ECO322-Chapter 12 - Chapter 12 Exchange Rate Determination...

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Chapter 12 – Exchange Rate Determination Multiple Choice 1. The trade or elasticities approach is more useful in explaining exchange rates during which time frame? A) Short run B) Medium run C) Long run D) All of the above Answer: C Page: 313 2. Which of the following is true about PPP theory? A) The theory explains that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two countries' general price levels B) The theory explains that the change in the exchange rate between two currencies is greater than the change in the ratio in the two countries' general price levels C) The theory explains that the change in the exchange rate between two currencies is less than the change in the ratio in the two countries' general price levels D) The theory explains that exchange rates and price levels are unrelated Answer: A Page: 314 3. According to the law of one price, in order for commodity arbitrage to equalize the price of homogeneous traded commodities, it is necessary that which of the following do not exist? A) Transportation costs B) Tariffs C) NTBs D) All of the above Answer: D Page: 314 4. Which of the following states that the equilibrium exchange rate is equal to the ratio of price levels in the two nations? A) The relative theory of exchange rate determination B) The absolute purchasing-power parity theory C) The relative purchasing-power parity theory D) The absolute theory of exchange rate determination
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Answer: B Page: 314 5. Which of the following states that the percentage change in the exchange rate is equal to the difference in the percentage change in the price level in the two countries? A) The relative theory of exchange rate determination B) The absolute purchasing-power parity theory C) The relative purchasing-power parity theory D) The absolute purchasing-power parity theory Answer: C Page: 315 6. If the price for a Big Mac in the US is $2.00 and the price for a Big Mac in the UK is ₤3, what is the absolute purchasing-power parity equilibrium exchange rate between the dollar and the Euro (using the dollar as the domestic currency)? A) .667 B) 1.5 C) .333 D) None of the above Answer: A Page: 314 7. According to the relative purchasing-power parity theory, what is the percentage change in the exchange rate if the price for one unit of corn in the US is $10 in 2003 and $12 in 2004, and in the UK, ₤15 in 2003 and ₤20 in 2004? A) -14.7% B) 13.3% C) -13.3% D) 10.5% Answer: C Page: 315 8. Which approach to exchange rate determination stresses the role of trade in the determination of exchange rates? A) The asset model of exchange rates B) The elasticities approach to exchange rates C) The portfolio model of exchange rates
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D) None of the above Answer: B Page: 313 9. Which of the following approaches to exchange rate determination stresses the role of the flow of goods and services in the determination of exchange rates? A)
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ECO322-Chapter 12 - Chapter 12 Exchange Rate Determination...

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