Worksheets6.3 & 6.4 - The Foreign Exchange Market
Total questions: 10
Worksheet time: 13mins
Which of the following most undermines the ability of a nation’s currency to store value?
A decrease in the purchasing power of the currency
The use of credit and debit cards as mediums of exchange
An increase in the prices of federal bonds
Appreciation of the currency in the international money market
An increase in the supply of foreign currencies in the international money market
Which of the following is true if exchange rates are freely floating?
The free market forces of demand and supply determine the equilibrium exchange rates.
The demand curve for the currency is upward sloping.
Only nominal values of currency can be determined.
The market determines the equilibrium value of the currency, but governments buy and sell currency at a fixed rate.
Governments are unable to affect the international value of their currency.
If the current exchange rate of the Mexican peso and the Brazilian real is 0.20 real per peso, and the equilibrium exchange rate is 0.18 real per peso, which of the following describes the foreign exchange market for the Mexican peso?
There is a shortage of pesos and the peso will appreciate.
There is a shortage of pesos and the peso will depreciate.
There is a surplus of pesos and the peso will appreciate.
There is a surplus of pesos and the peso will depreciate.
There is a surplus of pesos and the real will depreciate.
Use the graph to answer the question.
If one Indian rupee is exchanged for three Japanese yen in the foreign exchange market, which of the following describes the foreign exchange market for Indian rupees?
There is a surplus of 40 yen.
There is a surplus of 20 rupees.
There is a shortage of 20 yen.
There is a shortage of 40 rupees.
The foreign exchange market is in equilibrium.
If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market?
Demand for United States dollars and supply of euros
Demand for both United States dollars and euros
Supply of United States dollars and demand for euros
Supply of both United States dollars and euros
International value of the euro relative to the United States dollar
Which of the following will lead to a depreciation of a nation’s currency?
Lower inflation in the nation than in the rest of the world
Higher required reserve ratio in the nation than in the rest of the world
Decreased real interest rates in the nation compared with the rest of the world
Increased demand for the nation’s currency
Decreased supply of the nation’s currency
Which of the following will cause the United States dollar to depreciate relative to the euro?
An increase in household income in the United States
An increase in interest rates in the United States
An increase in household income in Europe
A decrease in interest rates in Europe
A decrease in price level in the United States
The value of a country’s currency will tend to appreciate if
demand for the country’s exports increases
the country’s money supply increases
the country’s citizens increase their travel abroad
domestic interest rates decrease
tariffs on the country’s imports decrease
The graph above shows the foreign exchange market for United States dollars in terms of Japanese yen. Assume that there is an increase in United States consumers’ preference for Japanese automobiles. Which of the following changes will most likely take place in the market for dollars?
It will take more yen to purchase the same amount of dollars.
The demand for dollars will increase.
The supply of dollars will increase.
Both the demand for and the supply of dollars will decrease.
There will be no change in the foreign exchange market.
Tariffs are different from assigned import quotas in that tariffs will
restrict imports
increase the price of imported goods
benefit domestic consumers of imported goods
hurt domestic producers of goods facing import competition
generate additional revenue for the domestic government
