econ423quiz7answer

econ423quiz7answer - Econ 423, Sun‘u'ner 2009 Lauren...

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Unformatted text preview: Econ 423, Sun‘u'ner 2009 Lauren Heller Homework Quiz. .37 a... Pm 5m K By signing my name and PID above, gree to abide by the honor code during this quiz. I will only use the homework that I have completed on my own, and will not use any other notes or materials. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1} Q 1) if the 2005 inflation rate in Britain is 6 percent, and the inflation rate in the U.S. is 4 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the British pound in terms of US. dollars will A) fall by 10 percent. B) rise by 10 percent. rise by 2 percent. ‘all by 2 percent. E) do none of the above. 2) If the French demand for American exports rises at the same time that US. producti vi ly rises 2) t K "e to French productivity, then, in the long run, he dollar should appreciate relative to the euro. the euro should appreciate relative to the dollar. C) the dollar should depreciate relative to the euro. D) it is not clear whether the euro should appreciate or depreciate relative to the dollar. re _‘-:-.. -- 3) When Bono ( who is from Ireland) considers the expected return on dollar depOsits in terms of 3) foreign currency, the expected return must be adjusted for the interest rates on foreign deposits. ny expected appreciation or depreciation of the dollar. ) both A and B of the above. D) neither (a) nor (b) of the above. 4) If the interest rate is 7 percent on euro deposits and 5 percent on dollar deposits, and if the dollar is 4) 6 expected to appreciate at a 4 percent rate, -. uro deposits have a higher expected return than dollar deposits. _ _ he expected return on euro deposits in terms of dollars is 3 percent. II the expected return on euro deposits in terms of dolla rs is 11 percent. D) the expected return on dollar deposits in terms of euros is 1 percent. E) the expected return on dollar deposits equals the expected return on euro deposits. 5) If the interest rate is 13 percent on euro deposits and 15 percent on dollar deposits, and if the euro is 5) g expected to appreciate at a 4 percent rate relative to the dollar, then A) the expected retuni on euro deposits in terms of dollars is 9 percent. B) euro deposits have a lower expected retu rn than dollar deposits. C.) the expected return on dollar deposits in terms of euros is 19 percent. D both A and B of the above will occur. if" one of the above will occur. 6) According to the interest parity condition, if the domestic interest rate is in‘ est rate; then bove; there is expected appreciation of the foreign currency. I below; there is expected appreciation of the foreign currency. C) above; there is expected depreciation of the foreign currency. D) below; the interest parity condition is violated. E) above; the interest parity condition is violated. the foreign 7) A fall in the expected future exchange rate shifts the expected return schedule for de . its to the and causes the domestic currency to depreciate. f: omes tic; left B) domestic; right C) foreign; left foreign; right of foreign assets in in its international reserves and the 8) A central bank of domestic currency and corresponding __ the foreign exchange market leads to an equal monetary base. A) purchase; sale; increase C) sale; sale; increase urchase; sale; decline sale; purchase; decline 9) A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the sa me effect as an open market of bonds to and the money supply. A) sale; increase C) sale; decrease the rnoneta ry ba se _ urchase; increase ' purchase; decrease 'l U) A current account indicates that the United States is wealth. A) deficit; increasing its claims on foreign __ urplus; increasing C.) surplus; decreasing ) balance; decreasing 11) Holding other factors constant, which of the following would decrease the size of the US. current account deficit? increase in the amount of services pu rchased from foreigners 5' n increase in the amount of goods sold to foreigners : An increase in the amount of goods purchases from foreigners 1)) Only A and B of the above 12) if the current account balance shows a surplus; and capital account receipts exceed capital account payments; then the net change in government international reserves must be atn) in US. international reserves. A) negative; decrease C.) positive; decrease indicating __ a osi tive; increase ) negative; in crea se Page 2 of 4 8) 9) 10) 11) pm on e at; e 12) 13) Which of the following are true statements about the Bretton Woods system? A) The Bretton Woods system was a fixed exchange rate regime, in which central banks bought and sold their own currencies to keep their exchange rates fixed. B) To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves, the [MF would loan deficit countries international reserves contributed by other members. C] The German mark was called a reserve currency because it was used to denoniinate the securities central banks held as international reserves. All of the above are true. lnly A and B of the above are true. 14) Under a fixed exchange rate regime, when the domestic currency is overvalued, the central bank must the domestic currency to keep thc exchange rate fixed and as a result it international reserves. A) sell; loses urchase; loses C) sell; gains D) purchase; gains 15) If a country's central bank eventually runs out of international reserves, it cannot keep its currency from and a level. appreciating; revaluation; higher epreciating; devaluation; lower 16) in 1999, the euro was trading at $0.90 per euro. it the euro is now trading at $1.16 per euro, what is the percentage change in the euro’s value? A) —28.8% B) ~22.4% ‘ 22.4% 28.8% _) None of the above. must occur in which the par exchange value is reset at a B) appreciating; devaluation; lower D) depreciating; revaluation; higher 17) The current exchange rate between the Japanese yen and the U.S. dollar is 120 yen per dollar. ll the dollar is expected to depreciate by 10% relative to the yen, what is the new expected exchange rate? ‘ .’- yen per dollar. 08 yen per dollar. T) 109 yen per dollar. D) 132 yen per dollar. 13) None of the above. 18) A one—year CD in Eu rope is currently paying 5%, and the exchange rate is currently 0.99 euros per dollar. if you believe the exchange rate will be 1.04 euros per dollar one year from now, what is the e - ' "ted return in terms of dollars? -0.05% " " 0.05% C) 5.00% D) 10.05% E) None of the above. Page 3 of 4 l“ 13) 14) 1s) 16) 17) 18) l> Dr p P? 19) If the interest rate is 4% on euro deposits and 2% on dollar deposits, while the euro is trading at 19) $1 I per euro, what does the market expect the exchange rate to be one year from now? 1.27 per euro ) $1.30 per euro C) $1.33 per euro D} $1.95 per euro E) None of the above. Essay. Write your answer in the space provided or on a separate sheet of paper. 20) (2 points) ‘Nhat are the arguments for and against the lMF acting as an international lender of last resort? Page 4 of 4 ...
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This note was uploaded on 08/31/2009 for the course ECON 423 taught by Professor Vd during the Summer '08 term at UNC.

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econ423quiz7answer - Econ 423, Sun‘u'ner 2009 Lauren...

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