Free Printable International trade 2

1.

Suppose, the nominal interest rate is 0.3 EURO/PLN. You want to sell goods worth 6000PLN. How much are they worth in Germany (in EURO)?

(a)

2.

Real exchange rate is

a)

the relative price of domestic goods in terms of foreign goods

b)

a price of a currency in terms of another currency

c)

depends on nominal exchange rate

d)

depends on prices of goods and services in both countries

3.

Suppose, the same model of a phone costs 1600 PLN in Poland and 250 EURO in France. The nominal exchange rate is 0.25 EURO/PLN.

a)

The real exchange rate is 6.4 PLN/EURO.

b)

The real exchange rate is 1.6.

c)

To buy the phone in Poland, someone would have to pay an amount that could buy 1.6 telephones in France.

d)

The phone is more expensive in France than in Poland.

4.

When real exchange rate increases then

a)

the export will fall.

b)

the import will decrease.

c)

the net export will rise.

5.

The real exchange rate

a)

impact the net export.

b)

ensures that there is an equilibrium in the foreign exchange market.

c)

impacts the demand for the domestic currency.

d)

impact the level of savings.

6.

Fiscal policy at home. Suppose, the goverment introduces a policy, which aims at rising national savings. It will result in

a)

fall of the capital outflow.

b)

rise of the net export.

c)

fall of the real exchange rate.

7.

Lets denote by $e$ and $\epsilon$ the nominal and real interest rate, respectively. The level of domestic prices is $P_d$ , whereas $P_f$ is the level of foreign prices. Then

a)

$e=\epsilon\frac{P_d}{P_f}$

b)

$\epsilon=e\frac{P_d}{P_f}$

c)

$\%\Delta e=\%\Delta\epsilon\ +\ \pi_{f\ }-\pi_d$ , where $\pi_{d\ }$ and $\pi_f$ are domestic and foreign inflations and $\%\Delta$ means a precentage growth rate.

8.

Suppose, the real interest rate increases by 3%, the domestic inflation is 4% and the foreign inflation is 2%. How much will the nominal exchange rate change?
$\%\Delta e=\%\Delta\epsilon\ +\ \pi_{f\ }-\pi_d$

a)

1%

b)

2%

c)

3%

d)

4%

9.

Suppose, the nominal interest rate rises by 5%, the domestic inflation is 2% and the foreign inflation is 4%. How much will the real exchange rate change?
$\%\Delta\epsilon\ =\%\Delta e\ -\ \pi_{f\ }+\pi_d$

a)

2%

b)

3%

c)

4%

d)

5%

10.

Purchasing Power Parity (PPP) assumes that

a)

the real and the nominal interest rates are the same.

b)

the real exchange rate equals 1 ( $\epsilon=1$ )

c)

the nominal exchange ratebetween two countries equals the ratio of thecountries’ price levels.

International trade 2

Total questions: 10

Worksheet time: 50mins

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