Study Questions (Ch 08)
1. Study Question #1 Ch 8. Evaluate the following statement. True or False: Trade liberalization has assumed two main forms. One involves the reciprocal reduction of trade barriers on a nondiscriminatory basis, as seen in the operation of the World Trade Organization. The other approach involves the establishment by a group of nations of regional […]
Study Questions (Ch 14)
1. Study Questions #1. Ch 14. Evaluate the following statement explaining a nation’s decision to adopt floating exchange rates or fixed exchange rates. True or False: Fixed exchange rates tend to be used primarily by small, developing nations whose currencies are anchored to a key currency such as the U.S. dollar. True False Points: 1 […]
Study Questions (Ch 12)
1. Study Questions #1. Ch 12. In a free market, which factors apply to long run exchange rates? Check all that apply. Inflation rate differentials Real income differentials Productivity changes News about market fundamentals Points: 1 / 1 Close Explanation Explanation: Long run exchange rates are best explained by factors including real income differentials, inflation rate differentials, productivity changes, […]
Study Questions #1. Ch 12.
In a free market, what factors underlie short run currency exchange values? Long run exchange rates are best explained by factors including real income differentials, inflation rate differentials, productivity changes and trade barriers. In the short run, exchange rates respond to real interest rate differentials, news about market fundamentals, and speculative opinion about future exchange […]
Exchange-rate overshooting
The following graph shows the short-run supply schedule (S0S0) and demand schedule (D0D0) for the Mexican peso. S1S1 denotes the long-run supply schedule of pesos. The initial equilibrium exchange rate is $2.00 per peso. Suppose that the demand for pesos increases to D1D1. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange […]
The Big Max index
4. The Big Max index Using data from The Economist’s Big Mac Index for 2016, the following table shows the local currency price of a Big Mac hamburger in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would […]
The law of one price
3. The law of one price Which of the following correctly states the law of one price? In ideally efficient markets, the real purchasing power of a currency should be the same regardless of where it is spent. The cost of an individual good should be higher in countries with higher productivity. The nominal exchange […]
Determining long-term exchange rates
2. Determining long-term exchange rates Consider two countries, the United States and India, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in India. The following graph shows the supply and demand for the Indian rupee in the United States before the change in […]
Time frames of exchange-rate determination
The determinants of exchange rate fluctuations are different in the short run, medium run, and long run. Which of the following influence short-run exchange rates? Check all that apply. Transfers of assets that are sensitive to differences in real interest rates Transfers of assets that are sensitive to the changing expectations of future exchange rates Cyclical factors Points: […]
Covered versus uncovered interest arbitrage
Attempts Attempt1 score is 4 Average no score out of 4 / 4 6. Covered versus uncovered interest arbitrage On May 17, Manuel, an American investor, decided to buy three-month Treasury bills. He found that the per-annum interest rate on three-month Treasury bills is 8.00% in New York and 12.00% in London, Great Britain. Based on this information and […]