AP Macro Exchange Rates

If there is a large increase in the number of Europeans traveling to the United States while US citizens’ travel to Europe remains unchanged, which of the following is true

• The euro will depreciate because the demand for euros will decrease

• The euro will depreciate because the supply of euros will increase

• The euro will appreciate because the demand for euros will increase

• The dollar will appreciate because the demand of dollars will decrease

• The dollar will appreciate because the supply of dollars will increase

Assume the inflation rate in Mexico is significantly higher than its trading partners. Which of the following will occur to the demand, supply, and international value of the Mexican Peso?

• Demand Supply Value

  Increase Increase Depreciate

• Demand Supply Value

  Increase Decrease Appreciate

• Demand Supply Value

  Decrease Increase Appreciate

• Demand Supply Value

  Decrease Increase Depreciate

• Demand Supply Value

  Decrease Decrease Depreciate

Assume the real interest rate in country X increases relative to other countries. What will happen to the value of the currency and net exports in country X?

• Value of Currency Net exports

  Appreciate Decrease

• Value of Currency Net exports

  Depreciate Increase

• Value of Currency Net exports

  Stay the Same Stay the Same

• Value of Currency Net exports

  Appreciate Increase

• Value of Currency Net exports

  Depreciate Decrease

What is likely to happen to the value of the Mexican Peso and capital flow in Mexico if there is an increase in real interest rates in Mexico relative to real interest rates in the rest of the world?

• Capital Flow

  Outflow

  Value of Peso

  Appreciate

• Capital Flow

  Inflow

  Value of Peso

  Appreciate

• Capital Flow

  Inflow

  Value of Peso

  Depreciate

• Capital Flow

  Outflow

  Value of Peso

  Depreciate

A country’s currency might appreciate in value because of which of the following?

• A higher real interest rate relative to the

  rest of the world

• A higher price level relative to the rest of

  the world

• Decreased demand for the country’s

  currency

• A purchase of government bonds in the

  open market by the nation’s central bank

If the relative price level in Canada is higher than in Mexico, what is the likely result in the foreign exchange market?

• A depreciation of the Mexican peso

• A decrease in the supply of Canadian

  dollars

• An appreciation of the Canadian dollar

• A depreciation of the Canadian dollar

If the US dollar appreciates relative to the Japanese yen, what is the likely impact on US exports to Japan?

• A) US exports to Japan will increase

• B) US exports to Japan will decrease

• C) US exports to Japan will remain unchanged

• D) US imports from Japan will decrease

What happens to the exchange rate if there is an increase in demand for a country's currency?

• A) The exchange rate will increase

• B) The exchange rate will decrease

• C) The exchange rate will remain the same

• D) The exchange rate will fluctuate unpredictably

If a country experiences a higher inflation rate than its trading partners, what is the likely effect on its currency value?

• A) The currency will appreciate

• B) The currency will depreciate

• C) The currency value will remain stable

• D) The currency will become more volatile

How does an increase in interest rates in the Eurozone affect the value of the euro?

• A) The euro will depreciate

• B) The euro will appreciate

• C) The euro will remain stable

• D) The euro will become more volatile