Social Science Questions

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 exchange rates of smaller countries are very stable because the market for their currency is very liquid.a. Trueb. False

The phrase "the dollar was mixed in trading" means that:a. the dollar was strong in some periods and weak in other periods over the last month.b. the volume of trading was very high in some periods and low in other periods.c. the dollar was involved in some currency transactions, but not others.d. the dollar strengthened against some currencies and weakened against others.

When the "real" interest rate is relatively low in a given country, then the currency of that country is typically expected to be:a. weak, since the country's quoted interest rate would be high relative to the inflation rate.b. strong, since the country's quoted interest rate would be low relative to the inflation rate.c. strong, since the country's quoted interest rate would be high relative to the inflation rate.d. weak, since the country's quoted interest rate would be low relative to the inflation rate.

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

The equilibrium exchange rate of pounds is $1.70. At an exchange rate of $1.72 per pound:a. U.S. demand for pounds would exceed the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market.b. U.S. demand for pounds would be less than the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market.c. U.S. demand for pounds would exceed the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market.d. U.S. demand for pounds would be less than the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market.e. U.S. demand for pounds would be equal to the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market.

Assume that British corporations begin to purchase more supplies from the U.S. as a result of several labor strikes by British suppliers. This action reflects:a. an increased demand for British pounds.b. a decrease in the demand for British pounds.c. an increase in the supply of British pounds for sale.d. a decrease in the supply of British pounds for sale.

Assume that Swiss investors have francs available to invest in securities, and they initially view U.S. and British interest rates as equally attractive. Now assume that U.S. interest rates increase while British interest rates stay the same. This would likely cause:a. the Swiss demand for dollars to decrease and the dollar will depreciate against the pound.b. the Swiss demand for dollars to increase and the dollar will depreciate against the Swiss franc.c. the Swiss demand for dollars to increase and the dollar will appreciate against the Swiss franc.d. the Swiss demand for dollars to decrease and the dollar will appreciate against the pound.

Assume the following information regarding U.S. and European annualized interest rates:Currency Lending Rate Borrowing RateU.S. Dollar ($) 6.73% 7.20%Euro (€) 6.80% 7.28%Trensor Bank can borrow either $20 million or €20 million. The current spot rate of the euro is $1.13. Furthermore, Trensor Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Trensor Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days?a. $579,845.b. $583,800.c. $588,200.d. $584,245.e. $980,245.

If inflation in New Zealand suddenly increased while U.S. inflation stayed the same, there would be:a. an inward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$.b. an outward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$.c. an outward shift in the demand schedule for NZ$ and an outward shift in the supply schedule for NZ$.d. an inward shift in the demand schedule for NZ$ and an inward shift in the supply schedule for NZ$.

If U.S. inflation suddenly increased while European inflation stayed the same, there would be:a. an increased U.S. demand for euros and an increased supply of euros for sale.b. a decreased U.S. demand for euros and an increased supply of euros for sale.c. a decreased U.S. demand for euros and a decreased supply of euros for sale.d. an increased U.S. demand for euros and a decreased supply of euros for sale.

Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply:Currency Lending Rate Borrowing RateDollars 7.10% 7.50%New Zealand dollar (NZ$) 6.80% 7.25%Baylor Bank has the capacity to borrow either NZ$10 million or $5 million. If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?a. $521,325.b. $500,520.c. $104,262.d. $413,419.e. $208,044.

The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the Australian dollar was $0.69. The Australian dollar ____ by ____%.a. depreciated; 5.80b. depreciated; 4.00c. appreciated; 5.80d. appreciated; 4.00

Assume that the U.S. places a strict quota on goods imported from Chile and that Chile does not retaliate. Holding other factors constant, this event should immediately cause the U.S. demand for Chilean pesos to ____ and the value of the peso to ____.a. increase; increaseb. increase; declinec. decline; declined. decline; increase

A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ____ in Mexican demand for U.S. goods, and the Mexican peso should ____.a. increase; appreciateb. increase; depreciatec. decrease; depreciated. decrease; appreciate

____ is not a factor that causes currency supply and demand schedules to change.a. Relative inflation ratesb. Relative interest ratesc. Relative income levelsd. Expectationse. All of the above are factors that cause currency supply and demand schedules to change.

Assume that the inflation rate becomes much higher in the U.K. relative to the U.S. This will place ____ pressure on the value of the British pound. Also, assume that interest rates in the U.K. begin to rise relative to interest rates in the U.S. The change in interest rates will place ____ pressure on the value of the British pound.a. upward; downwardb. upward; upwardc. downward; upwardd. downward; downward

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

In general, when speculating on exchange rate movements, the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.a. Trueb. False

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