Ch28. Exchange rate

A Chinese firm buys copper from Chile. What effect will this transaction have on the foreign exchange market?

• C

• B

• A

• D

A country’s exchange rate is initially 20 rupees = $1. Its firms sell a product in the USA for $20. Its domestic price stays the same, but the exchange rate changes to 25 rupees = $1. How much will the product now sell for in the USA?

• A$16

• B$18

• C$24

• D$25

There is a fall in Norway’s exchange rate from 10 krona = US$1 to 15 krona = US$1. What must occur as a result of this change?

• ANorwegian krona will become cheaper in terms of dollars.

• BThe price level will fall in Norway.

• CThe US dollar will be undervalued.

• DUS imports from Norway will rise in price.

The diagram shows the exchange rate for Egyptian pounds in terms of dollars. The initial equilibrium is at X. What will be the new equilibrium position if Egypt experiences a higher inflation rate than the USA and if more Egyptians visit the USA as tourists?

• D

• B

• A

• C

The diagram shows the demand for and supply of dollars on the foreign exchange market. D and S are the initial demand and supply curves of the dollar ($). Which change would cause the demand curve to shift to D1 and the supply curve to S1?

• Aa decrease in Japanese tariffs on US imports

• Ba decrease in US interest rates

• Can increase in Japanese incomes

• Dan increase in the quality of US products

A country experiences an appreciation of its floating exchange rate. Which combination of changes to the components of the current account of the balance of payments would have caused this?

• Adecreaseincreaseunchangedincrease

• Bincreasedecreaseincreaseunchanged

• Cincreaseunchangedincreasedecrease

• Dunchangeddecreaseincreasedecrease

The price of a country’s imports decreases and its trade in goods and services deficit decreases. What could explain this?

• Aexport revenue decreases

• Bthe net inflow of profit increases

• Cthe price elasticity of demand for imports is inelastic

• Dworkers’ remittances out of the country decrease

Country X and Country Y have floating exchange rates. What would cause Country X to have to pay more for Country Y’s currency?

• ACountry X’s citizens switch their purchases from Country Y’s products to products produced at home.

• BCountry X’s firms spend less on machinery from Country Y.

• CCountry Y’s citizens pay more interest on loans from Country X’s banks.

• DCountry Y’s workers earn more in Country X.

When would a government welcome an appreciation in its country’s currency?

• AThe country has a current account deficit.

• BThe country has a high inflation rate.

• CThe country has a high unemployment rate.

• DThe country is experiencing a recession.

What is a likely consequence of a fall in the international price of the Canadian dollar?

• Aa fall in Canada’s price level

• Ba fall in the foreign currency price of Canada’s exports

• Ca rise in cyclical unemployment in Canada

• Da rise in the deficit on the current account of Canada’s balance of payments