Question : 19.6   The Foreign Exchange Market and Exchange Rates 1) How does : 1267009

19.6   The Foreign Exchange Market and Exchange Rates

1) How does an increase in a country’s exchange rate affect its balance of trade?

A) An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade.

B) An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade.

C) An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade.

D) An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade.

2) If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

A) $1.32

B) $2.23

C) $2.75

D) $2.81

3) You’re traveling in Ireland and are thinking about buying a new digital camera.  You’ve decided you’d be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros.  If the exchange rate is 0.85 euros per dollar, what’s the highest price in euros you’d be willing to pay for a camera?

A) 105 euros

B) 106.25 euros

C) 110.15 euros

D) 147 euros

4) You’re traveling in Ireland and are thinking about buying a new digital camera.  You’ve decided you’d be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros.  If the camera you’re looking at costs 115 euros, under which of the following exchange rates would you be willing to purchase the camera?  (Assume no taxes or duties are associated with the purchase.)

A) 0.56 euros per dollar

B) 0.89 euros per dollar

C) 0.92 euros per dollar

D) You would purchase the new camera at any of the above exchange rates.

5) If the dollar appreciates against the Mexican peso,

A) Mexican imports to the U.S. become more expensive.

B) U.S. exports to Mexico become less expensive.

C) U.S. exports to Mexico become more expensive.

D) The value of Mexican imports to the United States does not change.

6) When the market value of the dollar rises relative to other currencies around the world, we say that

A) the dollar has appreciated.

B) the dollar has depreciated.

C) the demand for dollars has increased.

D) the supply of dollars has increased.

7) Currency traders expect the value of the dollar to fall.  What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

A) Demand for dollars will increase, and supply of dollars will decrease.

B) Demand for dollars will increase, and supply of dollars will increase.

C) Demand for dollars will decrease, and supply of dollars will increase.

D) Demand for dollars will decrease, and supply of dollars will decrease.

Figure 19-6

8) Refer to Figure 19-6. The depreciation of the dollar is represented as a movement from ________.

A) B to A

B) D to C

C) B to C

D) A to C

E) A to B

9) Refer to Figure 19-6.  The appreciation of the euro is represented as a movement from ________.

A) D to A

B) D to C

C) B to C

D) A to C

E) A to B

10) Refer to Figure 19-6.  The French fall in love with California wines and triple their purchases of this beverage. Assuming all else remains constant, this would be represented as a movement from ________.

A) B to A

B) C to D

C) B to C

D) A to D

E) A to B