exam3-answers - University of Houston INTB 3353: Economics...

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University of Houston Fall 2008 INTB 3353: Economics of Globalization Professor Ruxandra Prodan Section 23202 Exam #3 Name:_________________________________________________________________ 1. As a result of the __________, the dollar became the world’s chief reserve currency. a. gold standard b. Plaza Agreement c. Louvre Accord d. Bretton-Woods Conference e. Smithsonian Agreement d 2. With a flexible exchange rate and free movement of capital, the role of monetary policy is directed towards: a. inflation b. unemployment c. keeping the domestic interest rate at the world interest rate d. a and b e. a and c d 3. Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger: a. An increase in the demand for imports and an increase in the demand for foreign currency b. An increase in the demand for imports and a decrease in the demand for foreign currency c. A decrease in the demand for imports and an increase in the demand for foreign currency d. A decrease in the demand for imports and a decrease in the demand for foreign currency a 4. Covered Interest rate Parity says that interest rate differential equal: a. expected appreciation of the currency b. forward rate premium c. changes in fiscal policy d. investment performance b
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Scenario: Assume that there are only two countries in the world and flexible exchange rates: UK and US. Suppose that C, I, and G all stay the same in the UK and the United States. Answer the following three questions. 5. Assume that that net exports from the UK decrease As a result, what will happen to GDP in each country? a. GDP will increase in the UK and decrease in the United States. b. GDP will decrease in the UK and increase in the United States. c. GDP will increase in both the UK and the United States. d. GDP will decrease in both the UK and the United States. b 6. What happens with the exports from the UK when the exchange rate (measured in dollars per pound) increases ? a. The quantity of exports is lower b. The quantity of exports is higher c. The quantity of exports is the same a 7. Assume that interest rates on comparable securities are identical in the United States and foreign countries. Now suppose that investors anticipate that in the future the U.S. dollar will depreciate against foreign currencies. Investment funds would thus be expected to: a. Flow from the United States to foreign countries b. Flow from foreign countries to the United States c. Remain totally in foreign countries d. Not be affected by the expected dollar appreciation a 8. In a flexible exchange rate regime, suppose that UK's economy goes into a recession. As a result, UK's residents purchase fewer goods from abroad. How does this affect the dollar-pound exchange rate? a.
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exam3-answers - University of Houston INTB 3353: Economics...

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