1. The principal function of the foreign exchangemarket is the transfer of funds, thus purchasing power,from one nation and currency to another.2. If it takes 116.57 yen to buy one dollar, it takes$.0085785 to buy one yen.3. Purchasing-power parity theory postulates that thechange in the exchange rate between two currencies isproportional to the change in the ratio in the twocountries' general price levels.4. The price-specie-flow adjustment mechanismoperates by the deficit nation losing gold andexperiencing a reduction in its money supply.5. Monetary policy is very effective under a fixedexchange rate policy.True or Falae

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1. The principal function of the foreign exchange market is the transfer of funds, thus purchasing power, from one nation and currency to another.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Exchanging dollars for euros to pay a computer manufacturer in Belgium would occur at the European Central Bank. at the Federal Reserve. in the letter of credit market. in the foreign exchange market.
You own a local company. In the past year, you successfully expanded your sales market into Europe, and you now have profits and cash denominated in euros. You want to convert the euros to your home country currency to repatriate the profits and pay taxes. You are a. not required to convert the euros to the home currency to pay taxes. b. a demander of the euro in the foreign exchange market. c. a supplier of your home country's currency in the foreign exchange market. d. a demander of your home country's currency in the foreign exchange market.
If one U.S. dollar is traded on the foreign exchange market for about 0.89 euros, then one euro can purchase about U.S. dollars. a) 0.75 b) 1.12 c) 1.75 d) 0.89
If domestic interest rate is higher than foreign countries interest rates, then there will be _____________ ."A) a capital outflow and supply of domestic currency will increase. B)a capital outflow and demand for domestic currency will increase.C) a capital inflow and demand for domestic currency will increase.D) a capital inflow and demand for domestic currency will fall.
What effect would a devaluation of a country's currency most likely have on its export volumes? A. Export volumes would decrease, as goods become more expensive in foreign markets. B. Export volumes would increase, as goods become cheaper in foreign markets. C. Export volumes would remain unchanged, as currency value does not affect trade. D. Export volumes would initially decrease, but then increase over time due to adjustments in trade agreements.
A. Canada produces natural resources (coal, natural gas, and others), the demand for which has increased rapidly as China and other emerging economies expand. i. Explain how growth in the demand for Canada's natural resources would affect the demand for Canadian dollars in the foreign exchange market. Explain how the supply of Canadian dollars would change. ii. iii. Explain how the value of the Canadian dollar would change. iv. Illustrate your answer with a graphical analysis. 1
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