Question : 81) The Fed wants to keep the dollar at 0.80 : 1238297

 

81) The Fed wants to keep the dollar at 0.80 euros per dollar. If the demand for dollars increases,

A) the Fed buys dollars to decrease the supply of dollars and maintain the exchange rate.

B) the Fed sells dollars to decrease the supply of dollars and maintain the exchange rate.

C) the Fed buys dollars to increase the supply of dollars and maintain the exchange rate.

D) the Fed sells dollars to increase the supply of dollars and maintain the exchange rate.

E) the Fed conducts persistent intervention on one side of the market.

82) To appreciate the U.S. dollar against the Mexican peso, in the foreign exchange market the Fed could ________ dollars and ________ pesos.

A) buy; buy

B) buy; sell

C) sell; buy

D) sell; sell

E) None of the above answers is correct because the Fed cannot affect the U.S. exchange rate.

83) If one day the dollar is trading at 1.00 euro per dollar and the next day the exchange rate is 0.88 euros per dollar, one possible factor that might have led to this change is

A) an increase in the U.S. interest rate.

B) an increase in the expected future exchange rate.

C) the Fed selling dollars.

D) the Fed buying dollars.

E) a decrease in the European interest rate.

84) The foreign exchange market is the market in which

A) all international transactions occur.

B) currencies are exchanged solely by governments.

C) goods and services are exchanged between governments.

D) the currency of one country is exchanged for the currency of another.

E) the world’s governments collect their tariff revenue.

85) When Del Monte, an American company, purchases Mexican tomatoes, Del Monte pays for the tomatoes with

A) Canadian dollars.

B) Mexican pesos.

C) gold.

D) Mexican goods and services.

E) euros.

86) If today the exchange rate is 1.00 euro per dollar and tomorrow the exchange rate is 0.98 euros per dollar, then the dollar ________ and the euro ________.

A) appreciated; appreciated

B) appreciated; depreciated

C) depreciated; appreciated

D) depreciated; depreciated

E) depreciated; did not change

87) In the foreign exchange market, as the U.S. exchange rate rises, other things remaining the same, the

A) quantity of dollars demanded increases.

B) demand curve for dollars shifts rightward.

C) demand curve for dollars shifts leftward.

D) quantity of dollars demanded decreases.

E) supply curve of dollars shifts rightward.

88) In the foreign exchange market, the demand for dollars increases and the demand curve for dollars shifts rightward if the

A) U.S. interest rate differential increases.

B) expected future exchange rate falls.

C) foreign interest rate rises.

D) U.S. interest rate falls.

E) exchange rate falls.

89) As the exchange rate ________, the quantity supplied of U.S. dollars ________.

A) rises; increases

B) falls; increases

C) falls; remains the same

D) rises; decreases

E) rises; remains the same

90) In the foreign exchange market, the supply curve of dollars is

A) upward sloping.

B) downward sloping.

C) vertical.

D) horizontal.

E) identical to the demand curve for dollars.

91) Everything else remaining the same, in the foreign exchange market, which of the following increases the supply of U.S. dollars?

A) The European interest rate rises.

B) The expected future exchange rate rises.

C) The U.S. interest rate rises.

D) The U.S. interest rate differential increases.

E) The exchange rate falls.

92) When there is a shortage of dollars in the foreign exchange market, the

A) demand curve for dollars shifts leftward to restore the equilibrium.

B) U.S. exchange rate will appreciate.

C) U.S. exchange rate will depreciate.

D) supply curve of dollars shifts leftward to restore the equilibrium.

E) supply curve of dollars shifts rightward to restore the equilibrium.

93) In the foreign exchange market, when the U.S. interest rate rises, the supply of dollars ________ and the foreign exchange rate ________.

A) increases; rises

B) increases; falls

C) decreases; rises

D) decreases; falls

E) increases; does not change

94) A situation in which money buys the same amount of goods and services in different currencies is called

A) exchange rate equilibrium.

B) purchasing power parity.

C) exchange rate surplus.

D) exchange rate balance.

E) a fixed exchange rate.

95) Interest rate parity occurs when

A) the interest rate in one currency equals the interest rate in another currency when exchange rate changes are taken into account.

B) interest rate differentials are always maintained across nations.

C) interest rates are equal across nations.

D) prices are equal across nations when exchange rates are taken into account.

E) interest rates no longer affect the exchange rate.