
G) A) and E)

Question 5

Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?

Accepted Answer

A)   transportation costs
B)   wage equalization across borders
C)   differences in money supply
D)   over- or undervalued currency
E)   real interest rate differencesF) A) and B)
G) All of the above

Question 6

Bondholders of ________ debt became worried that it would ________ when its debt-to-GDP ratio ________ in 2010.

Accepted Answer

A)   Icelandic; be forced to pay reparations to U.K. and Dutch pensioners; exceeded 120 percent
B)   Irish; cease trade; fell dramatically
C)   Greek; default; exceeded 100 percent
D)   Italian; restructure its debt; fell 200 percent
E)   Spanish; renege on payments; rose 60 percentF) D) and E)
G) A) and B)

Question 7

If the law of one price holds for all goods, the real exchange rate equals zero.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following countries use the euro?

Accepted Answer

A)   Greece
B)   Italy
C)   Portugal
D)   Sweden
E)   All of these answers are correct.F) A) and E)
G) A) and D) E

Question 9

Using the notation in the text, the long-run level of the exchange rate is:

Accepted Answer

A)    .
B)    .
C)   
D)    .
E)   None of these answers is correct.F) A) and B)
G) C) and D)

Question 10

During the 1990s, the Yugoslavian countries of Croatia, Serbia, and Bosnia (among others) engaged in a civil war. One of the economic impacts of this war was hyperinflation, particularly in Serbia. What would have been the cause of this inflation? And as finance minister, what solution would you provide to end the inflationary spiral?

Accepted Answer

The inflation was caused by financing th...

Question 11

If China wanted to maintain a fixed nominal exchange rate to the United States in the long run:

Accepted Answer

A)   the price level in China would have to move in tandem with the U.S. price level.
B)   Chinese interest rates would have to move in tandem with U.S. interest rates.
C)   the law of one price would have to hold for at least one good.
D)   the Chinese would have to want to buy American goods.
E)   the Chinese would want to sell their financial assets.F) B) and C)
G) B) and D)

Question 12

The Mexican peso crisis was precipitated, in part, by political turmoil.

Accepted Answer

A) True 
 B)False

Question 13

If the law of one price holds for all goods in the long run:

Accepted Answer

A)    .
B)    .
C)    .
D)    .
E)    .F) A) and E)
G) B) and D)

Question 14

Let P denote the price of goods in the United States,  
denote the price of goods in the foreign country, and E denote the exchange rate, measured as the number of units of foreign currency that can be purchased with one dollar. According to the law of one price,

Accepted Answer

A) True 
 B)False

Question 15

In Europe, domestic lending by banks fell in which of following countries between 1998 and 2007?

Accepted Answer

A)   Greece
B)   Italy
C)   Spain
D)   Germany
E)   PortugalF) B) and E)
G) B) and D)

Question 16

Prior to the introduction of the euro, the euro area country with the lowest bond yields was:

Accepted Answer

A)   Switzerland.
B)   Italy.
C)   Greece.
D)   Ireland.
E)   Germany.F) A) and B)
G) D) and E)

Question 17

To extend the short run to include a more sophisticated version of the trade balance, we include:

Accepted Answer

A)   foreign income.
B)   the gap between domestic and foreign inflation rates.
C)   the changes in the money supply.
D)   the gap between the domestic and foreign real interest rates.
E)   differences in unemployment rates.F) A) and E)
G) A) and B) D

Question 18

In the long run, what value should the real exchange rate have? Explain. In the short run, why is this likely not the case?

Accepted Answer

In the long run, the real exchange rate ...

Question 19

Under a currency board, the central bank holds ________, so that the domestic currency is fully backed by the foreign exchange.

Accepted Answer

A)   gold
B)   foreign exchange reserves
C)   domestic bonds
D)   foreign exchange reserves and domestic bonds
E)   None of these answers is correct.F) A) and C)
G) B) and C) B

Question 20

Free flow of international assets is desirable because it allows countries to:

Accepted Answer

A)   borrow when times are bad in order to smooth consumption.
B)   borrow when times are good in order to increase consumption.
C)   buy in higher-value asset markets.
D)   hold gold.
E)   maintain price stability.F) B) and E)
G) None of the above

Exam 20: Exchange Rates and International Finance

If a country is a member of a single currency area, it cannot use to improve its competitiveness; rather, it should concentrate on its .

Correct Answer
verified

The natural goal(s) of an international monetary system is/are:

Correct Answer
verified

The Big Mac index is compiled by:

Correct Answer
verified

Refer to the following table when answering the following questions. Table 20.1: Annual Average Exchange Rates: 2005-2015 -Consider Table 20.1. According to the table, in 2010, one Australian dollar buys ________ Japanese yen.

Correct Answer
verified

Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?

Correct Answer
verified

Bondholders of debt became worried that it would when its debt-to-GDP ratio in 2010.

Correct Answer
verified

If the law of one price holds for all goods, the real exchange rate equals zero.

Correct Answer
verified

Which of the following countries use the euro?

Correct Answer
verified
E

Using the notation in the text, the long-run level of the exchange rate is:

Correct Answer
verified

Correct Answer
verified
The inflation was caused by financing th...
View Answer

If China wanted to maintain a fixed nominal exchange rate to the United States in the long run:

Correct Answer
verified

The Mexican peso crisis was precipitated, in part, by political turmoil.

Correct Answer
verified

If the law of one price holds for all goods in the long run:

Correct Answer
verified

Let P denote the price of goods in the United States, denote the price of goods in the foreign country, and E denote the exchange rate, measured as the number of units of foreign currency that can be purchased with one dollar. According to the law of one price,

Correct Answer
verified

In Europe, domestic lending by banks fell in which of following countries between 1998 and 2007?

Correct Answer
verified

Prior to the introduction of the euro, the euro area country with the lowest bond yields was:

Correct Answer
verified

To extend the short run to include a more sophisticated version of the trade balance, we include:

Correct Answer
verified
D

In the long run, what value should the real exchange rate have? Explain. In the short run, why is this likely not the case?

Correct Answer
verified
In the long run, the real exchange rate ...
View Answer

Under a currency board, the central bank holds ________, so that the domestic currency is fully backed by the foreign exchange.

Correct Answer
verified
B

Free flow of international assets is desirable because it allows countries to:

Correct Answer
verified

Exam 20: Exchange Rates and International Finance

If a country is a member of a single currency area, it cannot use ________ to improve its competitiveness; rather, it should concentrate on its ________.

Correct AnswerverifiedShow Answer

The natural goal(s) of an international monetary system is/are:

Correct AnswerverifiedShow Answer

The Big Mac index is compiled by:

Correct AnswerverifiedShow Answer

Refer to the following table when answering the following questions. Table 20.1: Annual Average Exchange Rates: 2005-2015 -Consider Table 20.1. According to the table, in 2010, one Australian dollar buys ________ Japanese yen.

Correct AnswerverifiedShow Answer

Which of the following can be used to explain the failure of the law of one price with respect to Big Macs?

Correct AnswerverifiedShow Answer

Bondholders of ________ debt became worried that it would ________ when its debt-to-GDP ratio ________ in 2010.

Correct AnswerverifiedShow Answer

If the law of one price holds for all goods, the real exchange rate equals zero.

Correct AnswerverifiedShow Answer

Which of the following countries use the euro?

Correct AnswerverifiedE

Using the notation in the text, the long-run level of the exchange rate is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe inflation was caused by financing th...View AnswerShow Answer

If China wanted to maintain a fixed nominal exchange rate to the United States in the long run:

Correct AnswerverifiedShow Answer

The Mexican peso crisis was precipitated, in part, by political turmoil.

Correct AnswerverifiedShow Answer

If the law of one price holds for all goods in the long run:

Correct AnswerverifiedShow Answer

Let P denote the price of goods in the United States, denote the price of goods in the foreign country, and E denote the exchange rate, measured as the number of units of foreign currency that can be purchased with one dollar. According to the law of one price,

Correct AnswerverifiedShow Answer

In Europe, domestic lending by banks fell in which of following countries between 1998 and 2007?

Correct AnswerverifiedShow Answer

Prior to the introduction of the euro, the euro area country with the lowest bond yields was:

Correct AnswerverifiedShow Answer

To extend the short run to include a more sophisticated version of the trade balance, we include:

Correct AnswerverifiedD

In the long run, what value should the real exchange rate have? Explain. In the short run, why is this likely not the case?

Correct AnswerverifiedIn the long run, the real exchange rate ...View AnswerShow Answer

Under a currency board, the central bank holds ________, so that the domestic currency is fully backed by the foreign exchange.

Correct AnswerverifiedB

Free flow of international assets is desirable because it allows countries to:

Correct AnswerverifiedShow Answer

If a country is a member of a single currency area, it cannot use to improve its competitiveness; rather, it should concentrate on its .

Correct Answer
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Correct Answer
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Bondholders of debt became worried that it would when its debt-to-GDP ratio in 2010.

Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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The inflation was caused by financing th...
View Answer

Correct Answer
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D

Correct Answer
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In the long run, the real exchange rate ...
View Answer

Correct Answer
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B

Correct Answer
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