Which of the following statements is true of a flexible exchange rate system?O A. Market forces tend to undervalue a currency over time.O B.Market forces tend to push the exchange rate of a currency to market clearing levels over time.Market forces do not affect exchange rates between different currencies.O C.O D. Market forces tend to overvalue a currency over time.If the ratio of the dollar price of a U.S. toy to the dollar price of the same toy sold in China is greater than one, retailers in the United States shouldO A. should not buy the toys from both Chinese suppliers and U.S. suppliersO B. buy the toys from Chinese suppliersO C. buy the toys from both Chinese suppliers and U.S. suppliersO D. buy the toys from American suppliersWhich of the following is likely to be true of the nominal and the real exchange rates in the short run and in the long run if prices in two countries do notrespond to exchange rate changes?O A. The real and the nominal exchange rates between the currencies remain constant over time.O B. The real and the nominal exchange rates between the currencies move proportionally in the short run but not in the long run.O C. The real and the nominal exchange rates between the currencies move proportionally in both the short run and the long run.O D. The real and the nominal exchange rates between the currencies move proportionally in the long run but not in the short run.

A floating or flexible exchange rate is determined by the free forces of demand and supply of…

Which of the following statements is true of a flexible exchange rate system? O A. Market forces tend to undervalue a currency over time. O B. Market forces tend to push the exchange rate of a currency to market clearing levels over time. O C. Market forces do not affect exchange rates between different currencies. O D. Market forces tend to overvalue a currency over time.

Which of the following statements is true of a flexible exchange rate system? O A. Market forces tend to undervalue a currency over time. O B. Market forces tend to push the exchange rate of a currency to market clearing levels over time. O C. Market forces do not affect exchange rates between different currencies. O D. Market forces tend to overvalue a currency over time.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

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If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar and the Chinese yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the people who want to convert dollars to yuan are asking to convert $10 billion per day of dollars into yuan, while the people who are wanting to convert yuan into dollars are asking to convert 36 billion yuan into dollars. What will happen to the size of China’s official reserves of dollars? a. Increase. b. Decrease. c. Stay the same.
2. Suppose a currency is temporarily undervalued by a fixed exchange rate system, such as the international gold standard. Let that currency be the US dollar, and expressed in terms of British pounds. a. Show this disequilibrium using a supply and demand graph. Be sure to carefully label your axes. b. Clearly explain how one could profit by arbitraging in dollars using a bill of exchange. If it helps, you can use a numerical example.
Suppose that yesterday, the U.S. dollar was trading on the foreign exchange market at 0.75 eurosper U.S. dollar and today the U.S. dollar is trading at 0.80 euros per U.S. dollar. Which of the twocurrencies (the U.S. dollar or the euro) has appreciated and which has depreciated today?b) Suppose that the exchange rate for the Mexican peso fell from 15 pesos per U.S. dollar to 10 pesosper U.S. dollar. What is the effect of this change on the quantity of U.S. dollars that people plan tobuy in the foreign exchange market?c) Suppose that the exchange rate rose from 80 yen per U.S. dollar to 90 yen per U.S. dollar. What isthe effect of this change on the quantity of U.S. dollars that people plan to sell in the foreignexchange market?
If the exchange rate between the dollar and yen has risen, this would be consistent with:O. a) a rise in U.S. inflation.O. b) a rise in the Japanese interest rate.O. c) a fall in Japanese inflationO. d) a rise in the U.S. interest rate.
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If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should rise. a. True O b. False
8. Suppose that last year, the nominal exchange rate between the Japanese yen and the British pound was ¥150.0 per £1.0, one unit of Japanese output cost ¥1300, and one unit of British output cost £8.0.a. What was the real exchange rate between the U.K. and Japan last year, expressed as the cost of British output (i.e. – the quantity of Japanese output that exchanges for 1 unit of British output)? In which country were goods more expensive last year?
If a country’s currency is expected to appreciatein value, what would you think will be the impact ofexpected exchange rates on yields (e.g., the interest ratepaid on government bonds) in that country? Hint: Thinkabout how expected exchange rate changes and interestrates affect a currency's demand and supply
Consider avocado trading between you and nber. Your tree grows 100 this year and 10 next year.Nber's tree grows 20 this year and 50 next year.Let the equilibrium exchange rate be v. Consider a different scanerio: Your tree grows 100 this year and 10 next year.Nber's tree grows 20 this year and 60 next year.Let the equilibrium exchange rate be v'. Then v>v'. Hint: you can use your intuition to figure this out without any calculation. A. TrueB. False
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