国际金融FinanceTestBank

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Chapter 4—Exchange Rate Determination 加息会降低通货膨胀本国货币就增值

涨价了，出口就会减少进口就会增加

1. The value of the Australian dollar (A$) today is $0.73. Yesterday, the

value of the Australian dollar was $0.69. The Australian dollar ____ by ____%. a. b. c. d. ANS: SOLUTION: PTS: 1 2. If a currency's spot rate market is ____, its exchange rate is likely to be

____ to a single large purchase or sale transaction. a. b. c. d. ANS: to change. a. b. c. d. Relative inflation rates Relative interest rates Relative income levels Expectations C PTS: 1 liquid; highly sensitive illiquid; insensitive illiquid; highly sensitive none of the above. C ($0.73 5.80%  $0.69)/$0.69 = depreciated; 5.80 depreciated; 4.00 appreciated; 5.80 appreciated; 4.00 3. ____ is not a factor that causes currency supply and demand schedules

e. All of the above are factors that cause currency supply and demand schedules to change. ANS: E PTS: 1 4. A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____. a. b. c. d. ANS: B PTS: 1 increase; appreciate increase; depreciate decrease; depreciate decrease; appreciate 5. An increase in U.S. interest rates relative to German interest rates

would likely ____ the U.S. demand for euros and ____ the supply of euros for sale. a. b. c. d. ANS: A PTS: 1 reduce; increase increase; reduce reduce; reduce increase; increase 6. Investors from Germany, the United States, and the U.K. frequently

invest in each other based on prevailing interest rates. If British interest rates increase, German investors are likely to buy ____ dollar-denominated securities, and the euro is likely to ____ relative to the dollar. a. b. fewer; depreciate fewer; appreciate c. d. ANS: A PTS: 1 more; depreciate more; appreciate 7. When the \"real\" interest rate is relatively low in a given country, then

the currency of that country is typically expected to be: a. weak, since the country's quoted interest rate would be high relative to the inflation rate. b. strong, since the country's quoted interest rate would be low relative to the inflation rate. c. strong, since the country's quoted interest rate would be high relative to the inflation rate. d. weak, since the country's quoted interest rate would be low relative to the inflation rate. ANS: D PTS: 1 8. Assume that the inflation rate becomes much higher in the U.K.

relative to the U.S. This will place ____ pressure on the value of the British pound. Also, assume that interest rates in the U.K. begin to rise relative to interest rates in the U.S. The change in interest rates will place ____ pressure on the value of the British pound. a. b. upward; downward upward; upward c. d. ANS: C PTS: 1 downward; upward downward; downward 9. In general, when speculating on exchange rate movements, the

speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate. a. True b. False ANS:

PTS:

10. Baylor Bank believes the New Zealand dollar will appreciate over the

next five days from $.48 to $.50. The following annual interest rates apply: Currency Dollars New Zealand dollar (NZ$) Baylor Bank has the capacity to borrow either NZ$10 million or $5 million. If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations) a. b. c. d. e. ANS: SOLUTION: 1. Lending Rate 7.10% 6.80% Borrowing Rate 7.50% 7.25% $521,325. $500,520. $104,262. $413,419. $208,044. E Borrow $5 million. 2. Convert to NZ$: = $5,000,000/$.48 NZ$10,416,667. 3. Invest the NZ$ at an annualized rate of 6.80% over five days. NZ$10,416,667  [1 + 6.80% (5/360)] = NZ$10,426,505 4. Convert the NZ$ back to dollars: NZ$10,426,505  $.50 = $5,213,252 5. Repay the dollars borrowed. The repayment amount is: $5,000,000  [1 + 7.5% (5/360)] = $5,000,000  [1.00104] = $5,005,208 6. After repaying the loan, the remaining dollar profit is: $5,213,252 $5,005,208 = $208,044  PTS: 1 11. Assume the following information regarding U.S. and European

annualized interest rates: Currency U.S. Dollar ($) Euro (€) Lending Rate 6.73% 6.80% Borrowing Rate 7.20% 7.28% Trensor Bank can borrow either $20 million or €20 million. The current spot rate of the euro is $1.13. Furthermore, Trensor Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Trensor Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days a. b. c. d. e. ANS: SOLUTION: 1. $579,845. $583,800. $588,200. $584,245. $980,245. A Borrow €20 million. 2. Convert the €20 million to €20,000,000 $22,600,000.  $1.13 = 3. Invest the $22,600,000 at an annualized rate of 6.73% for 90 days. $22,600,000  [1 + 6.73% (90/360)] = $22,980,245 4. Determine euros owed: €20,000,000  [1 + 7.28% (90/360)] = €20,3,000. 5. Determine dollars needed to repay euro  loan: $1.10 = €20,3,000 $22,400,400. 6. The dollar profit is $22,980,245  $22,400,400 = $579,845. PTS: 1 12. The equilibrium exchange rate of pounds is $1.70. At an exchange

rate of $1.72 per pound: a. U.S. demand for pounds would exceed the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market. b. U.S. demand for pounds would be less than the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market. c. U.S. demand for pounds would exceed the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market. d. U.S. demand for pounds would be less than the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market. e. U.S. demand for pounds would be equal to the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market. ANS: D PTS: 1 13. Assume that Swiss investors have francs available to invest in

securities, and they initially view U.S. and British interest rates as equally attractive. Now assume that U.S. interest rates increase while British interest rates stay the same. This would likely cause: a. the Swiss demand for dollars to decrease and the dollar will depreciate against the pound. b. the Swiss demand for dollars to increase and the dollar will depreciate against the Swiss franc. c. the Swiss demand for dollars to increase and the dollar will appreciate against the Swiss franc. d. the Swiss demand for dollars to decrease and the dollar will appreciate against the pound. ANS: a. b. c. d. e. ANS: C PTS: 1 exchange rate movements. income growth. inflation. government controls. none of the above 14. The real interest rate adjusts the nominal interest rate for:

C PTS: 1 15. If U.S. inflation suddenly increased while European inflation stayed the

same, there would be: a. an increased U.S. demand for euros and an increased supply of euros for sale. b. a decreased U.S. demand for euros and an increased supply of euros for sale. c. a decreased U.S. demand for euros and a decreased supply of euros for sale. d. an increased U.S. demand for euros and a decreased supply of euros for sale. ANS: D PTS: 1

16. If inflation in New Zealand suddenly increased while U.S. inflation

stayed the same, there would be: a. an inward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$. b. an outward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$. c. an outward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$. d. an inward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$. ANS: A PTS: 1 17. If the U.S. and Japan engage in substantial financial flows but little

trade, ____ directly influences their exchange rate the most. If the U.S. and Switzerland engage in much trade but little financial flows, ____ directly influences their exchange rate the most. a. b. interest rate differentials; interest rate differentials inflation and interest rate differentials; differentials interest rate c. income and interest rate differentials; differentials d. interest inflation differentials e. inflation differentials; differentials ANS: D PTS: 1 and rate inflation differentials; income income rate and interest 18. If inflation increases substantially in Australia while U.S. inflation

remains unchanged, this is expected to place ____ pressure on the value of the Australian dollar with respect to the U.S. dollar. a. b. c. upward downward either upward or downward (depending on the degree of the increase in Australian inflation) d. ANS: B PTS: 1 none of the above; there will be no impact 19. Assume that British corporations begin to purchase more supplies

from the U.S. as a result of several labor strikes by British suppliers. This action reflects: a. b. an increased demand for British pounds. a decrease in the demand for British pounds. c. d. ANS: C PTS: 1 an increase in the supply of British pounds for sale. a decrease in the supply of British pounds for sale. 20. The exchange rates of smaller countries are very stable because the

market for their currency is very liquid. a. True b. False ANS: a. F

PTS:

the dollar was strong in some periods and weak in other periods over the last month. b. the volume of trading was very high in some periods and low in other periods. c. the dollar was involved in some currency transactions, but not others. d. the dollar strengthened against some currencies and weakened against others. ANS: D PTS: 1 22. Assume that the U.S. places a strict quota on goods imported from

Chile and that Chile does not retaliate. Holding other factors constant, this event should immediately cause the U.S. demand for Chilean pesos to ____ and the value of the peso to ____. a. increase; increase 21. The phrase \"the dollar was mixed in trading\" means that:

b. c. d. ANS: C PTS: 1 increase; decline decline; decline decline; increase 23. Any event that increases the U.S. demand for euros should result in

a(n) ____ in the value of the euro with respect to ____, other things being equal. a. b. c. d. ANS: A PTS: 1 increase; U.S. dollar increase; nondollar currencies decrease; nondollar currencies decrease; U.S. dollar 24. Any event that reduces the U.S. demand for Japanese yen should

result in a(n) ____ in the value of the Japanese yen with respect to ____, other things being equal. a. b. c. d. ANS: D PTS: 1 increase; U.S. dollar increase; nondollar currencies decrease; nondollar currencies decrease; U.S. dollar 25. Any event that increases the supply of British pounds to be exchanged

for U.S. dollars should result in a(n) ____ in the value of the British pound with respect to ____, other things being equal. a. b. c. d. ANS: D PTS: 1 increase; U.S. dollar increase; nondollar currencies decrease; nondollar currencies decrease; U.S. dollar 26. Any event that reduces the supply of Swiss francs to be exchanged for

U.S. dollars should result in a(n) ____ in the value of the Swiss franc with respect to ____, other things being equal. a. b. c. d. ANS: A PTS: 1 increase; U.S. dollar increase; nondollar currencies decrease; nondollar currencies decrease; U.S. dollar 27. Assume that the U.S. experiences a significant decline in income, while

Japan's income remains steady. This event should place ____ pressure on the value of the Japanese yen, other things being equal. (Assume that interest rates and other factors are not affected.) a. b. c. d. ANS: B PTS: 1 upward downward no upward (offsetting) 28. News of a potential surge in U.S. inflation and zero Chilean inflation

places ____ pressure on the value of the Chilean peso. The pressure will occur ____. a. b. c. d. ANS: C PTS: 1 upward; only after the U.S. inflation surges downward; only after the U.S. inflation surges upward; immediately downward; immediately and downward 29. Assume that Canada places a strict quota on goods imported from the

U.S. and that the U.S. does not retaliate. Holding other factors constant, this event should immediately cause the supply of Canadian dollars to be exchanged for U.S. dollars to ____ and the value of the Canadian dollar to ____. a. b. c. d. ANS: D PTS: 1 increase; increase increase; decline decline; decline decline; increase 30. Assume that Japan places a strict quota on goods imported from the

U.S. and the U.S. places a strict quota on goods imported from Japan. This event should immediately cause the U.S. demand for Japanese yen to ____, and the supply of Japanese yen to be exchanged for U.S. dollars to ____. a. b. c. d. ANS: C PTS: 1 increase; increase increase; decline decline; decline decline; increase 31. Which of the following is not mentioned in the text as a factor

affecting exchange rates a. b. c. d. e. relative interest rates. relative inflation rates. government controls. expectations. all of the above are mentioned in the text as factors affecting exchange rates. ANS: E PTS: 1 32. If a country experiences high inflation relative to the U.S., its exports

to the U.S. should ____, its imports should ____, and there is ____ pressure on its currency's equilibrium value. a. b. c. d. e. ANS: D PTS: 1 decrease; increase; upward decrease; decrease; upward increase; decrease; downward decrease; increase; downward increase; decrease; upward 33. If a country experiences an increase in interest rates relative to U.S.

interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value. a. b. c. d. e. ANS: C PTS: 1 increase; decrease; downward decrease; increase; upward increase; decrease; upward decrease; increase; downward increase; increase; upward 34. An increase in U.S. inflation relative to Singapore inflation places

upward pressure on the Singapore dollar. a. True b. False ANS:

PTS:

35. When expecting a foreign currency to depreciate, a possible way to

speculate on this movement is to borrow dollars, convert the proceeds to the foreign currency, lend in the foreign country, and use the proceeds from this investment to repay the dollar loan. a. True

b. False ANS:

PTS:

36. Since supply and demand for a currency are constant (primarily due

to government intervention), currency values seldom fluctuate. a. True b. False ANS:

PTS:

37. Relatively high Japanese inflation may result in an increase in the

supply of yen for sale and a reduction in the demand for yen. a. True b. False ANS:

PTS:

38. The main effect of interest rate movements on exchange rates is

through their effect on international trade. a. True b. False ANS:

PTS:

39. Country X frequently engages in trade flows with the U.S. (such as

imports and exports). Country Y frequently engages in capital flows with the U.S. (such as financial investments). Everything else held constant, an increase in U.S. interest rates would affect the exchange rate of Country X's currency more than the exchange rate of Country Y's currency. a. True b. False ANS:

PTS:

40. Increases in relative income in one country vs. another result in an

increase in the first country's currency value. a. True

b. False ANS:

PTS:

41. Trade-related foreign exchange transactions are more responsive to

news than financial flow transactions. a. True b. False ANS:

PTS:

42. Signals regarding future actions of market participants in the foreign

exchange market sometimes result in overreactions. a. True b. False ANS:

PTS:

43. The markets that have a smaller amount of foreign exchange trading

for speculatory purposes than for trade purposes will likely experience more volatility than those where trade flows play a larger role. a. True b. False ANS:

PTS:

44. Liquidity of a currency can affect the extent to which speculation can

impact the currency's value. a. True b. False ANS:

PTS:

45. Forecasting a currency's future value is difficult, because it is difficult

to identify how the factors affecting the currency value will change, and how they will interact to impact the currency's value. a. True b. False ANS:

PTS:

46. The standard deviation should be applied to values rather than

percentage movements when comparing volatility among currencies. a. True b. False ANS:

time horizons. a. True b. False ANS:

PTS:

48. If a currency's spot market is ____, its exchange rate is likely to be ____

to a single large purchase or sale transaction. a. b. c. d. ANS: C PTS: 1 liquid; highly sensitive illiquid; insensitive liquid; insensitive none of the above F

PTS:

47. Movements of foreign currencies tend to be more volatile for shorter

49. The value of euro was $1.30 last week. During last week the euro

depreciated by 5%. What is the value of euro today a. b. c. d. ANS: SOLUTION: PTS: 1 50. Government controls can only affect the supply of a given currency

for sale and not the demand. a. True

B $1.3  (1  .05) = $1.235 $1.365 $1.235 $1.330 $1.30 b. False ANS:

PTS:

51. If one foreign currency will appreciate against the dollar, then all

foreign currencies will appreciate against the dollar but by different degrees. a. True b. False ANS:

PTS:

52. Assume that the income levels in U.K. start to rise, while U.S. income

levels remain unchanged. This will place ____ pressure on the value of British pound. Also, assume that U.S. interest rates rise, while the British pound remains unchanged. This will place ____ pressure on the value of British pound. a. b. c. d. ANS: D PTS: 1 downward; downward upward; downward upward; upward downward; upward 53. If the Fed announces that it will decrease the U.S. interest rates, and

European Central Bank takes no action, then the value of euro will ____ against the value of U.S. dollar. The Fed's action is called ____ intervention. a. b. c. d. ANS: C PTS: 1 appreciate; direct depreciate; direct appreciate; indirect depreciate; indirect . Assume that the total value of investment transactions between U.S.

and Mexico is minimal. Also assume that total dollar value of trade

transactions between these two countries is very large. Now assume that Mexico's inflation has suddenly increased, and Mexican interest rates have suddenly increased. Overall, this would put ____ pressure on the value of Mexican peso. The inflation effect should be ____ pronounced than the interest rate effect. a. b. c. d. ANS: A PTS: 1 downward; more upward; more downward; less upward; less 55. If U.S. experiences a sudden surge in inflation and surge in interest

rates while Japanese inflation and interest rates remain unchanged, the value of Japanese yen will ____ against the U.S. dollar. a. b. c. d. ANS: D PTS: 1 appreciate depreciate remain unchanged cannot be determined from the information provided. 56. If the Japanese yen is expected to appreciate against the U.S. dollar

and interest rates in the U.S. and Japan are similar, banks may try speculating on this anticipated exchange rate movement by borrowing ____ and investing in ____. a. b. c. d. ANS: C PTS: 1 yen; dollars yen; yen dollars; yen dollars; dollars 57. British investors frequently invest in the U.S. or Italy, depending on

the prevailing interest rates. If Italian interest rates suddenly rise high above U.S. rates, the investors will ____ the supply of pounds to be exchanged for dollars and thus put ____ pressure on the value of the pound against the U.S. dollar. a. b. c. d. ANS: B PTS: 1 increase; downward decrease; upward increase; upward decrease; downward 58. The equilibrium exchange rate of the Swiss franc is $0.90. At an

exchange rate $.83: a. U.S. demand for Swiss francs would exceed the supply of francs for sale and there would be a shortage of francs in b. the foreign exchange market. U.S. demand for Swiss francs would be less than the supply of francs for sale and there would be a shortage of francs in c. the foreign exchange market. U.S. demand for Swiss francs would exceed the supply of francs for sale and there would be a surplus of francs in the foreign exchange market. d. U.S. demand for Swiss francs would be less than the supply of francs for sale and there would be a surplus of Swiss francs in the foreign exchange market. ANS: A PTS: 1 59. Financial flow foreign exchange transactions are more responsive to

news than trade-related transactions. a. True b. False ANS:

PTS:

60. Assume that the British government eliminates all controls on imports

by British companies. Other things being equal, the U.S. demand for pounds would ____, the supply of pounds for sale would ____, and the equilibrium value of the pound would ____. a. b. c. d. ANS: C PTS: 1 increase; increase; increase decrease; increase; decrease remain unchanged; increase; decrease remain unchanged; increase; increase 61. Country X frequently engages in trade flows with the U.S. (such as

imports and exports). Country Y frequently engages in capital flows with the U.S. (such as financial investments). Everything else held constant, an increase in U.S. inflation would affect the exchange rate of Country Y's currency more than the exchange rate of Country X's currency. a. True

b. False ANS:

PTS:

62. Assume that U.S. inflation is expected to surge in the near future. The

expectation of surge in inflation will most likely place ____ pressure on U.S. dollar immediately. a. b. c. d. ANS: A PTS: 1 upward downward no cannot be determined 63. When the Japanese yen appreciates against the U.S. dollar, this means

that the U.S. dollar is strengthening relative to the yen. a. True b. False ANS:

PTS:

. Illiquid currencies tend to exhibit less volatile exchange rate

movements than liquid currencies. a. True b. False ANS:

PTS:

65. The supply curve for a currency is downward sloping since U.S.

corporations would be encouraged to purchase more foreign goods when the foreign currency is worth less. a. True b. False ANS:

PTS:

66. Relatively high Japanese inflation may result in an increase in the

supply of yen for sale and a reduction in the demand for yen, other things being equal.

a. True b. False ANS:

PTS:

67. If the British government desires an appreciation in its currency with

respect to the U.S. dollar, it would consider intervening in the foreign exchange market by buying dollars with pounds. a. True b. False ANS:

PTS:

68. Country X frequently engages in trade flows with the U.S. (such as

imports and exports). Country Y frequently engages in financial flows with the U.S. (such as financial investments). Everything else held constant, an increase in U.S. interest rates would affect the exchange rate of Country X's currency more than the exchange rate of Country Y's currency. a. True b. False ANS:

PTS:

69. Illiquid currencies tend to exhibit ____ volatile exchange rate

movements, as the equilibrium prices of their currencies adjust to ____ changes in supply and demand conditions. a. b. c. d. e. ANS: C PTS: 1 less; even minor less; only large more; even minor more; only large none of the above 70. Which of the following is not mentioned in the text as a factor

affecting exchange rates

a. b. c. d. e. Relative interest rates Relative inflation rates Government controls Expectations All of the above are mentioned in the text as factors affecting exchange rates. ANS: E PTS: 1 71. Which of the following events would most likely result in an

appreciation of the U.S. dollar a. b. c. d. U.S. inflation is very high. The Fed indicates that it will raise U.S. interest rates. Future U.S. interest rates are expected to decline. Japan is expected to increase interest rates in the near future. ANS: B PTS: 1 72. Which of the following interactions will likely have the least effect on

the dollar's value Assume everything else is held constant. a. A reduction in U.S. inflation accompanied by an increase in real U.S. interest rates b. A reduction in U.S. inflation accompanied by an increase in nominal U.S. interest rates c. An increase in U.S. inflation accompanied by an increase in nominal, but not real, U.S. interest rates d. An increase in Singapore's inflation accompanied by an increase in real U.S. interest rates e. An increase in Singapore's interest rates accompanied by an increase in U.S. inflation. ANS: C PTS: 1 73. If a country experiences high inflation relative to the U.S., its exports

to the U.S. should ____, its imports should ____, and there is ____ pressure on its currency's equilibrium value. a. b. c. d. e. ANS: D PTS: 1 decrease; increase; upward decrease; decrease; upward increase; decrease; downward decrease; increase; downward increase; decrease; upward 74. If a country experiences an increase in interest rates relative to U.S.

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