Question : 71.Which of the following true of the determination of exchange : 1299375

71.Which of the following is true of the determination of exchange rates?  

A. Differences in relative demand and supply do not explain the determination of exchange rates.

B. Differences in relative demand and supply explain the factors underlying the phenomenon behind the demand for and supply of a currency.

C. The differences in relative demand and supply alone provide a high level understanding of behind determination of exchange rates.

D. While the differences in relative demand and supply they provide an accurate explanation for appreciation of currencies, they fail to explain depreciation.

E. The differences in relative demand and supply cannot explain or predict the conditions under which a particular currency will be in demand or not.

72.Which of the following is true of the differences in relative demand and supply of currencies?  

A. They cannot be used to explain the determination of exchange rates.

B. While they provide an understanding of the major factors underlying exchange rates, they exclude minor factors.

C. They provide a high level understanding of exchange rates.

D. While they provide an accurate explanation for appreciation of currencies, they fail to explain depreciation.

E. They cannot explain or predict when the demand of a particular currency would exceed its supply and vice versa.

73.The law of one price states that:  

A. by comparing the prices of identical products in different currencies, it would be possible to determine the “real” or PPP exchange rate that would exist if markets were efficient.

B. a country’s “nominal” interest rate (i) is the sum of the required “real” rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).

C. a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower.

D. when the growth in a country’s money supply is faster than the growth in its output, price inflation is fueled.

E. in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of in the same currency.

74.The euro/dollar exchange rate is €1 = $1.20. According to the law of one price, a camera that retails for $300 in New York should sell for _____ in Germany.  

A. €320

B. €300

C. €250

D. €360

E. €150

75.The euro/dollar exchange rate is €1 = $1.20. If a trader buys a camera that retails for $300 in New York and sells it for €200 in Berlin (ignoring transaction costs, transportation costs, or trade barriers), this represents a potential profit (arbitrage) of _____.  

A. $60

B. $80

C. $20

D. $100

E. $40

76.Which of the following has no impediments to the free flow of goods and services, such as trade barriers?  

A. Economic Union

B. Currency Board

C. Efficient market

D. Carry trade

E. European Monetary System

77.To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and P¥ be the price of the same basket of goods in Japanese yen. The (purchasing power parity) PPP theory predicts that the dollar/yen exchange rate, E$/¥, should be equivalent to _____.  

A. E$/¥= (1+P¥)/P$

B. E$/¥= (1 + P$)/P¥

C. E$/¥= P¥/P$

D. E$/¥= P$/P¥

E. E$/¥= (1+P$)/(1+P¥)

78.If a basket of goods costs $100 in the United States and €120 in Europe, purchasing power parity theory predicts that the dollar/euro exchange rate should be _____.  

A. $1 = €1.20

B. $1 = €1

C. $1 = €0.80

D. $1 = €0.90

E. $1 = €1.10

79.Which of the following is true of the purchasing power parity (PPP) theory?  

A. A country’s “nominal” interest rate (i) is the sum of the required “real” rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).

B. The exchange rate will not change if relative prices change.

C. The price of a “basket of goods” should be roughly equivalent in each country in relatively efficient markets.

D. In competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price.

E. If the law of one price were true for all goods and services, the PPP exchange rate could not be found from any individual set of prices.

80.Which of the following is illustrated by the Big Mac Index published by The Economist?  

A. The law of one price

B. The purchasing power parity theory

C. The Fisher effect

D. Flow of FDI

E. The bandwagon effect