Question

If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar, a. both the U.S. dollar and the yen have appreciated. b. both the U.S. dollar and the yen have depreciated. c. the U.S. dollar has appreciated and the yen has depreciated. d. the U.S. dollar has depreciated and the yen has appreciated. If the U.S. dollar appreciates in the foreign exchange market, a. American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans. b. American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans. c. American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans. d. American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans. e. neither the price of U.S. exports nor the price of U.S. imports will change. A depreciation of one's currency means that a. the country's exports will become more expensive. b. the country's imports will become more expensive. c. the country's imports will become less expensive. d. it now requires less of this currency in exchange for one unit of another currency. e. it now requires more units of other currencies in exchange for one unit of this currency. Which one of the following would supply dollars to the foreign exchange market? a. the spending of U.S. tourists in Europe b. the purchase of U.S. automobiles by Japanese consumers c. the sale of U.S. automobiles to European consumers d. the purchase of an American electronics factory by a Japanese investor Which of the following would be most likely to cause an appreciation of the dollar relative to foreign currencies? a. higher domestic interest rates b. a reduction in the rate of inflation abroad c. a shift to a more expansionary monetary policy d. rapid growth of income in the United States Under a system of flexible exchange rates, which of the following would be most likely to cause a nation's currency to appreciate on the foreign exchange market? a. stable domestic prices while the nation's trading partners are experiencing inflation b. a decrease in domestic interest rates c. an increase in foreign interest rates d. a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices

Answer 1

1. Answer: d. US dollar has depreciated and Yen has appreciated.
Reason: Since on tuesday 125 yen can be bought against 1 US dollar and then 120 yen against 1 US dollar. It clearly shows the yen has appreciated in value and dollar depreciated.

2. Answer: A. American goods become expensive to foreign buyers and foreign goods become cheaper for Americans.
Reason: When there is a appreciation in dollars, Americans would find themselves spending less dollars to buy foreign goods and foreigners would find themselves giving more dollars to buy American goods.

3.Answer: B. The country's imports will become expensive.
Reason: When a currency appreciates, the domestic consumers will find themselves giving more money to buy foreign goods.