Economics: The Exchange Rate and the Balance of Payments, Exams of Economics

Download Economics: The Exchange Rate and the Balance of Payments and more Exams Economics in PDF only on Docsity! Economics Chap 9 - The Exchange Rate and the Balance of Payments Exam Questions with Answers Foreign Currency - Correct Answers The money of other countries regardless of whether that money is in the form of notes, coins or bank deposits. Foreign Exchange Market - Correct Answers The market in which the currency of one country is exchanged for the currency of another. The Foreign Exchange Market is made up of... - Correct Answers 1. Importers and Exporters 2. Banks 3. International Investors and Spectators 4. International Travelers 5. Foreign Exchange Brokers (Specialist Traders) Exchange Rate - Correct Answers The price at which one currency exchanges for another currency in the foreign market exchange. Appreciation - Correct Answers A rise in the exchange rate. Depreciation - Correct Answers A fall in the exchange rate. Factors of Quantity of U.S. Dollar Demanded - Correct Answers 1. The exchange rate. 2. World demand for U.S. exports. 3. Interest rates in the U.S. and other countries. 4. The expected future exchange rate. Law of Demand for Foreign Exchange - Correct Answers The higher the exchange rate, the smaller is the quantity of U.S. dollars demanded in the foreign exchange market. Reasons Exchange Rate Influences Quantity Demanded - Correct Answers 1. Export effect 2. Expected profit effect Export Effect - Correct Answers 1. The larger the value of U.S. exports, the larger is the quantity of U.S. dollars demanded in the foreign exchange market. 2. Prices depend on the exchange rate. Expected Profit Effect (Demand) - Correct Answers 1. The larger the expected profit from holding U.S. dollars, the greater is the quantity of U.S dollars demanded in the foreign exchange market. 2. Expected profit depends on the exchange rate. The Quantity of U.S. Dollars Supplied Depends On - Correct Answers 1. The exchange rate. 2. U.S. demand for imports. 3. Interest rates in the United States and other countries. 4. The expected future exchange rate. Reasons Exchange Rate Influences Quantity Supplied - Correct Answers 1. Imports effect 2. Expected profit effect Imports Effect - Correct Answers 1. The larger the value of U.S. imports, the larger is the quantity of U.S. dollars supplied in the foreign exchange market. 2. Prices depend on the exchange rate. Expected Profit Effect (Supplied) - Correct Answers The higher the exchange rate today, other things remaining the same, the larger is the expected profit from selling U.S. dollars today and holding foreign currencies, so the greater is the quantity of U.S. dollars supplied. Demand for U.S. Dollars Changes When Changes In... - Correct Answers 1. World demand for U.S. exports 2. U.S. interest rate relative to the foreign interest rate (larger differential the greater demand) 3. The expected future exchange rate U.S. Interest Rate Differential - Correct Answers The U.S. interest rate minus the foreign interest rate. Supply for U.S. Dollars Changes When Changes In... - Correct Answers 1. U.S. Demand for imports 2. U.S. interest rate relative to the foreign interest rate (larger differential the smaller supplied) 3. The expected future exchange rate What makes the expected exchange rate change? - Correct Answers Fundamental Influences 1. Exports 2. Imports 3. Interest rate relative to foreign interest rate