Chapter 4

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 ____%.

• decreased; 5.80

• decreased; 4.00

• increased; 5.80

• increased; 4.00

If the spot exchange market for a currency is ____, its rate is likely to ____ for a large buy or sell transaction.

• liquid; highly sensitive

• illiquid; not sensitive

• illiquid; highly sensitive

• none of the above.

____ is not a factor causing changes in the supply and demand for money.

• Relative inflation rate

• Relative interest rate

• Relative income level

• Expectations

• All of the above factors cause changes in the supply and demand for money.

A significant increase in income levels in Mexico along with no growth in income levels in the United States is expected to cause (assuming no changes in interest rates or other factors) an ____ in Mexico's demand for U.S. goods, and the Mexican peso should ____.

• increase; appreciate

• increase; depreciate

• decrease; depreciate

• decrease; appreciate

An increase in U.S. interest rates compared to German interest rates is likely to ____ the demand for euros in the U.S. and ____ the supply of euros for sale.

• decrease; increase

• increase; decrease

• decrease; decrease

• increase; increase

Investors from Germany, the United States, and the United Kingdom frequently invest in each other based on current interest rates. If interest rates in the UK rise, German investors are likely to buy ____ securities priced in dollars, and the euro is likely to ____ against the dollar.

• less; depreciate

• less; appreciate

• more; depreciate

• more; appreciate

When the "real" interest rate is relatively low in a certain country, the currency of that country is often expected to be:

• weak, because the published interest rate of that country will be high compared to the inflation rate.

• strong, because the published interest rate of that country will be low compared to the inflation rate.

• strong, because the published interest rate of that country will be high compared to the inflation rate.

• weak, because the published interest rate of that country will be low compared to the inflation rate.

Assuming that the inflation rate becomes much higher in the United Kingdom compared to the United States. This will put pressure ____ on the value of the pound. Additionally, suppose that interest rates in the United Kingdom begin to rise compared to interest rates in the United States. The change in interest rates will put pressure ____ on the value of the pound.

• increase; decrease

• increase; increase

• decrease; increase

• decrease; decrease

In general, when speculating on the movement of exchange rates, speculators will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.

• True

• False

Baylor Bank believes that the New Zealand dollar will appreciate in the next five days from $.48 to $.50. The following annual interest rates apply:

• $521,325.

• $500,520.

• $104,262.

• $413,419.

• $208,044.