quiz 9

The nominal exchange rate is the

• • A. nominal interest rate in one country divided by the nominal interest rate in the other country.

• • B. real exchange rate minus the inflation rate.

• • C. rate at which a person can trade the currency of one country for another.

• • D. ratio of a foreign country's interest rate to the domestic interest rate.

If the nominal exchange rate is expressed as foreign currency per dollar, which of the following would both make Americans more willing to buy Italian goods? The nominal exchange rate

• • A. rises, the price of goods in Italy rises.

• • B. rises, the price of goods in Italy falls.

• • C. falls, the price of goods in Italy falls.

• • D. falls, the price of goods in Italy rises.

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

• • A. fewer domestic goods and fewer foreign goods.

• • B. more domestic goods and fewer foreign goods.

• • C. fewer domestic goods and more foreign goods.

• • D. more domestic goods and more foreign goods.

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

• • A. 1 gallons of Argentinean milk/2 gallon of U.S. milk

• • B. 2 gallons of Argentinean milk/3 gallon of U.S. milk

• • C. 2 gallons of Argentinean milk/1 gallon of U.S. milk

• • D. 3 gallons of Argentinean milk/2 gallon of U.S. milk

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then the dollar buys

• • A. fewer pesos. Your hotel room in Mexico will require fewer dollars.

• • B. more pesos. Your hotel room in Mexico will require more dollars.

• • C. fewer pesos. Your hotel room in Mexico will require more dollars.

• • D. more pesos. Your hotel room in Mexico will require fewer dollars.

If the exchange rate is 80 yen per dollar, then a hotel room in Tokyo that costs 25,000 yen costs $200.

• • A. True

• B. False

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio?

• • A. $40 and your purchase will decrease Brazil's net exports.

• • B. $10 and your purchase will increase Brazil's net exports.

• • C. $10 and your purchase will decrease Brazil's net exports.

• • D. $40 and your purchase will increase Brazil's net exports.

If the exchange rate is expressed as euros/dollar, the dollar is said to depreciate against the euro if the exchange rate

• .

• • A. falls. Other things the same, it will cost more euros to buy U.S. goods.

• • B. rises. Other things the same, it will cost more euros to buy U.S. goods.

• • C. rises. Other things the same, it will cost fewer euros to buy U.S. goods.

• • D. falls. Other things the same, it will cost fewer euros to buy U.S. goods.

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

• • A. (eP*)/P.

• • B. e + P*/P.

• • C. e − P/P*.

• • D. (eP)/P*.

The "law of one price" states that

• • A. a good cannot sell for a price greater than the legal price ceiling.

• • B. a good must sell at the price fixed by law.

• • C. a good must sell at the same price at all locations.

• • D. nominal exchange rates will not vary.