Social Science Questions

*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

The standard deviation should be applied to values rather than percentage movements when comparing volatility among currencies.a. Trueb. False

The markets that have a smaller amount of foreign exchange trading for speculatory purposes than for trade purposes will likely experience more volatility than those where trade flows play a larger role.a. Trueb. False

Which of the following is not mentioned in the text as a factor affecting exchange rates?a. Relative interest ratesb. Relative inflation ratesc. Government controlsd. Expectationse. All of the above are mentioned in the text as factors affecting exchange rates.

If one foreign currency will appreciate against the dollar, then all foreign currencies will appreciate against the dollar but by different degrees.a. Trueb. False

Relatively high Japanese inflation may result in an increase in the supply of yen for sale and a reduction in the demand for yen, other things being equal.a. Trueb. False

Liquidity of a currency can affect the extent to which speculation can impact the currency's value.a. Trueb. False

Any event that increases the supply of British pounds to be exchanged for U.S. dollars should result in a(n) ____ in the value of the British pound with respect to ____, other things being equal.a. increase; U.S. dollarb. increase; nondollar currenciesc. decrease; nondollar currenciesd. decrease; U.S. dollar

Assume that Canada places a strict quota on goods imported from the U.S. and that the U.S. does not retaliate. Holding other factors constant, this event should immediately cause the supply of Canadian dollars to be exchanged for U.S. dollars to ____ and the value of the Canadian dollar to ____.a. increase; increaseb. increase; declinec. decline; declined. decline; increase

Since supply and demand for a currency are constant (primarily due to government intervention), currency values seldom fluctuate.a. Trueb. False

Any event that reduces the U.S. demand for Japanese yen should result in a(n) ____ in the value of the Japanese yen with respect to ____, other things being equal.a. increase; U.S. dollarb. increase; nondollar currenciesc. decrease; nondollar currenciesd. decrease; U.S. dollar

The main effect of interest rate movements on exchange rates is through their effect on international trade.a. Trueb. False

If the U.S. and Japan engage in substantial financial flows but little trade, ____ directly influences their exchange rate the most. If the U.S. and Switzerland engage in much trade but little financial flows, ____ directly influences their exchange rate the most.a. interest rate differentials; interest rate differentialsb. inflation and interest rate differentials; interest rate differentialsc. income and interest rate differentials; inflation differentialsd. interest rate differentials; inflation and income differentialse. inflation and income differentials; interest rate differentials

Assume that the U.S. experiences a significant decline in income, while Japan's income remains steady. This event should place ____ pressure on the value of the Japanese yen, other things being equal. (Assume that interest rates and other factors are not affected.)a. upwardb. downwardc. nod. upward and downward (offsetting)

An increase in U.S. inflation relative to Singapore inflation places upward pressure on the Singapore dollar.a. Trueb. False

News of a potential surge in U.S. inflation and zero Chilean inflation places ____ pressure on the value of the Chilean peso. The pressure will occur ____.a. upward; only after the U.S. inflation surgesb. downward; only after the U.S. inflation surgesc. upward; immediatelyd. downward; immediately

Investors from Germany, the United States, and the U.K. frequently invest in each other based on prevailing interest rates. If British interest rates increase, German investors are likely to buy ____ dollar-denominated securities, and the euro is likely to ____ relative to the dollar.a. fewer; depreciateb. fewer; appreciatec. more; depreciated. more; appreciate

When expecting a foreign currency to depreciate, a possible way to speculate on this movement is to borrow dollars, convert the proceeds to the foreign currency, lend in the foreign country, and use the proceeds from this investment to repay the dollar loan.a. Trueb. False

The real interest rate adjusts the nominal interest rate for:a. exchange rate movements.b. income growth.c. inflation.d. government controls.e. none of the above

Any event that reduces the supply of Swiss francs to be exchanged for U.S. dollars should result in a(n) ____ in the value of the Swiss franc with respect to ____, other things being equal.a. increase; U.S. dollarb. increase; nondollar currenciesc. decrease; nondollar currenciesd. decrease; U.S. dollar