Title: Exchange Rates and Purchasing Power
Course: TEST Course

Q: Indian businesses buying U.S. dollars to purchase American goods would
- Decrease the demand for rupees and increase the supply of U.S. dollars on the foreign exchange market.
- Increase the demand for rupees and U.S. dollars
- Increase the supply of rupees and the demand for U.S. dollars on the foreign exchange market.
A: Increase the supply of rupees and the demand for U.S. dollars on the foreign exchange market.

Q: If Philippine businesses are purchasing goods from the U.S. by buying U.S. dollars it would
- increase the supply of U.S. dollars and decrease the demand for Filipino pesos on the foreign exchange market.
- Increase the demand for U.S. dollars and Filipino pesos.
- increase the demand for U.S. dollars and the supply of Filipino pesos on the foreign exchange market.
A: increase the demand for U.S. dollars and the supply of Filipino pesos on the foreign exchange market.

Q: If Canada has a trade deficit with the US, then
- The demand for Canadian dollar should increase and the U.S. dollar should depreciate against the Canadian dollar.
- The supply for Canadian dollar should increase and the Canadian dollar should appreciate against the U.S. dollar.
- the demand for U.S. Dollar should increase and the U.S. Dollar should appreciate against the Canadian dollar.
A: the demand for U.S. Dollar should increase and the U.S. Dollar should appreciate against the Canadian dollar.

Q: What would happen if Mexico has a trade deficit with the US?
- The demand for Mexican peso should increase and the U.S. dollar should depreciate against the Mexican peso.
- The supply for Mexican peso should increase and the Mexican peso should appreciate against the U.S. dollar.
- The demand for U.S. dollar should increase and the U.S. dollar should appreciate against the Mexican peso.
A: The demand for U.S. dollar should increase and the U.S. dollar should appreciate against the Mexican peso.

Q: Which of the following represents an increase in the demand for U.S. dollars on the foreign exchange market?
- American tourists bound to Japan.
- Japanese firms selling goods to U.S.
- Brazilian investors purchasing bonds in the U.S.
A: Brazilian investors purchasing bonds in the U.S.

Q: Which of the following represents an increase in the demand for Japanese yen on the foreign exchange market?
- European tourists bound to Japan.
- Japanese firms selling goods to U.S.
- Brazilian investors purchasing stocks in Japan.
A: Brazilian investors purchasing stocks in Japan.

Q: What happens if stocks and bonds in Australia are more attractive than the ones in Thailand? ~formative
- The supply of the Thai baht would decrease while the demand for the Australian dollar would increase.
- The supply of the Thai baht would remain steady while the demand for the Australian dollar would rise.
- The supply of the Thai baht would increase as well as the demand for the Australian dollar.
A: The supply of the Thai baht would increase as well as the demand for the Australian dollar.

Q: If investments such as bonds and stocks in Great Britain are more attractive than the ones in South Korea, then
- The supply of South Korean won would decrease while the demand for the British pound would rise.
- The supply of South Korean won would stay the same while the demand for the British pound would rise.
- The supply of South Korean won would increase as well as the demand for the British pound.
A: The supply of South Korean won would increase as well as the demand for the British pound.

Q: If more foreigners purchase U.S. investments,
- the supply of dollars will increase and the dollar will depreciate.
- the supply of foreign currency will increase and the dollar will depreciate.
- the demand for dollar will increase and the dollar will appreciate.
A: the demand for dollar will increase and the dollar will appreciate.

Q: If Canada, one of the main US trade partners, goes through a recession,
- The Canadian dollar is likely to lose value relative to the U.S. dollar as Canadians import less from the U.S.
- The U.S. dollar is likely to gain value relative to the Canadian dollar because Canadians will import less from the U.S.
- The Canadian dollar is likely to gain value relative to the U.S. dollar as Canadians import less from the U.S.
A: The Canadian dollar is likely to gain value relative to the U.S. dollar as Canadians import less from the U.S.

Q: The foreign exchange market is different from other markets in the sense that
- there is no real product in the market.
- the supply and the demand are for all currencies combined.
- the supply and demand for currencies can change simultaneously.
A: the supply and demand for currencies can change simultaneously.

Q: Why is the foreign exchange market so different than other types of markets?
- The product in the foreign exchange market is not real products.
- All currencies are combined in their supply and the demand.
- Currencies behave differently as the demand and supply can change at the same time.
A: Currencies behave differently as the demand and supply can change at the same time.

Q: Many investors choose to invest in the US because interest rates in their country are lower than the ones in the U.S. As a result,
- The U.S. Dollar will depreciate as the demand for dollars decreases.
- The U.S. Dollar will appreciate as the supply of dollars decreases.
- The U.S. Dollar will appreciate as the demand for dollars increases.
A: The U.S. Dollar will appreciate as the demand for dollars increases.

Q: If the U.S. Dollar depreciates against the Swiss franc, a possible explanation would be
- the inflation rate is lower in the U.S. than in Switzerland.
- U.S. imports of products from Switzerland have decreased.
- American investors find better opportunities in Switzerland.
A: American investors find better opportunities in Switzerland.

Q: In April 2018, the exchange rate between the U.S. Dollar and the euro is 1 euro = $ 1.21. If in the following months, inflation in the euro zone is lower than the inflation in the U.S., then (other things equal) a possible exchange rate would be:
- 1 euro = $1
- 1 euro = $1.15
- 1 euro = $1.6
A: 1 euro = $1.6

Q: In May 2018, the exchange rate between the U.S. dollar and Britain is 1 pound = $ 1.35. If in the later months, Britain experiences higher inflation than the U.S. inflation, all other things being equal, what would a potential exchange rate be?
- 1 British pound = $1.5
- 1 British pound = $1.43
- 1 British pound = $1.22
A: 1 British pound = $1.22

Q: What is the term used when internationally traded goods have equal prices across countries?
- equitable pricing
- international pricing agreement
- purchasing power parity
A: purchasing power parity

Q: ________ equalizes the prices of internationally traded goods across countries.
- A floating exchange rate
- An international parity rate
- Purchasing power parity
A: Purchasing power parity

Q: What will happen to the Canadian dollar, according to the purchasing power parity, if an ounce of silver is priced at $17 in the US but can be purchased in Canada for CAD $32 with an exchange rate of $1 = $1.28 CAD?
- It is undervalued and should lose value against the U.S. dollar over time.
- It is in equilibrium with the U.S. dollar.
- It is overvalued and should lose value against the U.S. dollar over time.
A: It is overvalued and should lose value against the U.S. dollar over time.

Q: If an ounce of gold is priced at $1,000 in the U.S. but can be purchased in Mexico for MX $25,000 with an exchange rate of $1 = 20 MX$, then according to the principle of purchasing power parity, the Mexican peso is
- undervalued relative to the dollar and should lose value against the U.S. dollar over time.
- in equilibrium with the U.S. dollar.
- overvalued relative to the dollar and should lose value against the U.S. dollar over time.
A: overvalued relative to the dollar and should lose value against the U.S. dollar over time.

Q: If oil can be purchased in country A at a lower price than in country B, then citizens of country B will exchange their currency to purchase oil from country A and eventually,
- oil will become even cheaper in country A.
- the currency of country B will appreciate against the currency of country A
- the exchange rate will adjust to equalize the price of oil amongst countries.
A: the exchange rate will adjust to equalize the price of oil amongst countries.

Q: If oil can be purchased in country A at a lower price than in country B, then citizens of country B will purchase oil from country A to resell at a profit in country B. This process is called
- purchasing power parity.
- international trade agreement.
- arbitrage.
A: arbitrage.

Q: Calculating the gross domestic product for various countries using purchasing power parity exchange rate is
- more reliable as exchange rates fluctuations are included.
- less reliable as exchange rates fluctuations are included.
- more reliable as the impact of exchange rates fluctuations is reduced.
A: more reliable as the impact of exchange rates fluctuations is reduced.

Q: Purchasing power parity exchange rates are designed to
- make all exchange rates equal.
- allow trade to be beneficial for most countries.
- make the prices of goods across various countries equal.
A: make the prices of goods across various countries equal.