7 of 38 Which of the following statements is true? o A. The interest rate parity condition shows that the home country currency is expected to depreciate if the domestic interest rate is lower than foreign interest rate. O B. The real exchange rate is the nominal rate adjusted for interest rate differences at home and abroad. O C. Flexible exchange rates provide a more certain environment for business planning. O D. Fixed exchange rates do not protect against outside shocks. Unsure

7 of 38 Which of the following statements is true? o A. The interest rate parity condition shows that the home country currency is expected to depreciate if the domestic interest rate is lower than foreign interest rate. O B. The real exchange rate is the nominal rate adjusted for interest rate differences at home and abroad. O C. Flexible exchange rates provide a more certain environment for business planning. O D. Fixed exchange rates do not protect against outside shocks. Unsure

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that the U.S. interest rate is 12 percent, while the British interest rate is 15 percent. If interest rate parity exists, then: O a.U.S. investors will earn 12 percent whether they use covered interest arbitrage or invest in the United States. O b. U.S. investors will earn a higher rate of return when using covered interest arbitrage than what they would earn in the United States. O c. British investors who invest in the United Kingdom will achieve the same return as U.S. investors who invest in the United States. O d. U.S. investors will earn 15 percent whether they use covered interest arbitrage or invest in the United States.
If a country with a floating exchange rate has a capital account deficit, which of the following is most likely? O National savings are high relative to investment and net capital inflows are positive O National savings are low relative to investment and net capital inflows are positive O National savings are low relative to investment and net capital inflows are negative O National savings are high relative to investment and net capital inflows are negative
QUESTION 3 If a country runs a negative net capital outflow, this implies that OA there is a capital inflow into the country. OB. there is a capital outflow from the country OC domestic residents are buying more foreign assets than foreigners are buying domestic assets. OD Al of the above. QUESTION 4 Which of the following best describes the term trade deficit? OA an excess of supply over demand OB an excess of imports over exports OC an excess of exports over imports OD an excess of government spending over tax collections
True or False: If the dollar depreciates relative to the Japanese yen, the dollar price of a Japanese camera produced by Nikon becomes less expensive for Americans. O True False
Which is an incorrect statement about the balance of payments accounts? O A. Any transaction involving a flow of funds out of a country is a negative item in the country's balance of payments. B. The balance of payments accounts consist of the current account and the financial account. c. The financial account measures a country's trade in currently produced goods and services. O D. Any transaction involving a flow of funds into a country is a positive item in the country's balance of payments.
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A5
A short-run increase in government spending causes the currency to and output to O appreciate; increase O appreciate; decrease O depreciate; increase O depreciate; decrease
Which of the following refers to an exchange rate between currency A and currency B, given the values of those two currencies with respect to a third common currency? O a. Fixed exchange rate O b. Flexible exchange rate O c. Cross exchange rate O d. Golden standard
Time let How will an increase In tourist arrivals affect the market for forelgn exchange? Select one: O a. Inward shift of the supply curve; real exchange rate rises. O b. Inward shift of the demand curve; real exchange rate falls. O c. Outward shift of the supply curve, real exchange rate falls O d. Inward shift of the demand curve; real exchange rate rises e. Outward shift of the demand curve; real exchange rate rises. Nex
A Canadian traveling to the United States converts $100 Canadian into 80 U.S. dollars. One month later he does the same thing and receives only 86 U.S. dollars. There are no transactions costs. The Canadian-U.S. exchange rate has and the Canadian dollar has relative to the U.S. dollar. O A. fallen; appreciated O B. increased; appreciated O C. not changed; remained stationary OD. fallen; depreciated O E. increased; depreciated
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