Social Science Questions

Illiquid currencies tend to exhibit less volatile exchange rate movements than liquid currencies.a. Trueb. False

The supply curve for a currency is downward sloping since U.S. corporations would be encouraged to purchase more foreign goods when the foreign currency is worth less.a. Trueb. False

If U.S. experiences a sudden surge in inflation and surge in interest rates while Japanese inflation and interest rates remain unchanged, the value of Japanese yen will ____ against the U.S. dollar.a. appreciateb. depreciatec. remain unchangedd. cannot be determined from the information provided.

If the Fed announces that it will decrease the U.S. interest rates, and European Central Bank takes no action, then the value of euro will ____ against the value of U.S. dollar. The Fed's action is called ____ intervention.a. appreciate; directb. depreciate; directc. appreciate; indirectd. depreciate; indirect

Financial flow foreign exchange transactions are more responsive to news than trade-related transactions.a. Trueb. False

Assume that the British government eliminates all controls on imports by British companies. Other things being equal, the U.S. demand for pounds would ____, the supply of pounds for sale would ____, and the equilibrium value of the pound would ____.a. increase; increase; increaseb. decrease; increase; decreasec. remain unchanged; increase; decreased. remain unchanged; increase; increase

An increase in U.S. interest rates relative to German interest rates would likely ____ the U.S. demand for euros and ____ the supply of euros for sale.a. reduce; increaseb. increase; reducec. reduce; reduced. increase; increase

Assume that the total value of investment transactions between U.S. and Mexico is minimal. Also assume that total dollar value of trade transactions between these two countries is very large. Now assume that Mexico's inflation has suddenly increased, and Mexican interest rates have suddenly increased. Overall, this would put ____ pressure on the value of Mexican peso. The inflation effect should be ____ pronounced than the interest rate effect.a. downward; moreb. upward; morec. downward; lessd. upward; less

Assume that U.S. inflation is expected to surge in the near future. The expectation of surge in inflation will most likely place ____ pressure on U.S. dollar immediately.a. upwardb. downwardc. nod. cannot be determined

Government controls can only affect the supply of a given currency for sale and not the demand.a. Trueb. False

Increases in relative income in one country vs. another result in an increase in the first country's currency value.a. Trueb. False

Assume that the income levels in U.K. start to rise, while U.S. income levels remain unchanged. This will place ____ pressure on the value of British pound. Also, assume that U.S. interest rates rise, while the British pound remains unchanged. This will place ____ pressure on the value of British pound.a. downward; downwardb. upward; downwardc. upward; upwardd. downward; upward

If a country experiences high inflation relative to the U.S., its exports to the U.S. should ____, its imports should ____, and there is ____ pressure on its currency's equilibrium value.a. decrease; increase; upwardb. decrease; decrease; upwardc. increase; decrease; downwardd. decrease; increase; downwarde. increase; decrease; upward

Trade-related foreign exchange transactions are more responsive to news than financial flow transactions.a. Trueb. False

If a currency's spot market is ____, its exchange rate is likely to be ____ to a single large purchase or sale transaction.a. liquid; highly sensitiveb. illiquid; insensitivec. liquid; insensitived. none of the above

Country X frequently engages in trade flows with the U.S. (such as imports and exports). Country Y frequently engages in capital flows with the U.S. (such as financial investments). Everything else held constant, an increase in U.S. inflation would affect the exchange rate of Country Y's currency more than the exchange rate of Country X's currency.a. Trueb. False

Signals regarding future actions of market participants in the foreign exchange market sometimes result in overreactions.a. Trueb. False

Movements of foreign currencies tend to be more volatile for shorter time horizons.a. Trueb. False

Forecasting a currency's future value is difficult, because it is difficult to identify how the factors affecting the currency value will change, and how they will interact to impact the currency's value.a. Trueb. False

*The value of euro was $1.30 last week. During last week the euro depreciated by 5%. What is the value of euro today?a. $1.365b. $1.235c. $1.330d. $1.30