Question

1a.

The nominal exchange rate between the United States dollar and the Japanese yen is which of the following?

-The reciprocal of the real exchange rate

-The rate at which one of the currencies can be converted into the other currency

-Always equal to the real effective exchange rate except when nominal interest rates within the two countries diverge

-Always equal to the real effective exchange rate except when real interest rates within the two countries diverge

b.

If German companies invest more intensively in the United States, what will happen?

-An increase the demand for dollars and decrease the supply of euros

-An increase the demand for dollars and increase the supply of euros

-An increase the supply of dollars and decrease the demand for euros

-A decrease the demand of dollars and increase the demand for euros

c.

When do U.S. exports tend to increase?

-When U.S. prices are relatively low

-When U.S. prices are relatively high

-When U.S. inflation is relatively high

-When economic activity abroad is relatively low

d.

The exchange rate changes from 10 pesos per dollar to 12 pesos per dollar. The dollar has ___________ and U.S. exports will be relatively ________ expensive for Mexican buyers.

-depreciated; less

-appreciated; more

-appreciated; less

-depreciated; more

e.There is an increase in the demand for Mexican bonds by U.S. buyers. We would expect to see the dollar ____________ in value and _________ Mexican exports being purchased.

-appreciate; fewer

-depreciate; fewer

-depreciate; more

-appreciate; more

Answer 1

a. -The rate at which one of the currencies can be converted into the other currency
(Nominal exchange rate is the rate at which one currency can be converted into another.)

b. -An increase the demand for dollars and increase the supply of euros
(As German companies invest in US then their demand for dollars will increase and they will be supplying euros so supply of euros will increase.)

c. -When U.S. prices are relatively low
(When prices of a country are relatively low then its exports increases.)

d. -appreciated; more
(As 1 US $ can buy more pesos so dollar has appreciated and peso has depreciated so US exports become more expensive for Mexican buyers.)

e. -depreciate; fewer
(Because of increase in demand for Mexican bonds, supply of dollar will increase so dollar will depreciate relative to peso and Mexican exports will become relatively expensive so their demand will decrease.)