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Unformatted text preview: and £1.94 in the U.K. If the actual
exchange rate is $/£ = 1.88 then according
to the absolute PPP, the British Pound is:
a. Undervalued relative to the dollar
b. Overvalued relative to the dollar
c. Correctly valued relative to the dollar
d. It costs more in dollars to buy Big Mac in
e. Both b and d
Both 52. Assume that the Mexican peso depreciates
by 40% against the US dollar. Obtain the
dollar’s appreciation against the peso.
e. 53. If the Euro appreciates by 300% against
the Brazilian real, calculate the real’s
depreciation against the euro.
-75% 54. The asset market view of exchange rate
determination says that the spot rate:
a. Should follow a random walk.
b. Is affected primarily by a nation’s long-run
c. Both a and b.
d. Should be strongly affected by a nation’s balance
e. Should be strongly affected by current relative
incomes, relative prices, and relative interest rates. 55. The current international flow model of
exchange rate determination says that the
spot rate should:
Follow a random walk.
b. Be affected primarily by a nation’s long-run
a. economic prospects.
d. Be strongly affected by a nation’s balance of trade
Be strongly affected by current relative incomes
incomes, relative prices, and relative interest rates
incomes, e. Both c and d.
Both 56. Given that $/£ = 1.6180 and $/C$ = 0.7329,
then by cross rate, the Canadian dollar
price of the British pound is given by:
2.2077 57. A relative high domestic inflation, other
things being equal, would tend to cause the
domestic currency to:
Fluctuate within narrow bands.
Fluctuate 58. The following statement is true concerning a
strong domestic currency except:
c. Encourages more imports.
Discourages more exports.
Increases domestic competition. d. May induce lower unemployment.
May 59. Which of the following statement is true
concerning a weak domestic currency?
d. Encourages more imports.
Discourages more exports.
Increases domestic competition.
May induce lower unemployment.
May 60. Whereas the profit margin to the Central
Bank for issuing fiat money is almost 100%,
the net profit margin on issuing more
money under the gold standard is:
e. None of the above 61. A favorable balance of trade indicates
which of the following?
a. A country is importing more than it is exporting.
b. The country is importing products and services it
cannot produce itself.
c. A country is exporting more than it is importing
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This note was uploaded on 12/17/2012 for the course FIN 3604 taught by Professor Zhang during the Spring '12 term at University of San Francisco.
- Spring '12
- Exchange Rate