Chapter 4_Practice Problems_Solution - Practice Problems for Chapter 4Exchange Rate Determination 1 The value of the Australian dollar(A\$ today is \$0.73

# Chapter 4_Practice Problems_Solution - Practice Problems...

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Practice Problems for Chapter 4—Exchange Rate Determination 1.The value of the Australian dollar (A\$) today is \$0.73. Yesterday, the value of the Australian dollar was \$0.69. The Australian dollar ____ by ____%. a.depreciated; 5.80b.depreciated; 4.00c.appreciated; 5.80d.appreciated; 4.00ANS: CSOLUTION:(\$0.73 \$0.69)/\$0.69 = 5.80% 2.____ is not a factor that causes currency supply and demand schedules to change. 3.A large increase in the income level in Mexico along with nogrowth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____. 4.An increase in U.S. interest rates relative to German interest rates would likely ____ the U.S. demand for euros and ____ the supply of euros for sale. 5.Assume that the inflation rate becomes much higher in the U.K. relative to the U.S. This will place ____ pressure on the value of the British pound. Also, assume that interest rates in the U.K. begin to rise relative to interest rates in the U.S. The change in interest rates will place ____ pressure on the value of the British pound. a.upward; downwardb.upward; upwardc.downward; upwardd.downward; downwardANS: C