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Foreign Exchange Market Quiz

If the dollar appreciates relative to the Swiss franc,

When the exchange rate for the euro changes from $0.80 to $1.00 then, holding everything else constant,

If the 2003 inflation rate in Britain is 6 percent, and the inflation rate in the U.S. is 4 percent, then the theory of purchasing power parity predicts that, during 2003, the value of the British pound in terms of U.S. dollars will

The theory of purchasing power parity cannot fully explain exchange rate movements because

Increased demand for a country’s _____ causes its currency to appreciate in the long run, while increased demand for _____ causes its currency to depreciate.

The foreign exchange market is organized as an over-the-counter market in which deposits denominated in foreign currencies are bought and sold.

Evidence from the United States during the period 1973-2001 indicates the correspondence between nominal interest rates and exchange rate movements is

Increased demand for a country’s exports causes its currency to depreciate.

As the relative expected return on dollar deposits increases, foreigners will want to hold more _____ deposits and less _____ deposits.

According to the interest rate parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then the expected appreciation of the foreign currency must be 2 percent

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