ch4 IF

Assume that the U.S. inflation rate becomes high relative to Canadian inflation.  Other things being equal, how should this affect the U.S. demand for Canadian dollars ?

 

• Demand for Canadian dollars should increase

• Demand for Canadian dollars should decrease

• supply of Canadian dollars for sale should increase

• no correct answer

Assume U.S. interest rates fall relative to British interest rates.  Other things being equal, how should this affect the supply of pounds for sale?

• supply of pounds for sale should decrease

• supply of pounds for sale should increase

• demand of pounds for sale should decrease

• no correct answer

What is the expected relationship between the relative real interest rates of two countries and the exchange rate of their currencies?

• Higher interest rates in one country will lead to depreciation of its currency.

• Lower interest rates in one country will lead to an appreciation of its currency.

• Higher interest rates in one country will lead to an appreciation of its currency.

• There is no relationship between interest rates and exchange rates.

In the context of exchange rate movements, what does a high standard deviation indicate?

• The exchange rate is relatively stable with little fluctuation.

• The exchange rate is highly volatile with large fluctuations.

• The exchange rate is fixed and does not change over time

• The exchange rate is appreciating consistently over time.

Which of the following is NOT a common method used by governments to control foreign exchange rates?

• Imposing foreign exchange barriers that restrict the buying and selling of foreign currencies.
  

• Introducing tariffs, quotas, or bans on imports or exports.

• Central banks buying or selling foreign currencies to influence the exchange rate.

• Allowing inflation to rise without adjusting monetary policy to influence the exchange rate