Untitled Quiz

1. What does the nominal exchange rate represent?

• 1. The price level of goods in a country

• 1. The value of foreign assets

• 1. The rate at which one currency ban be exchanged for another

• 1. The real purchasing power of money

1. According to the Law of One Price, if a product is cheaper in one country than another, what is likely to happen?

• 1. Prices will remain different

• 1. Arbitrage will occur

• 1. The government will interfere

• 1. Currency appreciation will stop

1. What does purchasing power parity (PPP) imply?

• 1. Currencies must fluctuate regularly

• 1. One currency buys more abroad than at home

• 1. A unit of currency should buy the same amount of goods in all countries

• 1. Price levels are always equal everywhere

1. If the nominal exchange rate increases, this means that:

• 1. The domestic currency has depreciated

• 1. The domestic currency has appreciated

• 1. Foreign currency becomes cheaper

• 1. Both B and C

1. Which of the following can cause the real exchange rate to change?

• 1. A change in local prices

• 1. A change in foreign prices

• 1. A change in nominal exchange rate

• 1. All of the above

1. What happens to the real exchange rate if the domestic price level increases, assuming other variables are constant?

• 1. It increases

• 1. It decreases

• 1. It remains unchanged

• 1. It becomes zero

1. Appreciation of a currency means:

• 1. It buys more foreign currency 

• 1. It buys less foreign currency

• 1. It has higher inflation

• 1. It loses value

1. Deprecation of the domestic currency leads to:

• 1. Lower import prices

• 1. Increased purchasing power

• 1. Higher export competitiveness

• 1. Stronger currency

1.  The Law of One Price is best described as:

• 1. Goods must have the same value in different currencies

• 1. Prices of goods converge in one market

• 1. A good should sell for the same price in all locations (after exchange)

• 1. All goods are priced in USD globally

1. Arbitrage helps ensure:

• 1. Profit loss

• 1. Price divergence

• 1. Market instability

• 1. Price convergence