The Foreign Exchange Market Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The market in which foreign currencies are traded is known as the: A. stock market. B. bond market. C. commodities market. D. foreign exchange market. E. export market. 2. If the rate of exchange is 1 = US$2, then US$1 = A. 0.50. B. 2. C. $.50. D. $1.00. E. 1.50. 3. The exchange rate is the: A. interest rate differential between countries. B. balance of trade differential between countries. C. relative price of currencies between countries. D. relative price of gold between countries. E. terms of trade for two products between two countries. Scenario 42-1: Exchange Rates The value of a euro, the currency for most of Europe, goes from 1 = US$1.25 to 1 = US$1.50. 4. Use Scenario 42-1. The euro has: A. depreciated. B. appreciated. C. been devalued. D. not been affected for use in international trade. E. fallen in value relative to the dollar. 5. Use Scenario 42-1. The dollar has: A. depreciated. B. appreciated. C. been revalued. D. not been affected for use in international trade. E. risen in value relative to the euro. 6. Use Scenario 42-1. French exports to the United States will: A. be cheaper. B. be more easily afforded by consumers in the U.S. C. be unaffected. D. increase in quantity. E. be more expensive.
7. Use Scenario 42-1. In the United States, exports to Europe: A. will increase, and imports from Europe will decrease. B. and imports from Europe will increase. C. will decrease, and imports from Europe will increase. D. and imports from Europe will decrease. E. will increase, while imports from Europe will be unaffected. 8. If the exchange rate is $1 = 110, a $20,000 Ford truck costs _ in Japan. A. 20,000 B. 18,182 C. 2,200,000 D. 3,000,000 E. 4.400,000 9. If the British pound appreciates against the dollar, this will make: A. British imports and exports more expensive. B. American imports and exports more expensive C. British imports and exports less expensive. D. British exports more expensive but lower the price of American exports to Britain. E. British exports less expensive but increase the price of American exports to Britain. 10. If the value of a U.S. dollar changes from 120 to 110, it follows that: A. the Japanese yen is depreciating, and the U.S. dollar is appreciating. B. U.S. goods become cheaper for Japanese consumers to purchase. C. Japanese goods become cheaper for U.S. consumers to purchase. D. U.S. services become more expensive for Japanese firms to purchase. E. U.S. exports to Japan will fall. 11. Suppose that the U.S. and European Union (EU) are the only trading partners in the world. If the EU imposes some import tariffs on U.S. goods, we would expect: A. the supply of the euro to decrease, depreciating the euro. B. the demand for the dollar to decrease, depreciating the dollar. C. the demand for the dollar to increase, appreciating the dollar. D. the supply of the dollar to decrease, depreciating the dollar. E. the demand for the dollar to decrease, appreciating the dollar. Figure 42-1: Change in the Demand for U.S. Dollars
12. Use the Change in the Demand for U.S. Dollars Figure 42-1. The change from D 1 to D 2 would occur, all other things being equal, if the: A. supply of euros decreases. B. demand for euros increases. C. demand for euros decreases. D. demand for dollars increases. E. demand for dollars decreases 13. Use the Change in the Demand for U.S. Dollars Figure 42-1. The change from D 1 to D 2 would occur, all other things being equal, if: A. interest rates are higher in Europe. B. interest rates are higher in the United States. C. interest rates in the United States and Europe are equal. D. inflation is lower in Europe. E. European goods are deemed more fashionable than similar American goods. 14. In the foreign exchange market, when the demand for the euro increases, the equilibrium U.S. dollar price of the euro and the U.S. dollar. A. rises; appreciates B. falls; depreciates C. falls; appreciates D. rises; depreciates E. remains constant; remains constant 15. If the demand for British pounds in the United States rises, then: A. the U.S. dollar appreciates. B. the British pound price of the U.S. dollar increases. C. the U.S. dollar price of the British pound increases. D. the pound depreciates. E. the supply of dollars decreases. 16. If foreign countries are increasing their demand for U.S. financial assets, then we can expect the U.S. dollar to and the current account balance to _, all other things equal. A. appreciate; increase B. appreciate; decrease C. depreciate; increase D. depreciate; decrease E. remain constant; decrease 17. If Japanese buyers demand more U.S. dollars, then: A. the dollar will appreciate, the yen will depreciate, U.S. balance of payments on the current account will rise, and U.S. balance of payments on financial account will fall. B. the dollar will depreciate, the yen will appreciate, U.S. balance of payments on the current account will rise, and U.S. balance of payments on financial account will fall. C. the dollar will appreciate, the yen will depreciate, and both U.S. balance of payments on the current account and U.S. balance of payments on financial account will both rise. D. the dollar will appreciate, the yen will depreciate, U.S. balance of payments on the current account will fall, and U.S. balance of payments on financial account will rise. E. the dollar will appreciate, the yen will depreciate, and both U.S. balance of payments on the current account and U.S. balance of payments on financial account will both fall.
18. When a currency appreciates, A. that currency buys fewer foreign goods than it did previously. B. that currency buys more foreign goods than it did previously. C. one unit of that currency buys fewer units of a foreign currency than it did previously. D. foreign goods become more expensive to holders of that currency. E. one unit of that currency buys the same number of units of a foreign currency than it previously did. 19. All else equal, when products made in Brazil become more fashionable relative to products made in Japan, we expect to see A. the demand for Brazilian reals to increase and the supply of Japanese yen to decrease. B. the demand for Brazilian reals to decrease and the supply of Japanese yen to increase. C. the supply of Brazilian reals to increase and the supply of Japanese yen to increase. D. the supply of Brazilian reals to decrease and the supply of Japanese yen to decrease. E. the demand for Brazilian reals to increase and the supply of Japanese yen to increase. 20. When Russia hosted the 2014 Winter Olympic games, many global tourists visited Russia and these visitors exchanged their home currencies for Russian rubles. Back home, this would have caused A. exports of goods to Russia to decline. B. imported goods from Russia to become less expensive. C. imported goods from Russia to become more expensive. D. a decline in tourism from Russian citizens. E. an appreciation in the domestic currency relative to the ruble.