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Unformatted text preview: tuation known as the a. foreign asset parity condition. b. purchasing power parity condition. c. exchange rate parity condition. d. interest parity condition. 26. If the interest rate is 7 percent on euro‐denominated assets and 5 percent on dollar‐denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, the expected return on ________‐denominated assets in ________ percent. a. dollar; euros is 3 b. euro; dollars is 1 c. euro; dollars is 3 d. dollar; euros is 1 27. A decrease in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant. a. left; appreciate b. left; depreciate c. right; appreciate d. right; depreciate 28. On April 7, 2006, one U.S. dollar traded on the foreign exchange market for about 1.30 Swiss francs. Therefore, one Swiss franc would have purchased about ________ U.S. dollars. a. 0.30 b. 0.77 c. 1.30 d. 3.10 29. When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive. a. depreciated; American wheat sold in Britain becomes more b. depreciated; American wheat sold in Britain becomes less c. appreciated; British cars sold in the United States become more d. appreciated; British cars sold in the United States become less 30. Assume that the following are the predicted inflation rates in these countries for the year: 2% for the United States, 3% for Canada; 4% for Mexico, and 5% for Brazil. According to the purchasing power parity and everything else held constant, which of the following would we expect to happen? a. The Mexican peso will depreciate against the Brazilian real. b. The Brazilian real will depreciate against the U.S. dollar. c. The U.S. dollar will depreciate against the Canadian dollar. d. The Canadian dollar will depreciate against the Mexican peso. 31. If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, then, in the long run ________, everything else held constant. a. there will be no effect on the Japanese yen relative to the U.S. dollar b. the Japanese yen will appreciate relative to th...
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- Spring '08
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