B us dollar prices fall c euro prices rise d euro

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(b) US dollar prices fall. (c) Euro prices rise. (d) Euro prices fall. (e) Not enough information to answer the question. 11. If the spot exchange rate of dollars per pounds is $1.60/£1 and the one-year forward rate is $1.50/£1 then, according to UIP and CIP, (a) the dollar is forecast to weaken relative to the pound (b) the dollar is forecast to strengthen relative to the pound (c) the US one-year interest rate must be lower than the one-year UK interest rate (d) the US one-year interest rate must be higher than the one-year UK interest rate (e) both b. and c. (f) both b. and d. 12. If the trade-weighted value of the US dollar depreciated, then (a) the dollar must have depreciated with at least one currency of its trade partners (b) the dollar must have depreciated with at least two currencies of its trade partners (c) the dollar must have depreciated with all currencies of its trade partners (d) the dollar must have appreciated with at least one currency of its trade partners 13. According to the CIA World Factbook, in early 2007, China had an inflation rate of 1 . 5% while the US had an inflation rate of 3 . 7% . The exchange rate was 7 . 61 yuan per US dollar. How would you have expected the exchange rate to change in 2007, assuming that relative PPP holds? (a) The Yuan should have depreciated by 2 . 2% against the dollar 4
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(b) The US dollar should have appreciated by 2 . 2% against the Yuan (c) The Yuan should have appreciated by 5 . 2% against the dollar (d) The Yuan should have appreciated by 2 . 2% against the dollar 14. On Friday, August 22, 2003, the Mexican peso exchange rates were as follows. The spot exchange rate as 1 peso = $0 . 0923 , and the one-year forward rate was 1 peso = $0 . 0866 . The 1-year US Treasury note o § ered a yield of 1 . 12% . Using the covered interest rate parity condition, what should the return (in pesos) of a 1-year Mexico Treasury investment be? (a) 5 . 1% (b) 28% (c) 7 . 8% (d) 12 . 6% 15. If inflation in the United States is 4% per year and in the United Kingdom it is 8% per year, and the interest rate in the United Kingdom is 6%, then the Fisher e § ect predicts that: (a) the interest rate in the United States is 2%. (b) the interest rate in the United States is 4%. (c) the interest rate in the United States is 6%. (d) the interest rate in the United States is 8%. 16. Suppose that there is a temporary decline in the money supply, output remains con- stant, and prices are sticky in the short run. The more sensitive is money demand to interest rate (i.e: a given change in the interest rate causes a greater change in the money demand) (a) the larger is the rise in the interest rate. (b) the larger is the reduction in the interest rate. (c) the smaller is the appreciation of the nominal exchange rate. (d) the larger is the appreciation of the nominal exchange rate. 17. In the long run, a decline in the US growth rate of money leads to (a) an increase in the US nominal interest rate.
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